California has the highest impact fees for homebuilding in the country
When property owners apply to the government for building permits, they’re often required to pay impact fees: fees meant to cover the strain additional buildings have on public resources like roads, sewers, schools, and parks.
There’s nothing wrong with properly set impact fees. But some local governments set impact fees that are excessively high or that aren’t related to the actual impact of construction projects. In addition to violating property rights, these improperly set exactions increase the cost of construction during today’s housing crisis, as a new Pacific Legal Foundation report reveals.
While this is a problem across the United States, California’s impact fees are much higher than anywhere else. Our report found that the average total impact fees for a typical U.S. home grew from almost $5,000 in 2004 to more than $9,000 in 2019. However, California’s average impact fee in 2019 was more than triple the national average, at almost $30,000. And it was much higher than the next-two-highest states: Maryland and Oregon charged the third- and second-highest exactions on average in 2019—nearly $13,000 and $17,000, respectively.
Average total exactions by state and locality, 2019. (From PLF’s report, How to Protect Property Rights from Improperly Assessed Exactions.)
When breaking this down by locality, the situation paints an even starker picture of how much higher impact fees were in California. The five cities with the largest average total impact fees in 2019 were all in California, and all exceeded $50,000. Ironically, the smallest exactions were found in California’s next-door neighbor, Nevada. Las Vegas and Mesquite had average total impact fees of $165 and $43, respectively.
While these fees end up being passed to the final homebuyer, the sticker shock is much worse than the fee itself. Research has found that impact fees raise the cost of construction by a multiple of the impact fee because there are administrative costs of compliance. For example, in California, the average total impact fee of nearly $30,000 in 2019 likely increased construction costs by more than $41,000. Although this may sound astronomical, it lines up with research from the UC Berkeley’s Terner Center for Housing Innovation, which found that, in seven urban and suburban California cities with strong development activity, impact fees added anywhere from 6 percent to 18 percent to the median home price.
In our report, my colleague Brian Hodges explains how homebuilders can tell if an impact fee has been improperly set. Brian details three indicators using the California case that he helped take before the Supreme Court (and win) in 2024, Sheetz v. County of El Dorado. The first indicator of an improperly assessed impact fee is if it is an outlier in comparison to similar impact fees elsewhere, Brian says. In the Sheetz case, George Sheetz paid more than $23,000 for a traffic impact fee to build a home on his property, which was significantly higher than the rest of the country. The second indicator is if the fee is applied broadly to building projects in an indiscriminate manner. For Sheetz, his fee was assessed from a set fee schedule that deemed all single-family homes to have the same impact on roads—regardless of the size of the house, its location, or other factors. The final indicator is if the impact fee shifts payment for pre-existing problems and problems caused by other development onto others. In Sheetz’s case, the county was making him and other homebuilders pay for a higher proportion of the costs of new roads than they should have been.
While impact fees have been higher than ever and increase housing construction costs in California and other states, there is hope. As Brian and I describe in our report, states can give property owners and builders an easier time defending themselves against exactions that are improperly assessed by local governments. PLF has a model bill for this, the Safe Harbor from Excessive Exactions Act. States can also strengthen enabling acts for impact fees, such as setting maximum fees that local governments can charge.
By following these steps, states can ensure local governments are properly assessing fees to pay for the impacts of building new housing while not unnecessarily hampering or driving up the cost of construction.
Read our full report, How to Protect Property Rights from Improperly Assessed Exactions.
