Khamis: The cost of housing development and the housing crisis

To really understand affordable housing in California, we must take a step back and take into consideration the ever-increasing cost and time-consuming regulations for builders throughout the state.

We have all heard about the growing cost of lumber, the shrinking of a qualified construction labor force and the steadily increasing cost of land, all factors driving up the price tag for construction. In addition, builders say that layer of regulations like CEQA, consumer protection laws and increasing fees have greatly contributed to the costs of building in the Bay Area. Strategies to address the lumber shortage and training deficit are being discussed, and over time, the costs associated with these factors will resolve themselves.

However, there is no political motivation to amend flawed regulatory laws and reduce debilitating fees.

While many housing affordability advocates say these fees are necessary, they often drive up cost or drive away development, achieving the opposite result.

While chairing a committee on planning and building at the city of San Jose, I had the opportunity to delve deep into the development costs imposed by the city and I began to understand how home prices were being driven up by more than just tangible materials and labor costs.

And, while many fees seem justifiable when proposed, the sum of all regulatory fees creates a significant impediment to producing housing. For example, in San Jose, there are park fees, traffic impact fees, low-income housing fees, and administrative fees imposed by the Planning & Building Department itself, all contributing to the rising cost of building a housing unit.

According to a study on the cost of fees from Berkeley’s Terner Center for Housing Innovation, “Development fees are extremely difficult to estimate, are usually set without oversight or coordination between city departments, and the type and size of impact fees levied vary widely from city to city. Individual fees add up and substantially increase the cost of building housing. Projects are often subject to additional exactions not codified in any fee schedule.”

The study also cited that development fees for multifamily housing range from a low of $12,000 per unit in Los Angeles to $75,000 per unit in Fremont. Fees for single-family housing range from $21,000 per home in Sacramento to $157,000 per home in Fremont, over five times as much. When adding up these fees, the total can account to anywhere from 6 percent to 18 percent of the median home price.

In a recent interview with housing developer Mark Robson, president of Robson Homes, he stated that development fees amounted to $130,767 per unit for his most recent 20-unit development project in San Jose. These single-family units averaged 2,000 square feet in size and took more than 2 years to gain approval.

In San Jose, development fees were so high that the city had to reduce them several times to motivate builders to build high-rise homes. We reduced parking requirements, cut park fees in half and eliminated the low-income housing fees temporarily. We did the same for Accessary Dwelling Units (ADUs) and thankfully developers are now producing both types of housing. So clearly, adding new laws and new fees does not encourage housing development and clearly exacerbates the unaffordability of housing.

We must look for ways to reduce fees and regulations if we ever hope to alleviate the housing crisis.

Johnny Khamis is a former San Jose councilmember representing District 10. He now works as a public relations consultant for the Santa Clara County Association of Realtors (SCCAOR).