Impact fees, similar to linkage fees, seek to mitigate the negative impact of new residential development on housing affordability. Impact fees are often justified with the argument that new residential growth leads to more demand for goods and services, which leads to the creation of lower-wage retail and service jobs and a greater demand for affordable housing. Additionally, new market rate housing can cause an increase in property values in surrounding neighborhoods, putting upward pressure on housing costs. Similar to commercial linkage fees, impact fees often take the form of a fee per square foot of new development and are used to help finance affordable housing in various forms.
In 2014, the San Jose city council adopted an Affordable Housing Impact Fee program to help create and preserve affordability within the city. The new policy requires developers of market rate rental property with three or more units to pay a one-time fee of $17 per finished, livable square foot. Beginning in July of 2017, the fee will increase by 2.4 percent each year, and when the program is fully operational, it is expected to generate between $20 and $30 million per year. The Affordable Housing Impact Fee excludes for-sale property developments, because the city’s inclusionary housing program is already in place to generate revenue from those projects.
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