Development fees still hovering at housing bubble peak levels have made all but the most expensive new homes economically infeasible.
That was the conclusion of a presentation made by Jamie Gomes and Tim Youmans, both partners in Economic and Planning Systems, a land economics consulting firm with offices in Sacramento, to the El Dorado County Board of Supervisors Dec. 7.
Gomes and Youmans have become familiar faces in the county chambers, as local government has become increasingly dependent on third party forecasts and market analyses to help make the difficult decisions that boards, city councils grapple with in the current economic recovery.
Industry advocacy groups also get into the act. The current “El Dorado County Development Feasibility Study” was funded by the El Dorado Business Alliance.
Similar presentations are making the rounds in the region. The conclusion is always the same, said Youmans.
Permit fees jacked up during the housing bubble now comprise a bloated portion of the deflated cost of a new house. That fact, along with a lack of demand, has made moderate and low priced new housing impossible to “pencil out” for builders, according to Youmans. More than $100,000 of the cost of an otherwise modest $400,000 El Dorado Hills home is currently dedicated to “infrastructure cost,” roads, water, sewer, schools, fire protection and parks.
With roads mandated by Measure Y, EID already beaten bloody by angry ratepayers and many school and fire districts struggling heroically, recreation districts took a verbal beating Tuesday.
District 1 Supervisor John Knight accused the El Dorado Hills Community Services District of trying to build a “Taj Mahal” at developers’ expense, calling a one-time proposed spray ground — a common and popular kids amenity that enjoys nearly constant summer use in two other El Dorado Hills parks — a “water park,” and criticizing a proposal for a large administration building.
Until fees are reigned in, argued Gomes and Youmans, the housing sector and its associated good-paying blue collar jobs won’t return.
Fees need to follow construction costs and home prices … down, they said. Until they do, both residential and commercial construction will remain at a virtual standstill and the local economy will continue to languish.
The presentation describes how, up until the second quarter of 2007, a typical new $600,000 El Dorado Hills home supported $90,000 to $120,000 in fees to fund backbone infrastructure. That same home now sells for $400,000, but the fees haven’t changed.
Infrastructure burden is even worse in other areas of the county: 29 percent of a $340,000 Cameron Park home, 27 percent in Diamond Springs’ Oak Highlands subdivision and 19 percent in Placerville Heights, according to the ESP study.
Youmans called for “a new paradigm for public finance,” and said public agencies need to adjust their expectations about how much new housing can contribute to infrastructure.
“If infrastructure is important to the broader community, sometimes we may need to ask them to support it,” said Youmans.
“With tax increases?” asked District 4 Supervisor Ron Briggs.
“We used to do it that way, but we quit, and assigned almost all the burden of infrastructure to new development,” replied Youmans.
The economy will bounce back, he said, but home prices are unlikely to return to peak levels. “Some discussions are now calling call it a reset, not a recovery,” he said, citing a 2009 Bank of America proclamation that peak housing prices never reflected their owners buying power, but were driven by loose credit standards and misguided lender/borrower expectations that home prices would continue to rise.
Builders have already reacted, he said, tightening up land use plans, shrinking house sizes and leaving out many amenities standard just a few years back.
MJM Properties, which manages Angelo Tsakopoulos’ massive Promontory and Blackstone projects in El Dorado Hills, has taken a different tack, quietly lobbying to reduce Traffic Impact Fees for their 1,700-unit age-restricted Carson Creek project waiting in the wings.
The EPS presentation proposed an immediate reduction of fees and implementation of fee waiver programs as an economic development incentive.
EPS’ other suggestions include:
“Don’t kid yourself,” said District 3 Supervisor Jack Sweeney. “This is also about Measure Y. The big dark thing in the corner is the traffic impact fee, and how to pay for those roads it requires. The voters established this policy and I don’t’ believe they’ll ever do away with it.”
Earlier in the week, Sweeney asked DOT for clarification on how much road Measure Y requires. “The voters asked us to do away with (traffic) level of service D and F, but they didn’t tell us what that standard needs to be,” he said, wondering aloud if Measure Y requires medians, curbs and sidewalks.
Parker Development’s Government Affairs Director Kirk Bone told the supervisors he didn’t want the initiative to be perceived as an attempt to undo Measure Y.
“We just have to make the fees reflect reduced construction costs. When we put that (TIM) program up we had a billion dollar CIP. That was two or three or four years ago. Those things aren’t going to cost a billion dollars in today’s world.
“Frankly, with this (TIM) program as it is now, you aren’t collecting anything now,” he added. “There are huge regulatory problems out there that we can’t control. This is something we can do.
“Fee levels are driven by two things: what we want and how much do things cost,” Bone continued. “I’m not here to suggest that we change what we want, but that we adjust our estimates of what things cost.”
District 5 Supervisor Norma Santiago asked that any new fee calculation be sustainable, “So that when costs change we have the reaction built in.”
Placerville City Councilman Dave Machado suggested a fee deferral program as both local level economic stimulus and job creation. “There are tentative maps, both residential and commercial, just sitting out there at their lowest assessed value,” he said. “If you can figure out how to let the building community unlock the equity in those lots, you will unleash property tax revenue. The fees are just one time … property tax is a revenue stream that goes on forever.
“As elected officials, we need to lead this effort…. We can’t rely on state and federal stimulus programs,” he continued. “Other cities are simply slashing the fees, and calling it a deferral or reduction program. Find a mechanism to use the (future) property tax to pay back the CIP program.”
Machado also suggested requiring developers who request fee waivers to buy the majority of their supplies locally and hire local builders. He promised to propose a similar effort in Placerville.
Camino resident Sue Taylor saw the proposals in a different light. “This is about developers putting the impacts of their development on the existing residents,” she said. “The people of this county have voted over and over for the developers to pay for their impacts.”
She called for a retooling of the local economy. “You have to have industry too,” she said. “We need to think about creating industry beyond building new housing tracks. We’ve got 4,200 houses in foreclosure in this county right now.
“The housing bubble was created by the same people who now want us to fund their next projects,” Taylor said. “They’re building houses just to build houses.”
Youmans suggested community “round table” meetings involving all fee-collecting agencies along with representatives of the development community, and he said similar efforts in both Elk Grove and Sacramento County have resulted in lower fees.
Bone backed the idea, calling the round table meetings a “broader conversation among the various jurisdictions, the CSDs, a couple fire districts and the school districts.”
Supervisor Knight volunteered to take the lead on contacting stakeholders and helping organize the round table.
The board will return to the matter on Jan. 10 to begin discussions on the process.
The “El Dorado County Development Feasibility Study” can be found in the Dec. 7 board meeting agenda at http://eldorado.legistar.com/Calendar.aspx.