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JMI Survey: Local Impact Fees, Land-Use Regulations Are the Enemy of Affordable Housing

January 5, 2019 - 6:00am

Florida, like many areas of the country, has a housing affordability problem. Since the 1990s, the cost of a rent or a purchase is rising faster than the cost of construction, squeezing the household budgets of middle- and lower-income families. And the difference is quite a disparity.

According to a report from the Joint Center for Housing Studies of Harvard University (2018), national median rent rose 20 percent faster than overall inflation from 1990 to 2016, while the national median home price rose 41 percent faster.

Why is that?

In a few words, impact fees, land-use regulations and permitting delays.

The James Madison Institute in Tallahassee released a policy study Thursday that analyzes the effects impact fees and land-use regulations have on the price of houses in several southwestern Florida communities. Have a look at the study in full by clicking here

The authors of the study, Sam Staley, Ph.D., Adam Millsap, Ph.D. and Vittorio Nastasi, through academic research, suggest that impact fees, land-use regulations, and permitting delays increase the price of houses, and these increases, they say, are proportionally larger for smaller houses. A larger impact on smaller houses makes homeownership difficult for lower-income working families in these communities at a time when housing affordability is a major concern of government at all levels.

"What Reagan said many years ago still rings true," said Sal Nuzzo, JMI's vice president of policy. "The scariest words to hear are 'I’m from from the government and we’re here to help.' What we see time and again are ambitious and often well-intentioned government agents identifying a goal, affordable housing, and then creating policies that completely undermine that goal. The more they undermine it, the more bad policies they create. In the end, those at the lower end of the income spectrum suffer the most from overzealous local bureaucrats.”

Sam Staley, Ph.D., director of the DeVoe L. Moore Center at Florida State University, agrees. “Florida is on the verge of another housing affordability crisis," he says, "and local regulations are playing an important role in making the problem worse. Our research strongly suggests that workforce housing is being squeezed out by lengthy permitting delays and unwieldy permit fees in those areas that need it most. Impact fees were created by the state to fund infrastructure, but our research shows lower-income households suffer the most. Uncertain fees combined with a lack of transparency in the process are contributing to delayed housing development and higher costs ...”

Beware of zoning regulations, warns Adam Millsap, Ph.D., assistant director of the L. Charles Hilton Jr. Center at FSU. “Housing prices will continue to rise in Florida unless supply keeps up with demand," he says. "This means we need to build more, not less, but in many Florida communities zoning regulations like minimum lot sizes, height restrictions, and parking requirements get in the way.”

The report suggests ways municipalities can implement reforms to lessen the burden and regressive nature of impact fees less, and thereby improve housing affordability. From JMI's policy study:

  • "Ensure fee amounts (and formulas) are linked to rigorous studies of public service costs and delivery. Currently, a wide range of fees appears to be levied. The lack of transparency in the formulas and the sources of the estimates suggests some fees may not meet the rational dual nexus test embedded in the spirit and intent of state statute.
  • "Ensure the impact fees are calculated to reflect the marginal cost of development to the municipality. This way, the fees will act like a user fee and minimize any negative effects on development. Fees that are linked to the size of the unit, as suggested above, are more likely to achieve this. The formula for calculating impact fees should be made available to builders and the public at large to increase transparency.
  • "Assess impact fees at the time of application, not at the end of the process. Assessing fees at the final stage of the land development process can generate uncertainty as significant lags occur between application dates and issue dates. To reduce uncertainty, municipalities should assess impact fees at the time of application and not apply any subsequent changes retroactively.
  • "Link fees to the size of the unit to make fees less regressive. Fees that are linked to square footage are less regressive than fees that are linked to number of bedrooms or only linked to unit type, e.g. single-family home (see Been 2005 p.167 for discussion).
  • "Once the formula for calculating impact fees is established, an impact fee schedule should be calculated and made public. The schedule should be easy to understand and be relatively stable. A schedule with these characteristics makes it easier for developers to plan projects by reducing uncertainty. Individual or one-off impact fee assessments should be avoided since they increase uncertainty."

The James Madison Institute (JMI), is Florida's premier free-market think tank. It was founded in 1987 and is one of the nation’s oldest and largest 501(c)3 nonprofit, nonpartisan research and educational organizations. Labeled a “heavy hitter” by Florida Trend, JMI’s work has appeared in every Florida media market, as well as national markets through USA Today, The Wall Street Journal, The Hill, Bloomberg, POLITICO, Newsmax and others. 

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