Huge, Hidden Development Fees Add To Bay Area Construction Costs

New Housing Construction
Photo credit Bob Butler/KCBS Radio

Bay Area officials say they are doing everything they can to build more housing. But the cost to build in the Bay Area keeps going up.

Never mind the cost of the lumber, labor, or land. First, developers need to pay for a permit. Then there is the transportation, parks, infrastructure and housing impact fees. When it is all totaled up, the fees alone for a single family unit in Oakland cost $65,000. Fees in San Francisco are more than double that, at $165,000. In Fremont, fees are more than  $170,000.

“The impact fees are usurious,” said Governor Gavin Newsom. “I’ll say it. And we gotta call that out.”

“I wish they would go away,” says Mike Ghielmetti, founder and president of the Signature Development Group in Oakland. “I think it would be better. It would incent more developers to create more housing.”

Ghielmetti estimates it costs him $600,000-$700,000 to build an apartment in Oakland. In San Francisco, it is closer to $1 million per unit.

“You’re either producing less housing or you’re forced to produce, in essence, more expensive housing to offset the fee,” says Ghielmetti. “That limits the supply of housing. And the biggest issue in the last 35 years in the Bay Area has been a lack of supply.”

Newsom has estimated that California needs to build 3.5 million more units by 2025 to end the housing shortage.

Development fees have gone up as cities have lost out on other ways to fund affordable housing projects.

Oakland Mayor Libby Schaaf attributes the rising fees to Proposition 13, which limits property tax increases, and the loss of redevelopment agencies under ex-Governor Jerry Brown.

“That was the major source of affordable housing funding that got taken away from cities. And we are really still trying to make up for that," said Schaaf.

Oakland’s fees have generated more than $20 million to fund affordable housing projects.

“While developers are gonna complain about it – of course they’re gonna complain – they are at a rate that hasn’t dampened production,” said Schaaf, who argues that cities need to find the sweet spot of bringing in funding for housing without discouraging developers.

“How Oakland structured its impact fees is working," she said. "We’re seeing a huge increase in construction. We’re seeing those fees flow in where other cities like San Francisco have maybe structured their fees cumulatively so high that construction is really slowing down.”

It is largely up to cities to set their own development fees, which has created a wide disparity in their and how they are levied across California. The confusion and high cost in some cities can stifle development.

Newsom said the state needs to standardize impact fees and make changes to Prop 13 in order to spur development while ensuring that cities can fund their own housing projects.

“That’s a bank shot of sorts because it makes it particularly more complex,” he said KCBS Radio. “But I think it’s so fundamental and foundational in terms of addressing the affordability issue in the state.

“You can’t build an $800,000 affordable housing unit," he said. "That’s laughable. And that’s what you’re doing here.”

Reported by Doug Sovern. Written by Jessica Yi.