In the wake of the 2008 financial crisis, Utah experienced a period of falling home prices, rampant foreclosures and a supply-demand picture that favored people looking for a place to live. Not so much today, in which the lack of affordable housing is becoming a problem. In downtown Salt Lake City, where the demand for housing is high, and likely to get higher, it’s not clear that market forces will reduce the cost unless builders can increase supply.
One incentive for developers to build is Salt Lake City’s one year moratorium on impact fees, which is set to expire on Nov. 1. Last month, city leaders released a study conducted by consultants advising a substantial overhaul to the impact fee structure. Yet, Mayor Biskupski has neither presented a plan to reform impact fees nor indicated how the city will use the collected funds.
The fees, which developers pay up front, are commonly levied in order to help compensate local municipalities for the “impact” that cities experience on their infrastructure and services as a result of increased growth. These fees can be vital to lessen the stress put on growing cities. Yet, at a time when vacancy rates are at all-time lows, allowing the impact fee moratorium to expire is likely to do little to incentivize more housing in the state’s capital. Furthermore, raising the fees on homebuilding, as the Mayor might propose, is likely to exacerbate the cost of housing as fees get passed on to home buyers.
Now, it may be the case that builders already have incentive enough to build, and extending the moratorium would simply deprive the city of much-needed funds. During Mayor Jackie Biskupski’s campaign, she opposed the moratorium that was put in place when her predecessor said the city was unable to find ways to effectively spend the money collected. Yet to date, Biskupski has not put forward a plan on how the money collected from the fees would be spent once the moratorium ends.
To their credit, the mayor and other city officials are well aware of the lack of available housing and continue to champion affordability as a partial solution to the city’s homeless problem. But it's yet to be seen whether city leadership worries that ending the moratorium will exacerbate the affordable housing problem.
After all, there is little reason to believe that affordable housing will increase without a greater incentive for builders to expand the supply of housing in the city. At the end of the day, the responsibility is on local officials to develop a comprehensive long-term plan to better balance the supply and demand for housing. And any strategy must address the impact fees that are now set to expire.
The current housing market in Salt Lake City is out of balance, and civic leaders are wise to recognize that there is a burgeoning problem. As the city, county and state embark on a coordinated effort to address housing needs, including affordable housing and facilities for the homeless, it is essential to provide the public with potential solutions and plans for the future of impact fees and how funds might be used in the face of high housing demands and rising prices.