A Feb. 5 article (“What’s driving up new home costs? Fees, say builders”) highlighted a report recently issued by the statewide group representing builders, Housing First Minnesota. The report takes aim at fees and regulations as key drivers of increasing housing costs. We believe that the report unfairly exaggerates those drivers while minimizing others, such as market forces that are out of cities’ control, like land and labor costs.
The construction of any new housing development requires a successful partnership between private developers and city governments. Among other factors, that partnership relies on a clear understanding of, and cooperation with, established community standards and city ordinances.
Fees charged to developers by cities cover important public infrastructure costs needed to serve the new housing development. When considering any new development, city officials are responsible for making sure that all related improvements and amenities, such as a neighborhood park, are constructed according to city standards.
City officials must consider and address the direct and indirect costs related to the development, such as funds to cover the costs of necessary infrastructure and costs for professional services for review, approval and inspection of development projects.
Subdivision regulations developed by cities ensure that any new development or redevelopment meets the standards of that city for a safe and functional community for both new and current residents. It is commonly understood that these regulations vary from city to city, depending on the development goals and plans of each one.
For example, one city might value preservation of agricultural space in its overall plan, while another city chooses to emphasize the creation of affordable housing. Or, one city might prefer “cluster” developments, while another prefers large, single-owner, one-acre lots.
Studies show that availability of amenities is among the top considerations when potential homeowners are considering purchase. State law allows cities to require by ordinance that developers dedicate a portion of land within the development to public uses such as streets, utilities and parks and recreation facilities. Cities may require developers to pay a park dedication fee instead of dedicating specific land within the development for parks or recreation.
Other common charges include sanitary sewer and water hookup and access charges. Such infrastructure and services may not be the most visible components of a new housing development, but they are linchpins.
Cities assign costs for development in distinct ways, and most cities cover the costs of development by using a combination of development fees and city resources. For example, cities could choose to absorb the costs related to development into their budgets and increase property taxes for current residents and businesses. Or, cities could choose to pay for the improvements and recoup the costs by charging special assessments on new property owners.
But the latter option does not cover all the necessary costs, and it may be a disincentive for a new resident to purchase a home in the development. Or, as a last resort, cities could choose to not finance development improvements because they don’t have the tax base to fund them, meaning the development would not occur.
Each city has its own policies and practices that are intended to serve the local community’s citizens and taxpayers.
Financing development within a community is a partnership with various sources of revenue. Charging developer fees is a historically essential component of financing development infrastructure and amenities. Local governments are authorized by state law to be able to impose local fees so that new development pays its fair share of the costs of public infrastructure and public facilities needed to adequately serve the new development and to create functional, safe and desirable communities where we all want to reside.
We all share in a goal to find the right balance that is fair to the developer, and equitable for our current citizens and taxpayers; we will continue to work with everyone involved to pursue this objective.
Heidi Omerza is president of the League of Minnesota Cities. Mary Gaasch is president of Metro Cities. Jim Hovland is chair of the Municipal Legislative Commission. Ron Johnson is president of the Coalition of Greater Minnesota Cities. Mary McComber is president of the Minnesota Association of Small Cities.