Developers in Oakland will soon have to pay affordable housing impact fees on housing projects for which a building permit application is submitted on or after September 1, 2016.
The Oakland City Council recently established affordable housing impact fees for individual projects according to the impact fee zone in which the proposed development is located. Thus, fees vary by individual sectors’ needs throughout the city.
Fees are calculated with the following formula:
impact fee = fee per housing unit X additional housing units
The ordinance defines “additional housing units” as the net number of units added to a parcel of real estate, less any units authorized by the city for remodeling, demolition or relocation.
Combined with standard capital impact fees and transportation fees, affordable housing impact fees range by zone and project type (multi-family, single family or townhome) from $4,600 – $8,500. However, Zone 3 — which comprises East Oakland — will only start charging affordable housing impact fees for building permit applications submitted on or after July 1, 2018.
Payment of the impact fee is to be made in two installments:
- 50% prior to the city’s issuance of a building permit; and
- 50% prior to the city’s issuance of a certificate of occupancy.
To avoid paying the fees, developers may allocate low- and moderate-income units in the proposed project or at another local site.
Additionally, developers may file applications for reductions, waivers or appeals in special circumstances, such as:
- absolute infeasibility of the fees and alternatives (unlikely); or
- the project does not create a need for below-market units.
Failure to timely pay fee installments results in:
- withheld building permits;
- special assessment liens filed against the property;
- non-issuance of certificates of occupancy;
- accrued interest from the date the fee was supposed to have been paid; and
- civil penalties, in addition to the prior recourses.
Developers who choose the alternative inclusion of below-market units who then fail to comply will be charged 150% the amount of the waived fee.
Dear Developers: Please don’t leave
The anticipated affordable housing impact fees paid to the city will be deposited into Oakland’s affordable housing trust fund. The city intends to use the fees to fund further restorative measures to balance its severely strained low- and mid-tier housing markets. Oakland desperately needs the revenue, having declared a state of emergency in April 2016 due to dire housing conditions.
Here’s the catch: Oakland won’t receive much funding if developers abandon the city and build elsewhere.
High fees are a quick deterrent for developers looking to pad their bottom line. Depending on the fee imposed in accordance with the zone in which the project is built, developers will need to add up to $8,500 per unit to their project budget. For example, a proposed multi-family project with 150 units in Zone 1 — set at $7,000 per unit — will cost a developer a total of $1,050,000 in impact fees.
Alternatively, developers may choose instead to build exclusively in the fee-free Zone 3 before 2018 — good for East Oakland residents, but earning no funds for the city’s housing measures.
Bay Area residents are already nervous about pushing out developers due to sluggish permitting processes and other new legislative costs. San Francisco recently passed an ordinance requiring new construction to have permanent solar energy systems; San Jose required new construction to allocate 15% of units for low- and moderate-income buyers. Thus, developers in the Bay Area ricochet pinball-style from city to city, looking for faster permitting and cheaper costs, only to bounce back from steeper and steeper fees and allocations.
The Bay Area cannot sustain itself without new developments to house residents of all income levels. Oakland’s altruistic intentions may cost its residents dearly when developers choose to forego hefty fees entirely in favor of sweeter prospects elsewhere.
Applying impact fees across the Bay Area
Consider this modest proposal: the Bay Area needs a regional zoning plan to level the playing field within all the cities around the bay.
Under such a regional zoning plan, cities can designate high-need zones where developers are able to obtain faster and cheaper permits — a process much more likely to help lower-income residents than existing escape routes available to developers through most rental ordinances and building codes. After all, large development companies can easily manage opt-out fees. To them, opt-out fees are but a small opportunity cost for constructing selective, expensive housing for elite buyers and tenants in a highly competitive market — simply the price of doing business.
A unified yet malleable regional zoning plan might counteract developers’ complaints by streamlining the permitting process in areas where residents will benefit most from new construction. A reduction of obstacles contending with developers’ desire to turn an expedient profit encourages more building in starving locales, a win-win for all. Once building increases and more low- and mid-tier residents find shelter, the Bay Area housing industry will stabilize, and residents long deprived of expendable income and saving power due to excessive costs of living will be able to start anew.
Although this sort of stabilization is yet a long way from realization — largely thanks to hindrances from obstructionist not-in-my-backyard (NIMBY) residents — the discussion of how to get there is accelerating. Action by Bay Area housing policymakers to reach a straightforward, widely applicable solution will grease the wheels.