Impact Fees

A final revenue-neutral technique for a community to gain resources that can be allocated to develop affordable housing is the use of impact fees and trust funds. Impact fees are usually charged on the development of some type of real estate that is in high demand. When applied to affordable housing, the proceeds of these fees are placed in a special account or trust fund with the usage of that trust fund limited to the development of affordable housing. For example, during the office market boom of the 1980s, both San Francisco and Boston imposed fees on new office development. The fees received were placed in funds used to subsidise the development of low-income housing.

Whilst other schemes began to replace impact fees as a mechanism for funding affordable housing over the past two decades, they have had a resurgence in some jurisdictions following legal challenges to inclusionary zoning, such as in California. In 2009, a developer successfully challenged the legality of an inclusionary zoning scheme on the basis that the requirement would have the effect of dictating future rents (associated with the affordable housing contribution), which was found to be invalid (Palmer/Sixth Street Properties vs. City of Los Angeles) (Micallef 2011). To levy the impact fee, ‘nexus’ between a development and the need for affordable housing must be demonstrated, which is done by estimating the number of additional low-income workers requiring housing that would be generated by a new development. All multi-storey housing units are able to be captured via this calculation which estimates the likely jobs created by residents of the new development. The fees are then modified to consider viability issues. The cities of San Jose, Napa, Berkeley, San Carlos and Counties of San Luis Obispo and Mateo now have impact fees in place to generate funds for affordable housing provision. The fees range from around $3,800 per residential unit (Napa) to around $20,000 per unit in Berkeley (Micallef 2011).

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