Newsom signs bill limiting development fees to spur affordable housing construction

By John Ramos

Gov. Gavin Newsom joined local officials in Oakland on Monday to sign legislation aimed at encouraging more home construction across California.

For years, state leaders have pushed cities and counties to approve more housing by easing zoning and land-use restrictions. With Assembly Bill 179, Newsom is targeting another major obstacle developers say has driven up the cost of building affordable housing: local development impact fees.

When it comes to the housing shortage, California has dug a huge hole for itself over the last half-century, and Newsom said it was no accident.

“It was intentionally designed,” he said.  “It wasn’t by chance.  It wasn’t by happenstance.  It was designed NOT to build.”

As the state works to reverse decades of underbuilding, Newsom said excessive impact fees have become one of the biggest barriers to new housing.

“You’ve got some cities and counties…these impact fees are comical,” Newsom said. “They’re outrageous. It makes it, quite literally, impossible to develop an affordable unit.”

It wasn’t impossible for Efren Carillo to develop an affordable senior complex in Santa Rosa two years ago, but he said the fees he was charged certainly limited the size of it.

“It had an average of $40,000 to $60,000 per unit on impact fees,” Carrillo said. “That is money that can be going into building additional housing and residential units for working-class people.”

The project was supposed to contain three phases. Because of rising costs, only one phase was ever completed, and the land next door that was supposed to be Phase Three continues to sit vacant.

Impact fees were originally created to help local governments offset the effects of new development. Over time, however, many developers have argued they evolved into a costly revenue source used to fund projects such as parks, street maintenance and other local priorities that aren’t directly tied to housing construction.

Under the new law, cities and counties seeking state housing funds will have to waive those fees.

“If you want state funding, you want a dollar, you want $200, you want $200 million…no local impact fees,” Newsom said.

State Sen. Jesse Arreguín, one of the bill’s authors and the former mayor of Berkeley, said local governments must stop undermining California’s efforts to build more housing.

“One of the things I hear often from my constituents is, ‘The state’s spent a lot on homelessness, but I don’t see an actual improvement,'” Arreguín said. “And that’s what this bill today will do…address the issue of impact fees to make sure that we are maximizing the state’s investment in funding to get homes built now.”

But that leaves cities and counties with a hole of their own: a budget hole. How are they supposed to deal with the loss of impact-fee revenue that they have been relying on?

Stephanie Picard Bowen, deputy director of the North Bay advocacy group Generation Housing, said she thinks that question ignores the absence of all the housing that Isn’t being built because of the high cost.

“Right now, they can only charge on projects when they happen,” she said. “So, in a market when projects aren’t penciling and we’re not getting any housing, they’re not collecting fees anyway. And so, to us, what we would argue is, if the option is no fees but some housing, and no fees and no housing, I think I know which is the better option.”

No one thinks this will suddenly result in a flood of new housing. There are many market forces preventing that right now, but when it comes to impact fees, Newsom is subscribing to the old saying: “The first step to getting out of a deep hole is to stop digging.”