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The Real Deal Los Angeles

Rising housing development costs bad news for LA’s housing crunch: report

The city has no formal process of estimating development fees in advance
By Hannah Madans | March 19, 2018 11:00AM

(Credit: Wikimedia Commons)

Housing development fees, which cities impose on builders to help offset the impact of construction, have been steadily rising in California compared to the rest of the country, which has seen an slight decrease.

A University of California Berkeley study found that while L.A.’s development fees were lower than most of the six other cities studied statewide, the rising costs will only exacerbate the city’s affordable housing crisis.

Conducted by Berkeley’s Terner Center for Housing Innovation, the study found that development fees have climbed 2.5 percent in California, while nationally they decreased a little over 1 percent, from 2008 to 2015. It analyzed Berkeley, Oakland, Fremont, Los Angeles, Irvine, Sacramento and Roseville.

“As the supply of housing in the state continues to fall well short of demand and housing costs continue to skyrocket, the structure and total cost of development fees has emerged as an area ripe for policy attention and reform,” the study found.

The total development fee for a 100-unit multifamily residence was about $1.2 million, a hefty sum but actually the lowest of seven cities statewide, though fees were not fully estimated for Berkeley.

Meanwhile, the total development fees estimated for single-family developments in L.A. was the second lowest of the seven studied. For a single-family complex of 20 homes, the fee was about $642,000. That’s higher than in Sacramento, but lower than the five other cities analyzed. The development fees averaged about 6 percent of the value of each house.

Because L.A. has no formal process of estimating development fees in advance, the study found that it was difficult for developers to estimate the cost of a project. Cities imposed development fees to pay for services needed to build new housing or to offset the impact of growth on the community.

“Development fees add to the cost of construction, reducing housing affordability and hindering housing development,” according to the 27-page report. “Even affordable housing projects are sometimes subject to impact fees that raise the cost of building. In addition, the way that cities structure their fees can incentivize fewer, larger units, reducing the amount of housing built.”