State’s New Affordable Housing Fee Policy Could Make It Harder to Build Affordable Housing

At first glance, the state’s new affordable housing idea sounds logical enough: reduce fees on affordable housing projects to make them less expensive to build. 

If only it were that simple. 

A last-minute provision inserted into the final 2026-27 California budget limits counties’ ability to collect certain development impact fees on state-funded affordable housing projects. Unfortunately, this poorly thought through action will harm, not help, the production of affordable housing because it will make it harder for counties to spearhead these projects. 

That’s because the policy shifts costs away from developers and onto county taxpayers — creating new challenges for counties trying to build the very housing the state wants to encourage. 

Beginning July 1, 2027, counties serving as the lead applicant on certain state-funded affordable housing projects will be required to waive specific non-utility development impact fees. If they choose not to, the state can simply reduce the grant award by an equal amount. 

The result is a no-win choice for counties. 

Development impact fees are not taxes or revenue generators. They are cost-recovery tools that pay for the infrastructure new developments require — roads, parks, flood control, libraries, fire protection, and other public facilities that make communities livable. Existing residents should not be expected to subsidize those costs when new development occurs. 

But under the new law, counties will either have to absorb those infrastructure costs themselves or risk making affordable housing projects financially unworkable by reducing the state grant. 

Even worse, the requirement applies only to cities and counties serving as lead applicants. It does not apply to school districts or special districts, which also collect development impact fees. 

That creates a troubling incentive that — ironically — will work against the state’s own housing goals. 

Rather than making affordable housing easier to build, the policy could discourage local governments from serving as lead applicants for future state-funded housing projects. Faced with the prospect of absorbing significant infrastructure costs, some counties may conclude they simply cannot afford to sponsor projects they would otherwise support. 

If the state’s objective is to reduce development costs for affordable housing, there is a better approach. The state could have preserved local infrastructure funding by backfilling these fees as part of its affordable housing investment. Instead, it chose to shift those costs to counties without providing any replacement funding. 

This is a familiar challenge for counties. State policymakers often pursue well-intentioned solutions without fully accounting for how they will be implemented locally or who ultimately pays the bill. In this case, a policy intended to promote affordable housing could instead make it harder for counties to bring those projects forward while leaving local taxpayers to cover infrastructure costs that have traditionally been paid through development. 

CSAC opposed this provision throughout the budget process and will continue working with the Administration and Legislature to address its impacts. In the meantime, counties that currently serve — or are considering serving — as lead applicants for state-funded affordable housing projects should carefully evaluate how this new requirement could affect future developments and their ability to provide the infrastructure those communities will need.