An impact fee is a charge levied by a local community on new development that covers the costs associated with creating new or expanded public capital facilities required to serve the development, including parks, libraries, streets, and fire stations. In this context, affordable housing can be considered a capital facility. As with any of these fees, jurisdictions must complete a nexus study that establishes the connection between the fee and the purpose for which it is used. An affordable housing nexus study looks at the jobs expected to be generated by residential or commercial development. It then measures the gap between the wages these new jobs will be paid and the cost of housing in the jurisdiction which is considering the fee. The nexus study calculates maximum supported fee levels based on the cost of offsetting the increased demand for  affordable housing.

A housing impact fee is a type of impact fee that can be charged based on an assessment of how much demand for affordable housing is generated by market-rate housing. The nexus study for a housing impact fee must demonstrate three things:

  • new market-rate housing development will increase the demand in the community for goods and services,
  • the increased demand will lead to the creation of new jobs in the retail and service sectors, and
  • some of those new workers will make lower wages and will need affordable homes.

Several cities in Santa Clara County and throughout the State implemented housing impact fees since they could not impose inclusionary housing requirements on rental housing in the aftermath of the Palmer vs. City of Los Angeles court case in 2009. In 2017, after the Governor signed AB 1505 to invalidate the Palmer decision, most local cities abandoned their housing impact fees in favor of re-imposing an inclusionary requirement on rental housing.

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