Do development-related fees add to housing costs?
Impact fees, intended to help municipalities meet the costs associated with new development, are also having an impact on the cost of housing, says Manchester Mayor Frank Guinta.
“Impact fees are expensive to builders,” said Guinta. “They pass it on to the purchaser, and that’s a problem. Those are costs that the city is responsible for.”
Last year, the board of mayor and aldermen voted to increase the fees assessed for residential construction, an increase Guinta believes can have an effect on where developers go and the kind of housing they will build.
“Not every community in the state has impact fees,” he notes, adding that the added costs have a more severe impact at the lower end of the price scale, both for the homebuyer and the developer watching the bottom line. “He can make a profit on a $500,000 house, but you’re not going to make that on smaller, workforce housing,” said Guinta.
Citywide, Manchester charges impact fees for schools only, imposing a flat rate of $2,733 for each new single-family house. For townhouses, it is $633 per unit, and the fees for multifamily apartment buildings range from a per-unit charge of $1,169 in buildings of five or more dwellings to $1,789 for two-unit apartments. The fee for manufactured housing is $1,663.
In two areas of the city — Bodwell Road in the southeast and Hackett Hill in the northwest — impact fees are also charged to pay for new fire stations. They range from $176 to $146 per unit on multifamily housing of five or more dwellings to $190 for single-family houses and two-unit apartment buildings.
The fees appear modest compared to those in neighboring Londonderry, where impact costs are assessed for schools, police, recreation library and, in some parts of town, fire. Depending on the number of bedrooms and where the home is built, a single-family, detached house can generate close to $10,000 in impact fees, said Andre Garron, the town’s director of economic development.
So far, that added cost hasn’t had any noticeable effect on the sale of new homes in the town, he said.
“New households continue to be built,” he said. “With the average new home selling for over $300,000, I just haven’t heard of it being a deterrent.”
Garron sees market forces rather than municipal fees or growth management provisions pushing the cost of new homes beyond the reach of many working families. He notes that when the town had a growth management ordinance in effect, a provision was added allowing a greater number of permits for developments that included lower-priced units.
“That was resisted by the development community,” he says. “They never took advantage of it.”
But some who are in the business of providing affordable housing for residents below the median income level say impact fees do affect the number of units they can build and still remain solvent.
George Helwig, director of housing production for the non-profit Concord Area Trust for Community Housing, or CATCH, has a 54-unit rental housing project under construction on Old Suncook Road in Concord.
“Just the impact fees add $2,200 a unit to the cost of building them,” he said. “Where that affects the project obviously is that to continue to make them affordable it requires other investment, other debt. We have to get grants to offset that, and often we can’t. That affects the cash flow.”
At the lower end of the housing market, the added costs are critical, he says.
“Every cent you add to a project, it’s another cost. Anytime you add another layer to that it makes it less affordable.”
At the same time, Helwig said he appreciates the city’s need for cash flow to cover investments in things like water and sewer facilities as well as school improvements.
“In fairness to the cities and towns, they have to be able to finance the infrastructure,” he said. “We certainly wouldn’t want to build in a city couldn’t keep up with its infrastructure. That wouldn’t be good for our tenants in the long term.”
State law allows municipalities to impose impact fees on both commercial and residential developments to cover capital improvements needed as a result of the new construction. They may be imposed to cover costs of improvements to roads, schools, water, sewer, parks and recreational facilities and other municipal services. Of New Hampshire’s 234 municipalities, 74 say they have some impact fees in effect, according to a survey done early this year Governor’s Office of Energy and Planning, though the number and cost of the fees vary widely.
The town of Bow, for example, has an impact fee for schools only, charging $4.60 per square-foot, to a maximum of $13,000 for a single-family, detached house. For townhouse, multifamily and manufactured housing, the fee is assessed on a per-bedroom basis to cover anticipated impact on the town’s schools.
The fees add to the overall cost of residential development, concedes Bill Klubben, the town’s director of community development, though he points to the price of land as the biggest factor driving the cost of housing. When the cumulative impact fees, engineering studies and required on- and off-site improvements are considered, a developer looking to build condominiums at $187,000 per unit would need to find land at $30,000 an acre to make a 10 percent profit, he said.
“In the town of Bow, I don’t see a lot of land selling for $30,000 an acre,” said Klubben. Like many of the state’s smaller towns, Bow requires a minimum of two acres for a single-family home, while multifamily can get in with one acre for the first unit and a half-acre for each additional unit.
The cost of limits
Ben Frost, housing awareness coordinator with the New Hampshire Housing Finance Authority, cited local zoning requirements among the factors contributing to the high cost of housing.
“The big one is large minimum lot sizes,” says Frost. “That alone has a significant impact on the cost of housing. Other things like setback, side yards and minimum frontage requirements significantly increase the amount of road that has to be built to the lots and reduce the amount of land that can be allocated toward development. The stated purpose, typically, is to preserve the rural character, but it has the effect of limiting population growth. The real irony is that large minimum lot sizes tend to consume the countryside at a greater pace.”
A growth management ordinance adopted by the town of Hooksett last year, limiting building permits to 2 percent above the previous year’s total, was overturned by the state Supreme Court earlier this year. The town, meanwhile, collects impact fees for schools, recreation and public safety that total about $7,000 for a new single-family house. That hasn’t hurt the sale of new homes in Hooksett, where prices of $400,000 and even $500,000 are not uncommon, said town planner Charles Watson.
“We’ve got 2,000 dwelling units in the pipeline, all high-end,” said Watson. “I don’t consider it affordable for policemen, firemen, schoolteachers.”
Amending the zoning ordinance to allow greater density would be one way to offer builders and developers the incentive to include lower-cost housing in future developments, he said. Otherwise, Watson suggested, it may be difficult to promote economic development in the town if only the affluent can afford to live there.
“I think everybody accepts the basic premise that you can’t keep building $400,000 and $500,000 homes and still find people in the community to punch the cash register at $9 an hour.”