What's at stake:
The Supreme Court's decision to allow developers to more easily challenge impact fees could cause cities to think twice about what they charge for public infrastructure related to new housing developments. This could potentially lead to a reduction in fees, which developers argue have been driving up housing costs and hindering affordability.
But don't expect an affordable housing renaissance just yet – as one expert put it, the court's ruling is no silver bullet, and a complex web of factors will continue to drive up the cost of housing.
Last September, senior officials at the city of Fresno warned that if developer fees weren’t levied, they would have to fund suburban sprawl development from their general funds.
One developer took on the challenge at a city council meeting and successfully had developer fees waived for 12,000 homes – burning a $2 million hole in Fresno’s general fund.
Now, a recent U.S. Supreme Court case offers developers a new avenue to challenge the impact fees cities impose, often on far-reaching developments at the edges of suburban sprawl.
The case, originating in El Dorado County, centered around the constitutionality of “impact fees” –charges added to new construction projects to offset their impact on local infrastructure. The plaintiff argued that the county failed to prove the $23,420 fee accurately reflected the toll his small project would take on local roads.
The Supreme Court’s unanimous ruling on April 12 opens the door for developers to challenge city fees they believe are too high.
Mike Prandini, head of the Fresno/Madera Building Industries Association, expressed optimism about the ruling.
“This may get people to think twice about how they make those calculations,” Prandini said, referring to how cities estimate developer fees.
Prandini acknowledged that challenging fees in court is an uphill battle, but said he remains hopeful that the case will prompt “more serious discussions” with cities about how developer fees are estimated.
However, housing policy experts caution that the ruling is unlikely to significantly impact housing affordability in the near term.
“This is not going to lead to a huge reduction in impact fees,” said Bill Fulton, former director of the Kinder Institute for Urban Research at Rice University. “And I don’t think this is going to make a fundamental difference in whether we’re building enough housing, or affordable housing.”
Fulton pointed to other factors, such as parking minimums and inflation for building materials, as major bottlenecks in making affordable housing profitable for the private sector. “Impact fees are one piece of the puzzle,” he said.
“Lowering that will make projects marginally more feasible, but you have to do a lot more to make a project feasible.”
In Fresno, city officials have warned that without proper developer fees, sprawling development often ends up costing the city more than it generates in property tax revenue, stretching budgets thin and diverting funds from essential services.
Reports from the Berkeley Terner Center suggest that the primary factors responsible for California’s housing woes are rising construction costs, high interest rates, tightening financial requirements, and relatively flat or declining rents. According to the center’s 2023 report, “it has become increasingly difficult to get projects to pencil in many parts of California, including the Bay Area, Sacramento, and Los Angeles.”
As cities and developers navigate this new legal landscape, Fulton believes the most likely beneficiaries will be the consultants who help create developer fees for cities.
“Is it going to lead to lower impact fees or just more studies for consultants?” he questioned. “I’m guessing it’s the latter.”
How does Fresnoland have a story that relates to the cost of housing without mentioning the impact of zoning and density limits on housing costs? It’s certainly less of a problem in the greater Fresno area than in the coastal regions, but it still restricts the development of new multifamily housing in particular in the Fresno area.