How Cities Use Government Housing Subsidies for … Parks and Roads?
Across the state of California, cities, school districts, and utility agencies levy “impact fees” on new housing construction to pay for roads, parks, sewers, and other public services. These fees are often applied equally to both market-rate and government-subsidized affordable housing projects.
But subsidized affordable housing projects depend on limited state and federal funding, so every dollar spent on fees is one less dollar available to build housing.
In the “Assessing the Cost of Impact Fees on Affordable Housing: An Analysis of Low-Income Housing Tax Credit Projects in California,” Carolina Reid, Leslye Corsiglia, and Ben Metcalf of the Terner Center for Housing Innovation analyzed the financial burden of local fees on subsidized housing.
Key Takeaways:
- Highest fees on family units: Local fees add an average of $19,806 to the cost of each new affordable housing unit, with family-sized units hit hardest at $24,054 per unit, and some projects facing charges exceeding $30,000 per unit.
- Minimal revenue for cities: The cumulative annual cost of $300 million is enough to fund an additional 1,250 affordable homes each year — yet among cities with LIHTC developments, fees account for only 1.1 percent of average total city revenues.
- Large savings from waivers: Fee waivers deliver dramatic savings when they happen — one Palo Alto development received $76,000 per unit in relief — yet only 61 out of 691 projects reported any fee waivers, deferrals, or reductions.
The researchers analyzed 691 LIHTC new construction projects awarded tax credits between 2020 and 2023. By examining California Tax Credit Allocation Committee applications, the team identified the total fees paid, as well as those waived or deferred by local jurisdictions and other public entities. They also analyzed a random sample of 50 projects to itemize specific costs, such as parks, schools, and utility fees.
The data reveals how local fees impact different types of housing and jurisdictions:
- Parks and water drive the tab. Family housing bears the steepest burden at $24,054 per unit, compared to $19,133 for senior housing and $13,810 for special needs housing, largely because fees are often calculated by square footage and family units are larger. In a sample of 50 projects, parks and recreation fees and water and sewer charges together account for about 35 percent of total fees, with some projects facing parks and recreation fees alone above $25,000 per unit.
- Suburban cities charge the most. Although these fees total $1.2 billion over four years, they represent only 1.1 percent of average total city revenues among cities with LIHTC developments, suggesting that waiving them would have a minimal impact on most municipal budgets. Suburban and exurban jurisdictions with newer housing stock and smaller populations impose the highest fees, often using affordable housing projects to fund significant new infrastructure, such as roads and utility lines.
- Few projects get relief. When cities do waive fees, the savings are substantial. Palo Alto’s Mitchell Park Place saved $3.8 million through a $76,000-per-unit waiver, and Indio’s Villa Hermosa Apartments saved 6.4 percent off total development costs. Yet only 61 of 691 projects reported any relief, and the documented savings of $39.2 million represent a fraction of the $1.2 billion in fees paid. The study notes this count likely understates the true number of waivers needed for development.
To lower costs, the State should provide a clear legislative exemption for all deed-restricted homes to low-income households, increase scrutiny during Housing Element reviews by treating impact fees as an “undue governmental constraint,” and consider a bond measure to fund the Infill Incentive Grant Program so jurisdictions can cover infrastructure costs without taxing affordable housing. Additionally, the study proposes a pathway for developers receiving state funding to transfer land to the State in exchange for a 99-year lease, triggering state sovereignty over local fee requirements. The researchers also recommend that the California Tax Credit Allocation Committee consider awarding more competitive points to projects in jurisdictions that waive or reduce fees.
Reforming local development fees could help lower development costs and expand the supply of much-needed affordable housing.