00:00:00
If you pay attention to the housing
00:00:01
supply crisis at all, you're probably
00:00:04
well aware that they're building new
00:00:05
residential like gang busters in cities
00:00:08
like Dallas and Houston. While our
00:00:10
expensive, high demand, supposedly
00:00:12
progressive coastal cities almost seem
00:00:14
to be going backwards. The reasons for
00:00:16
this are complex and they vary from city
00:00:18
to city. But I want to talk about one
00:00:20
particular element that's in my
00:00:22
wheelhouse, which is the traffic studies
00:00:24
and impact fees that come into play in
00:00:27
the development permitting process. You
00:00:29
see, in my consulting career, before I
00:00:31
started YouTube, I worked on a lot of
00:00:34
city impact fee programs. I worked on a
00:00:36
lot of traffic studies. You might even
00:00:39
say I'm part of the problem. Well,
00:00:41
today, just consider this a form of me
00:00:44
doing penance. And what I want to do is
00:00:47
try to add some depth and nuance to this
00:00:49
idea you hear a lot, which is that
00:00:51
cities in red states like Texas are easy
00:00:54
to build in, but trying to build housing
00:00:56
in states like California is expensive
00:00:58
and slow and involves way too much
00:01:01
bureaucracy. And actually, I'm going to
00:01:03
use Oregon for most of my progressive
00:01:05
state examples here, just because it is
00:01:08
the state where I have the most
00:01:10
familiarity with the development
00:01:11
requirements. But my topline answer to
00:01:14
this whole question is that building
00:01:16
housing in blue state metro areas is
00:01:18
timeconuming and expensive because those
00:01:21
cities have much higher standards for
00:01:23
urban amenities in the built environment
00:01:26
where cities in red states are going to
00:01:28
have relatively minimal development
00:01:30
requirements. They really just want you
00:01:32
to build housing and not contribute to
00:01:34
improving the public realm because the
00:01:37
places where they're building housing
00:01:38
are places where it's expected that
00:01:40
everyone is going to drive anyway. This
00:01:42
is an overly simplistic explanation.
00:01:45
There are plenty of walkable places in
00:01:47
Texas and lots of places in California
00:01:49
with terrible urban form, but in terms
00:01:52
of development requirements, I think
00:01:54
it's roughly accurate. And what I want
00:01:56
to do today is expand on that idea and
00:01:59
look at how it plays out in practice.
00:02:01
And to do that, I'm going to talk about
00:02:02
three transportation related aspects of
00:02:05
development requirements. So keep in
00:02:07
mind this is just a small subset of the
00:02:10
overall picture. The three things are
00:02:13
one frontage improvements so improving
00:02:15
the public realm where the development
00:02:17
is located. Two transportation impact
00:02:20
studies which may result in off-site
00:02:23
traffic or safety mitigations. And three
00:02:25
system development charges or impact
00:02:28
fees. They're called different things in
00:02:30
different states. It's basically a
00:02:32
developer contribution toward funding
00:02:34
the infrastructure projects that are
00:02:36
needed to accommodate future growth.
00:02:38
I'll get into detail on each one of
00:02:40
these elements, but first I want to talk
00:02:42
about the legal basis for all this,
00:02:43
which is very US-specific. If you study
00:02:46
or practice planning and development in
00:02:48
the US, you're going to learn about the
00:02:50
legal doctrine known as the Nolan Dolan
00:02:53
standard. What is Nolan Dolan? It's case
00:02:56
law. In Nolan versus the California
00:02:59
Coastal Commission, the US Supreme Court
00:03:01
said that there needs to be a rational
00:03:03
nexus between the impacts of a
00:03:05
development, in this case, a loss of
00:03:07
public view of the Pacific Ocean, and
00:03:10
the required mitigation for development
00:03:12
approval, which in this case was a
00:03:14
public easement along the beach. And
00:03:16
Scotas determined there was no rational
00:03:19
nexus. The development's impact and the
00:03:21
commission's required mitigation of it
00:03:23
weren't sufficiently related. In Dolan
00:03:26
versus the city of Tigard, Oregon,
00:03:28
Scotas went further and said there needs
00:03:30
to be a rough proportionality between
00:03:33
development impacts and mitigation
00:03:35
requirements. In this case, overturning
00:03:37
the city's requirement that the
00:03:39
plaintiff, a home improvement store
00:03:41
owner, dedicate right ofway and
00:03:43
construct a public greenway to mitigate
00:03:45
additional traffic and storm water
00:03:47
runoff. The cases themselves are
00:03:50
fascinating, but what I want you to keep
00:03:51
in mind is that terminology essential
00:03:54
nexus and rough proportionality and how
00:03:57
it establishes limits on what the
00:03:59
government can ask of developers and
00:04:02
what constitutes an illegal taking.
00:04:05
Okay, back to development requirements.
00:04:07
So, I'm going to use Portland as an
00:04:09
example. Over time, the city's expanded
00:04:11
development requirements in order to
00:04:13
meet climate equity and quality of life
00:04:16
goals. This comes in a lot of forms, but
00:04:18
let's talk about frontage. The city has
00:04:21
adopted street standards that nearly
00:04:23
always require wider sidewalks and more
00:04:26
generous planting or furnishing zones
00:04:28
than what the existing condition is.
00:04:30
These are good things. They support
00:04:32
walkability and mudsplit targets that
00:04:34
are consistent with the city's climate
00:04:36
goals, but they do come at a price to
00:04:38
developers. Not just the expense of
00:04:41
upgrading the public realm, often
00:04:43
including storm water and utility
00:04:45
relocation, which are not cheap, but
00:04:47
also in terms of right-of-way
00:04:49
dedication, which cuts into the
00:04:51
developable acreage and makes it tougher
00:04:53
to get projects to pencil out. Let's
00:04:55
talk about traffic impact studies. Just
00:04:58
about every city requires some form of
00:05:00
this for developments bigger than a
00:05:02
certain threshold. And Portland is no
00:05:04
exception. Essentially, the city wants
00:05:06
to know, is the development you're
00:05:08
proposing going to trigger new traffic
00:05:10
or safety issues. So, you have to go out
00:05:12
and hire a licensed traffic engineer, go
00:05:15
through a whole scoping process with the
00:05:17
city, collect all the traffic data at
00:05:20
all the locations the city wants you to
00:05:22
study, and then analyze whether the
00:05:24
estimated new traffic from your
00:05:26
development is having level of service
00:05:28
or queuing impacts on nearby
00:05:30
intersections, or if you're adding
00:05:32
traffic to locations that have safety
00:05:34
issues, or introducing new safety
00:05:37
issues. The list goes on and on. Traffic
00:05:40
studies are not cheap. And if they find
00:05:43
significant impacts to the
00:05:44
transportation system, then you're going
00:05:46
to be on the hook for mitigations like
00:05:48
new turn lanes or traffic signals. Not
00:05:51
cheap. And number three, system
00:05:54
development charges or what they call in
00:05:56
most other states impact fees. They're
00:05:59
one-time charges that are meant to
00:06:01
represent a development's proportionate
00:06:03
contribution to the funding of future
00:06:05
projects in the city's capital
00:06:06
improvement plan. And in Portland's
00:06:08
case, they have SDC's for environmental
00:06:11
services, basically sewer, parks,
00:06:14
transportation, and water. The idea here
00:06:17
is that the need for additional capacity
00:06:19
in each category is driven by new
00:06:21
development. There's a whole bunch of
00:06:23
modeling and math that go into setting
00:06:25
these rates. And then in the case of
00:06:27
transportation, the rates are per
00:06:29
dwelling unit for residential and per
00:06:32
square foot for just about every other
00:06:34
use. And all the rates are derived from
00:06:36
land use trip generation estimates from
00:06:39
the Institute of Transportation
00:06:40
Engineers. There are a couple overlay
00:06:43
areas in the city where you pay higher
00:06:45
rates because of higher capital needs.
00:06:48
But in general, if you want to build a
00:06:49
100 unit apartment, the transportation
00:06:52
SDC alone is going to run you a little
00:06:54
over
00:06:55
$300,000. And that's in addition to
00:06:58
frontage dedications and improvements,
00:07:00
any off-site mitigations identified in
00:07:02
the traffic study. And I'm not trying to
00:07:04
say they're bad things. At minimum, they
00:07:07
have a essential nexus and rough
00:07:10
proportionality with the impacts, but I
00:07:12
will get into some nitpicking later. So,
00:07:15
let's zoom out a bit. I don't want to be
00:07:17
too hard on the city I've called home
00:07:19
for most of my adult life. Portland
00:07:21
actually made the national news in a
00:07:23
good way a couple weeks ago because of
00:07:25
the success of the residential infill
00:07:27
project, a code update that allows
00:07:30
development of middle housing. So,
00:07:32
duplexes, triplexes, forplexes on land
00:07:36
that was previously zoned exclusively
00:07:38
for single family. In general, there are
00:07:40
smaller homes, typically priced at
00:07:42
hundreds of thousands of dollars less
00:07:44
than existing housing stock. And they're
00:07:46
now the most prominent housing type,
00:07:48
being built in single family zones, with
00:07:51
most of the production happening in very
00:07:53
walkable, very bikable, relatively well
00:07:56
transit connected inner east Portland.
00:07:59
I've praised all the middle housing in
00:08:01
cities like Montreal and Sydney, and I
00:08:03
lived in middle housing the last time I
00:08:05
lived in Portland. In fact, I actually
00:08:08
made the first four or five videos on
00:08:10
this channel up on the second floor of
00:08:12
this townhouse before I sold it and
00:08:14
became basically an urban drifter. By
00:08:17
the way, the political battle over the
00:08:19
residential infill project is
00:08:21
fascinating and it's kind of an
00:08:23
interesting case study for other cities.
00:08:25
And if you want a deep dive, I recommend
00:08:27
this piece. Michael Anderson did for
00:08:29
Sighteline, the eight deaths of
00:08:31
Portland's residential infill project.
00:08:33
Link down in the description. So,
00:08:36
there's been some good news, but it's
00:08:38
still far too little production to meet
00:08:39
the city's target of 120,000 new homes
00:08:42
by 2045. Supply that's needed to make
00:08:46
the city more livable for people at all
00:08:48
income levels. So, in an effort to
00:08:50
incentivize construction, Portland's new
00:08:53
mayor is proposing to wave SDC's, which
00:08:56
in some ways is a giveaway to
00:08:58
developers, but the question of who
00:09:00
really pays SDC's isn't that
00:09:03
straightforward. It's generally a
00:09:05
combination of cutting into developer
00:09:07
profits and the developer needing to
00:09:09
charge higher rents to make a project
00:09:11
pencil. Both of those things are
00:09:13
disincentives. So if the jurisdiction
00:09:15
next door or halfway across the country
00:09:18
in Texas has a lower SDC or no SDC at
00:09:22
all, you'll probably just go build there
00:09:24
instead. So that's part of the logic
00:09:26
behind what's a joint proposal by Oregon
00:09:29
Governor Tina Cotek and the new Portland
00:09:31
mayor Keith Wilson. And the plan is to
00:09:34
suspend all SDC's on any new housing
00:09:36
development in Portland over 3 years or
00:09:39
5,000 permits, whichever comes first.
00:09:42
Note that this isn't necessarily a slam
00:09:44
dunk idea. Yes, a city study found that
00:09:47
SDC's can account for more than 6% of
00:09:50
total development costs for a new
00:09:52
building. So waving the fees can make
00:09:55
Portland a more attractive place to
00:09:57
build, but it comes at a cost. City
00:09:59
bureaus are already facing a growing
00:10:01
budget shortfall, and SDC's are a
00:10:04
revenue item in the city's budget. So
00:10:06
the question of whether to wave SDC's or
00:10:09
whether to even have them in the first
00:10:11
place is the kind of question planners
00:10:13
and elected officials have to wrestle
00:10:15
with constantly. And I want to get into
00:10:17
a few of the more philosophical aspects
00:10:19
of that question in a minute. First,
00:10:22
quick reminder to engage the channel in
00:10:24
all the usual ways. I don't promote my
00:10:27
Patreon that much. I do post some
00:10:29
written content there and it is the
00:10:31
least convoluted way to support the
00:10:33
channel directly if you value what I do.
00:10:36
Okay, enough of the technical and legal
00:10:38
aspects of SDC's or impact fees. Let's
00:10:42
zoom out and talk about some more
00:10:44
foundational questions. For example,
00:10:46
even given that they're legally
00:10:48
defensible and have a certain logic to
00:10:50
them, are impact fees on new development
00:10:53
even a good idea? or even more broadly,
00:10:56
who should pay for growth. My
00:10:58
observation as someone who's worked on
00:11:00
these kinds of projects through a couple
00:11:02
of different economic cycles is that
00:11:05
local jurisdictions get very excited
00:11:07
about charging as much as they can get
00:11:09
away with when the housing market is
00:11:10
hot. And then when an economic downturn
00:11:13
happens, impact fees are kind of an
00:11:15
albatross that keeps your city from
00:11:17
growing and expanding the tax base. So,
00:11:20
I think I've come around to the point of
00:11:22
view that the housing supply crisis and
00:11:24
all the negative impacts that flow from
00:11:26
it is just a higher order problem than
00:11:29
having a temporary hole in your city's
00:11:32
transportation budget. First, I'll quote
00:11:34
this other article from Sighteline by
00:11:36
Dan Berto. Adding new homes to urban
00:11:39
neighborhoods is a good thing overall, a
00:11:41
net positive for people and the planet,
00:11:44
not a transgression to penalize. Impact
00:11:46
fees are regressive because the burden
00:11:48
of paying them falls primarily on
00:11:50
renters and firsttime home buyers. I
00:11:53
don't agree with every single thing in
00:11:55
the piece, but I'm on board with that
00:11:57
bit and I'd even take it further. Impact
00:12:00
fees on housing are a transfer of wealth
00:12:02
from new residents, often young people
00:12:05
and immigrants, to existing residents.
00:12:08
There's literature out there that
00:12:09
suggests that impact fees increase
00:12:11
property values for all residents, which
00:12:14
is great if you already own property and
00:12:16
makes life more difficult if you don't.
00:12:18
We probably don't need more policies
00:12:20
that have that kind of effect. And the
00:12:23
last piece of research I want to share
00:12:24
here is this. Understanding how
00:12:27
population changes associated with
00:12:29
community sociode demographics and
00:12:31
economic outcomes across the United
00:12:33
States from the journal frontiers in
00:12:35
human dynamics. There's a lot of
00:12:37
interesting stuff in here, but the main
00:12:39
thing I took away was this extremely
00:12:41
strong relationship between a city's
00:12:44
population growth or decline and median
00:12:46
household income. You can argue over the
00:12:49
causal direction here. Do household
00:12:51
incomes go up because of the economies
00:12:54
of scale and network effects that happen
00:12:56
when you add more density, or do people
00:12:58
just move to cities that have more
00:13:00
economic opportunity? I think it's not
00:13:03
either or. And it's a whole dynamic, but
00:13:05
I just don't think there's any question
00:13:07
that you would rather be in a city
00:13:09
that's gaining population, not shedding
00:13:12
it. Because this goes to a core belief I
00:13:15
have about what makes cities great.
00:13:17
Prosperity isn't a zero sum game. In
00:13:20
fact, it's very much the opposite.
00:13:22
Making it possible for more people to
00:13:24
participate in your city's economy and
00:13:26
its culture make a city richer for
00:13:29
everyone. So, are impact fees a smart
00:13:32
way to fund capital projects when we're
00:13:34
in the middle of a housing crisis? I'm
00:13:36
thinking probably not. We have to remove
00:13:39
barriers to housing development and
00:13:41
evolve the way we think about funding
00:13:43
infrastructure at the same time. SDC's
00:13:46
are a relatively small part of
00:13:48
Portland's transportation revenue, far
00:13:50
behind fuel taxes and parking fees, and
00:13:53
they're not predictable from year to
00:13:54
year. Yet, they have a big impact on a
00:13:57
developer's decision on whether to build
00:13:59
in the city or somewhere else entirely.
00:14:02
And they're likely attacks on whatever
00:14:04
renter or homeowner takes occupancy in
00:14:06
the new building. As someone who has
00:14:08
been an incumbent homeowner in Portland,
00:14:11
Oregon, more often than not over the
00:14:13
past couple decades, I struggle to see
00:14:15
the downside in doubling or tripling the
00:14:18
density of the walkable inner parts of
00:14:20
the city. It's more foot traffic, more
00:14:22
new businesses, more people paying
00:14:24
transit fairs, more taxpayers helping to
00:14:27
pay for new infrastructure and services.
00:14:30
Whether you already own a home or not,
00:14:32
those things make for a better quality
00:14:33
of life. Cities are just never zero. You
00:14:37
know, when I was working as a
00:14:39
consultant, a lot of my work was doing
00:14:41
planning projects for small cities.
00:14:43
Well, one of the first things you do in
00:14:45
any planning project is an existing
00:14:48
conditions analysis. Those require a lot
00:14:50
of data and you would be appalled at how
00:14:53
incomplete and outofdate different
00:14:55
cities infrastructure inventories often
00:14:57
are. They usually just don't have the
00:15:00
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00:15:02
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And that's all I've got. Thanks for
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joining today and thanks as always to
00:16:56
the patrons whose direct support gives
00:16:58
me the freedom to just keep mixing it up
00:17:00
from week to week. Keep the great topic
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suggestions coming. I'll be back with a
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new episode next week, I believe. And
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I'll see you then.
