With real estate vacancies on the rise and new construction having taken a sharp downturn, many cities across the nation are coming up with some clever and creative methods to entice new building construction into their respective areas.
Although home sale numbers may be resurrecting in some cities, this is not the case for most. Not only are home sales down, but new home construction has hit rock bottom in many major cities.
Commercial vacancies are also steadily climbing, which have caused the lending industry to raise the bar in obtaining new construction loans. Builders are now struggling more than ever with a variety of costs, and are much more hesitant in a down economy to begin new projects.
Insightful U.S. cities are noticing the significantly diminished number of new building permits, and are responding. In order to kick start the slumping industry, many cities are cutting various impact fees typically charged to builders. Generally, impact fees are one-time fees charged on new construction to pay for infrastructure for the new development, like roads, sewer systems, curbing, lighting, schools, parks and other community needs.
The hope is that the savings will entice developers to complete or build-out existing construction and encourage new residential and commercial development.
Earlier this year, the City of Harrisburg, Oregon, cut in half what are called the city's Systems Development Charges. These are the fees the city bills home builders pay per house. City officials stated that the reduction in fees saved new home builders nearly $5,000 per house, a savings that is supposed to be passed along to the buyer. The city's program ended August 1.
Following suit with numerous other local California governments, Riverside County reduced their impact fees to builders just this month. The California Building Industry Association says it's a growing trend that's paying off. Riverside officials voted to cut development fees by 50 percent for one year effective August 15. That adds up to a savings of about $2,100 per single-family dwelling. In addition, the Western Riverside Council of Governments will consider a reduction in the Traffic Uniform Mitigation Fee (TUMF) that currently cost builders $10,000 per home.
Naples, Florida, made history in cities that are considering the reduction of impact fees. Known to charge the highest impact fees in the state, the city was one of the first to consider lowering impact fees in January of this year. The county's commissioners voted to suspend certain impact fees for two years. Benefactors of the suspended fees will primarily be existing commercial property owners who change the use of commercial space listed on the building permit.
Arizona state government initially rejected, and then subsequently approved, a budget that included a two-year suspension for impact fees assessed by city governments relative to construction sales and building codes, along with reduced assessments for commercial property tax. The National Association of Office and Industrial Properties (NAIOP) and Home Builders Association of Central Arizona (HBACA) had been petitioning for a three-year moratorium on impact fees.
In attempts to bolster commercial development, Meridian, Ohio has also jumped into the fray. Officials have waived impact fees for fire and police for all commercial building permits through September 30, 2009.
Boise, Idaho Mayor Dave Bieter has deferred fees for building permits and inspections for new construction. The fees are not due until the occupancy permit is issued by the city. In addition, impact fees for fire, police and parks are being deferred.
The trend seems to be catching fire throughout the nation; although it is unclear as to what extent these deferred, reduced or eliminated impact fees will benefit the community in the long-run.
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