Did San Diego City Council make the right call increasing developer fees?
The San Diego City Council recently voted to raise developer fees to cover additional city workers, new technology and other efforts.
Critics argued the fees would only make housing less affordable and complained permitting has long delays, as well as suggesting the increased fees should come with increased accountability.
Under the changes, the permit cost for a 500-square-foot ADU rises from $1,484 to $2,885. For a 3,000-square-foot house, the fee rises from $4,925 to $6,640.
Q: Did the San Diego City Council make the right move increasing developer fees?
Economists
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: Hiking developer fees, without commensurate improvements in service, will increase housing costs. The near doubling of the ADU fee and the 34 percent fee increase for a house far exceed the inflation rate. Despite these hefty increases, there is no guarantee of timely service. A fee doubling should be linked to halving the average time to approval. Moreover, the disproportionate increase for ADUs puts a heavier burden on individuals and small developers.
Kelly Cunningham, San Diego Institute for Economic Research
NO: Development fees are already double, triple, quadruple municipalities outside California. Such business taxes almost always are not paid by developers but become a “pass through” tax paid in higher home and apartment prices. The “fee” is also part of the price on which annual property taxes are calculated … a tax on a tax. Moreover, increasing new building prices impacts all housing since new homes cost more to build, and values for older, already constructed properties rise as well.
Lynn Reaser, economist
YES: The city has little choice but to approve the increase. Fees are, in general, 12 percent below the cost of providing service. The department’s budget has climbed by $15.6 million to $128.7 million per year. Automating appointments and digitizing permits has cost money. Still, more efficiencies are needed. Although down from 538 required permits, 313 per project is still too high. Average hourly costs of $145 per worker also appear exorbitant.
Alan Gin, University of San Diego
YES: The city has made some improvements to speed up the development process, especially for affordable housing. Those improvements require the city to use more resources and must be paid for. Increasing the development fees will provide the necessary resources. But developers are correct that there needs to be some accountability by the city to meet standards for approving projects in a timely manner. If the city does so, the reduced approval times for developers should more than offset the increased fees.
James Hamilton, UC San Diego
NO: This will make San Diego’s permit fees among the highest in the country. The city says it needs higher fees to cover costs. But that begs the question, why are the city’s costs of approving permits so high? The answer is all the requirements and regulations that the city imposes. These add far more to the cost of construction than the cost of the permit itself. The city says it wants cheaper housing. But actions speak louder than words.
Norm Miller, University of San Diego
YES: If the fees result in expedited approvals, elimination of double jeopardy reviews and assistance with coordinating multiple agency reviews, then the time savings will make the fees worthwhile. Otherwise, in the short term, they simply raise unit costs. In the long run, land prices should decline as the residual recipient of supportable development value. More use of AI software by the city (wishful thinking) could also help instead of simply adding more city reviewers.
David Ely, San Diego State University
YES: It is reasonable for the City Council to conclude that additional resources are needed to improve the approval process for new housing. Given the significant need for additional housing in San Diego, higher fees that result in faster approvals and more new housing over time can be justified. However, the council should track the performance of the Development Services Department and insist that the additional resources are being used in ways that expand housing.
Executives
Phil Blair, Manpower
YES: If the fees pay for additional expedited services for developers then it is a valid increase. But if the money goes into general services then the increase would be very unfair to homebuyers and renters, who end up paying the developer fees and getting no benefit. It is naive to think “developer’s fees” are not passed on to homeowners and renters.
Gary London, London Moeder Advisors
NO: Permit costs and delays are serious impediments to the efficiency and costs of delivering housing. Fees are high because the city wants to recover its costs to benefit taxpayers. Fair enough. But the primary culprit of high housing costs is the price of land, nurtured by the scarcity of developable properties. The city would be better served by focusing on ways to cure that problem, such as reducing minimum lot size requirements.
Bob Rauch, R.A. Rauch & Associates
NO: There are often long delays in securing permits. As requested by the San Diego Regional Chamber of Commerce, any increases should include caps on approval times and refunds for delays. I oppose any increases because higher fees can raise construction costs and create disincentives for developers. Further, if we can operate the city as a business rather than a government bureaucracy, it will be a win-win.
Chris Van Gorder, Scripps Health
NO: The city and state need to decide what they really want to accomplish. Adding tax and fee-supported staff will cost more every year with compensation and benefits. If more affordable housing really is the goal, the city and state should be looking to streamline regulations, reduce the bureaucracy and lower costs. They should not be increasing costs that will slow the growth in home building, including building affordable housing.
Jamie Moraga, Franklin Revere
NO: These higher costs will be passed on to the end user, which contributes to an overall lack of affordability and creates a desire to move to more affordable cities. Instead of increasing fees based on limited data, the City Council should look at ways to decrease the cost of housing by streamlining infrastructure and implementing process improvements. It’s the wrong time to increase fees without reducing red tape, streamlining approval processes, and providing increased accountability.
Haney Hong, San Diego County Taxpayers Assoc.
NO: While the city’s recent efforts to speed up the permitting process have been great, adding developer fees chips away at the progress made. The real issue is the cost of the bureaucracy. Has the city explored using AI and machine learning tools to shrink department sizes and speed up reviews? What are we doing about restructuring public pensions? If armed forces service members are on an entirely new retirement program, why not for city bureaucrats?
Not participating this week:
Austin Neudecker, Weave Growth
Ray Major, SANDAG
Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020
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