Linkage fees, sometimes called impact fees, are an alternative to traditional inclusionary housing programs. They are called linkage fees because they attempt to link the production of market-rate real estate to the production of affordable housing. While the name is similar, linkage fees should not be confused with in-lieu fees.
In some states, communities can charge developers a fee for each square foot of new market-rate construction and use the funds to pay for affordable housing. These programs are actually structured to require fees rather than units onsite. Initially, linkage fees were developed to apply to commercial projects where an on-site requirement would be impractical or even undesirable. More recently, as state prohibitions on rent control have been interpreted to prohibit inclusionary programs that require affordable rents, a number of communities have converted traditional programs to those based on a housing linkage fee or impact fee.
- Linkage fees offer flexibility and can be used to leverage other sources of funding which can result in a greater total number of new affordable units being built.
- Because land is likely to be more affordable and easier to obtain in lower-income neighborhoods, a reliance on fees may further economic segregation.
- Linkage fee programs may generate fewer resources for affordable housing than traditional programs.
Housing Impact Fees in the Bay Area
In 2014, the Association of Bay Area Governments recently completed a study of San Francisco and the four surrounding counties. It found that 16 cities had residential linkage fees and 13 cities had commercial linkage fees. Most of these cities adopted the fees recently, partly in response to a court case in California that prohibited rental inclusionary housing.*
An informal analysis by the Non-Profit Housing Association of Northern California found that among Bay Area jurisdictions that replaced traditional on-site performance-based programs with impact fees, all adopted impact fees that were less than the in-lieu fees of their prior program. While the in-lieu fees had been based on the cost of providing an affordable housing unit, the impact fees were based on a nexus study. Most cities chose to set their impact fee well below the maximum fee suggested by their nexus studies to avoid possible legal challenges.
A small number of fee first programs require payment of fees but also offer developers the alternative of building on-site units in lieu of paying the required fee. In these cases, the programs are almost identical to traditional inclusionary housing programs but they are designed around a different legal rational. Continue reading