The first step in solving a problem is admitting there is a problem to begin with. If you are in the residential real estate development industry in California, you are likely well aware that California has a massive problem with high development impact fees that make it very difficult to build new housing that people can afford (if you want to know how we got to this place, click here.) In being close to the problem it’s easy to forget that much of the general home-buying public does not even know what an impact fee is, nor do they care. I would assume that the extent of most people’s knowledge about home prices in the Golden State is that housing supply is scarce in California, not much gets built in desirable areas due to land use restrictions, the weather is really nice here and the economy is good, therefore it’s expensive.
In my opinion, one of the first steps to generating real, meaningful push-back against excessive impact fees is to educate the general public on just how high fees are. I know what you are probably thinking right now and you’re right: No consumer wants to listen to another boring, boilerplate financial lecture. However, there is an easy way to accomplish this objective that one of my partners at Landmark, Steve Sims, pointed out recently: itemized pricing.
When you purchase a new home today, the builder will typically break out the base price and any available options and upgrades minus any discounts in its marketing material. Steve’s idea is simple: builders could itemize pricing on their marketing material by showing the base-price net of the impact fees, then they would add in the impact fees as a separate line item just like they would an upgrade. The total advertised price of the home doesn’t change at all but the buyer is now aware that he or she is paying $40k-$80k in impact fees that are substantially impacting their purchase price. This should sound familiar if you’ve ever purchased a car since it’s similar to the way that auto dealers represent pricing on their lots.
I know that this is just a token step and I've not looked into the legality of it. However, an informed consumer is an empowered consumer, and I believe that many California home buyers are in the dark about where all that money that they are spending for a new home is actually going. I would wager that they wouldn’t be too happy about it once they found out. Consumer advocacy groups should be in support of such a proposal since it increases transparency when it comes to the largest economic decision that most people make in their lifetimes. Hopefully, this is something the BIA would be willing to take a closer look at.