The construction industry has weathered the most serious economic downturn since the Great Depression, whereby new home permits plummeted to historic lows culminating in the loss of thousands of good paying construction jobs. Yet, in the face of favorable news regarding home values and permit activity, rising government fees and mandates threaten this tenuous drive toward economic recovery.
The construction industry finds itself battling with cash-starved jurisdictions seeking to backfill revenues lost from the dismantling of redevelopment agencies led by Gov. Jerry Brown and the state legislature. This billion-dollar raid on local governments has cities hiking impact fees in amounts never seen before that can turn an economically viable project on its ear virtually overnight.
The most notable thus far is San Diego's linkage fee. On a partisan vote in early December, the San Diego City Council voted 5-4 to raise the fee as much as 500 percent, depending on the type of commercial, industrial, office or retail project. No business in San Diego is untouched by the increase, including nonprofits, hospitals and churches.
There was such outrage at the lack of concern for its negative economic impact that a broad coalition, including the BIA, lead an effort to repeal the increase. Just this week, a referendum seeking to overturn the council vote qualified with the successful gathering of more than 50,000 signatures that will force the City Council to either rescind the increase or send it to the voters for a final decision.
The linkage fee comes on the heels of a doubling of the inclusionary zoning in-lieu fee in San Diego that tacks on $20,000 to the cost of an average size new home built in the city. The downtown area is no exception, as Civic San Diego debates fee increases of at least 86 percent that could be imposed by July.
San Diego is not alone in the drive for higher government fees. The city of Carlsbad is considering a $20 per square foot fee on all new rental construction in the name of affordable housing. Such a fee could kill rental unit construction in Carlsbad and is legally questionable at best, since court cases have declared such fees on rental units illegal because they violate state law under the Costa Hawkins Act. One such case is now before the California Supreme Court.
The whopper of a fee comes at the hands of the Regional Water Quality Control Board, which issued a new stormwater permit in May 2013. The city of San Diego just announced to investors that the cost to the city could hit $4 billion to comply with the new regulations. According to the city report, a 1,000 percent increase in the city’s stormwater fee may be needed.
All of these costs make it harder for projects to pencil -- especially those working on razor-thin margins leading to fewer permits and even fewer jobs. The San Diego region continues to come up short in its housing needs as the San Diego Association of Governments concludes that at least 10,000 units a year are needed just to keep pace with population trends. San Diego has not seen such numbers since 2006 and permit activity last year missed the mark again by nearly 2,000 units.
Local governments must recognize that their actions result in dual negative consequences that impede job creation and housing opportunities. We will never truly foster multiple housing options as long as local governments make it harder and more expensive to offer them.