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Wanted: House sticker shock

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For most people, a car is the second highest major ticket item after the purchase of a home. When we shop for a car, we fully expect to see a car sticker detailing the price of a vehicle and all its option subcomponents, taxes and fees. What if a new house was similarly held for sale? What if a house listed for sale had a sticker on the front door showing what truly is included in the asking price? And, why would the CEO of the Building Industry Association pose this question -- which is somewhat contrary to a sales pitch? Let’s put this matter to practice since we draw a comparison to the sales practices on a car lot. Today’s homebuyers easily amortize the equivalent cost of two to three new automobiles in government fees associated with their purchase of a single housing unit. Homebuyers need to understand what types of regulatory cost items are financed by the mortgage they take out to buy a new home. If homebuyers understood the magnitude of these government imposed exactions, it could dramatically shift attitudes towards growth and government’s big hand in the homebuyer’s pocket.

By and large, home buyers are completely unaware how much of their home purchase price has nothing to do with the actual house and the yard they buy. In fact, as part of their purchase, new homebuyers subsidize affordable housing construction, pay for art in public places, freeway lanes, clean air and clean water, and just about everything else that the General Fund paid in the distant past. We show a long list below which government incorrectly labels as “Developer Fees.” Nothing in the law compels us to make this proposed disclosure. Quite to the contrary, most lawmakers --even at the local level --would not favor this disclosure. And that is precisely the point! Builders pass on the cost of regulatory exactions – from $50,000 to $100,000 per house - to homebuyers as indirect construction costs, like all manufacturers of goods and services do. In some cases, government charges more in fees just to build a home than what buyers in other states pay for their home. These fees, often spread over dozens of categories, are levied to offset the impact development makes on “the community.” New construction is at a virtual standstill because it costs more to build a new house as compared to the resale value of near identical housing stock. Homes held for resale do not pay any developer fees, as these were originally paid when the building permit was pulled. With rare exception no government agency reduced any of its fees and exactions on new construction in the current no-growth environment. In fact, there is a dubious flirtation by government to raise fees as they struggle under diminished operating capital.

San Diego will consider doubling its linkage” fee charged to commercial and retail development. What is stunning is that the fee increase is for – affordable housing! In an era of declining home prices, the government finds it necessary to raise its affordable housing fee. Does anyone wonder why citizens feel their government is out of touch? This is a huge industry issue because the current high cost of government is a major obstacle to the recovery of the new housing markets. To show the vast extent California’s cities and counties have defined the public good and need, we list below what California’s new homeowners are paying --in the words of government --to pay their fair share. It is for the reader to decide if fairness is in play. Hopefully this approach will result in the right type of sticker shock; it is time people know why houses cost so much in California and why so little new construction is taking place. THE NEW HOUSE STICKER (Government Fee Section)*: A $ fee to provide subsidized housing to low / moderate income families; A $ fee to build new classrooms to avoid overcrowding; A $ fee for art in public places; A $ fee for clean air (i.e. global warming mitigation); A $ fee for cleaning storm water runoff; A $ fee for creating recycled water resources; A $ fee to build new roads, including highways and freeways; A $ fee to build new bridges and overpasses; A $ fee to add stop signs and signalization; A $ fee to build new fire stations; A $ fee to build new police facilities; A $ fee to build new hospitals; A $ fee to build new court facilities, including prisons; A $ fee to build new libraries; A $ fee to expand City Hall; A $ fee to build new parks; A $ fee to buy wild life habitat; A $ fee to protect named endangered species; A $ fee to buy open space; A $ fee to add trails; A $ fee to add water capacity; A $ fee to add sewer capacity; A $ fee for undergrounding utilities; A $ fee for public transportation. * This list is incomplete and not all of these fees are charged by a single jurisdiction.

Winckel is the president and CEO of the Building Industry Association of San Diego County.

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J David Rauch 3:27pm June 15, 2011

Hi Borre. I think you may be underestimating the cost of government exactions. Around 2001(?) a study was performed called the Smith Family House study. It was performed by an economist from the University of Chicago. I forget his name but the BIA San Diego should have a copy of the study. At that time the study showed that a typical new house built in Carlsbad California has over $100,000 in fees. It is now 2011 and I would be shocked if ANY of these fees have gone down or gone away. You have a great idea. What would it take for California homebuilders to band together to create a New Home "Government Cost" worksheet to be given to each new homebuyer?

Robert Sprague 11:32am June 15, 2011

You are correct. The list is woefully short. 20 years ago my due diligence fee check list was two legal sheets long and single spaced. It has gotten much worse in the intervening 20 years.