A recent editorial by the Sacramento Bee says unlimited fees on housing have no impact on its development or affordability. The Bee says that the efforts of local governments in the Sacramento area to reduce those fees (aka “construction costs”) so that more housing can be built isn’t really good policy and should be at best temporary.
Sheesh. I guess the Bee wants us to believe that costs don’t matter. Most Californians know better. They know, for example, that when gasoline goes from $2.50 a gallon to $2.85 a gallon it costs more to truck produce to the supermarket and, therefore, aren’t surprised when the price of lettuce goes up 15 percent.
Taking the analogy a step further, if enough customers start eating less salad, because buying lettuce for 15 percent more money doesn’t fit in their budgets, the supermarket’s lettuce orders go down, making the marginal cost of the gas hike much bigger for the supplier. If the cost gets too high, the supplier may not be able to economically truck the lettuce to the supermarket at all.
And that’s essentially what happened in the Sacramento-area community of Rancho Cordova where impact fees on new homes rose to about $100,000 a few years ago. At that time, the fees were covered by homebuyers willing to pay $350,000 for a newly constructed house – a price that included the City’s surcharge. As the economy began to turn sour and buyers began to retreat, prices in Rancho subdivisions had to drop considerably, making the $100,000 fees a substantially higher cost to builders and buyers, alike. When homes hit $200,000 and fees stayed the same, the burden became too great for either builders or buyers to bear and homebuilding stopped.
Too bad for builders? Sure. Unemployment in the construction trades is now running as high as 70 percent and dozens of homebuilding companies in California have shut down altogether. Too bad for buyers? You bet. No new stock means prices rise too quickly when things do turn around and area home-seekers are forced to travel farther away from the Sacramento job center to find housing they can afford. Too bad for Rancho? You better believe it. According to a study done a couple of years ago, local governments earn an average of $3,000 each time a new home gets built and about $775 a year for 10 years. That’s real money that Rancho doesn’t get. I bet not many laid-off City employees know that.
Truth is, more and more local governments are seeing the wisdom of development in their communities and are systematically rolling back fees. Not only does new housing help pay the bills, it brings in new fire stations, schools, community centers, hiking trails, parks and baseball fields. Indeed, new housing subdivisions produce more open space and protected land than they consume – up to three times as much. Local policies that promote those outcomes deserve applause from the Bee’s editorial page not scolding.
Which got me thinking: I wonder if the Bee has thought about the marginal cost of high fees on new homes if they mean there are fewer front doorsteps in the area? Makes it tough to deliver newspapers, doesn’t it?
Timothy L. Coyle is a Senior Vice President of the California Building Industry Association. To read more, vist Fox & Hounds Daily.