At twelve years old, the city of Oakley, Calif., is brand new. Formerly a quiet farming town, the recently blossomed city, only 55 miles from San Francisco and the same distance from Sacramento, is well located and unlike more established areas, has plenty of open land to develop.

The cost to develop in Oakley, however, has seemed to have an inverse relationship with sinking home prices. Or at least it did, until the city decided to do something about it.

According to City Manager Bryan Montgomery, a new home in Oakley that would have sold for $600,000 in 2005 would sell for $250,000 today. And while values were dropping by 50% or more, development fees were increasing. In 2005, a 2,000-square-foot home in Oakley would have been charged $75,000 in fees, constituting 15% of the selling price of the home. In the first half of this year, the same size home would have incurred development fees of $88,000, a whooping 35% of the sale price.

Because the town is so new, much of the land is raw, but between the collapse in prices and steep fees, developing it had become economically unfeasible, says Josh Roden, vice president of land acquisition at Meritage Homes, which has built in Oakley and has been working with the city to find ways to promote development.

The hardship on builders has created a concern for the city, whose budget is tied to residential development, Roden says. Indeed, according to a memorandum from Montgomery to the city council, a median-priced new home in California is estimated to produce $375,699 in new economic activity and create 2.1 jobs.

As a result, the city staff and city council members held a meeting with builders and the entities that charge development fees to find ways to cut costs. "Of the $88,000 in fees charged for a $250,000 home, $28,000 was coming from the city," Montgomery says. After some analysis, the city agreed to reduce its fees by 50% by waiving some charges and reducing others where the city felt the facilities in question could handle the impact of new infrastructure without revenue increases. The reduction amounts to a $14,400 incentive per unit, set to expire in June 2013.

The city is also working with regional utilities (such as water and sewer) and regional traffic and road agencies (which currently charge $19,000 per new home) to find more ways to reduce or eliminate fees.

To ensure that the homes are built soon, rather than having builders pull permits only to drag out the construction process, the city is considering a condition under which a permit would expire after about six months, at which point the regular permit extension fee would be applied and the fee reduction revoked.

"It definitely helps," Roden says. "Property values are directly tied to the fees, and this allows finished lots to have some economic viability."

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: San Francisco, CA, Greenville, SC.