Two California cities offer homebuilders lower development fees to help boost construction and local economies

Audrey Dixon

Audrey Dixon

Aug 9, 2011 – Industry Intelligence

LOS ANGELES , August 9, 2011 () – Two California cities, Oakley in the north of the state and Lancaster in the south, are cutting development fees for homebuilders in an effort to boost their economies, according to local newspaper reports.

Oakley City Manager Bryan Montgomery said that, during the past six years, the city in northern California’s Contra Costa County had seen a significant drop in the number of new homes being built, reported the Contra Costa Times Aug. 3.

Although home prices have plummeted, development fees have continued to rise, placing press on builders' profit margin and serving as a deterrent to pursuing projects, Montgomery said.

The industry reportedly uses a rule of thumb that, once development fees exceed 15% of a home's sales price, it's no longer practical to build. Shea Homes VP Don Hofer said development fees at one community in the Oakley area had risen by 73% in six years.

Oakley approved 626 building permits in 2005, but that dropped to 217 in 2007, and in the first four months of 2011 only 11 permits were approved.

In response, the city has now cut the fees developers pay to it by about 50%--approximately US$14,400 per house, according to the newspaper. The cuts will run until June 30, 2013.

Meanwhile, further south in the Antelope Valley in Los Angeles County, Lancaster City Council voted last week 4-0 to waive 25% of its development feels in existing projects, according to The Building Industry Association of Southern California.

That fee reduction is expected to save homebuilders nearly $2,800 per home, and the city has urged other communities in the region to follow suit, The Signal reported Aug. 6.

Lancaster Mayor Rex Parris said income to the state's cities had dropped as a result of lower property and sales taxes. Although some jurisdictions had responded by raising fees, Parris said Lancaster's approach had been to create and retain jobs through lowering developers' costs.

California's economic problems have shrunk homebuilders’ profit margins so much that development fees can determine whether the companies can make a profit, said Parris.

The primary sources of this article are The Signal, Valencia, California, Aug. 6, 2011, and the Contra Costa Times, Walnut Creek, California, on Aug. 3, 2011.

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