If you’re lucky enough to be a Cascadian homeowner, you’ve probably toyed with the idea of installing a mother-in-law apartment or backyard cottage at your place. If you’ve gone as far as to explore what would be required, you may have slammed straight into an accessory dwelling unit (ADU) buster: your city’s fees. In Washington, for example, depending on what city you live in, so-called impact fees alone might total as much as $9,000.

North American cities routinely charge homebuilders impact fees to help pay for schools, parks, roads, or public services. At the same time, many of these cities face an unprecedented housing affordability squeeze, and, as Sightline has written previously, impact fees only make things worse by adding cost to new homes.

Over recent years, ADUs—wonk-speak for granny flats, basement apartments, backyard cottages, and the like—have garnered increasing attention as a green, relatively affordable housing choice. Still, many jurisdictions burden ADUs with impact fees. Local and state lawmakers can help unleash ADU construction by eliminating them. Here’s why:

Impact fees can hold back ADU construction

The table below shows total impact fees charged on ADUs by 13 Washington cities, including Everett, Kent, and Spokane. Totals vary among and within cities, depending on attributes like bedroom count. Seventeen other cities surveyed, including Bellevue, Tacoma, and Yakima, exempt ADUs from impact fees (see endnote). (Most jurisdictions also collect an array of utility fees not reflected here. For example, for backyard cottages King County collects a $7,000 sewer capacity charge in payments over 15 years.)

Builders either pass on fees to renters or buyers, or, if they believe that renters and buyers can’t afford those hikes, they don’t pursue construction in the first place—and that, too, drives up rents and prices by squeezing the supply of homes. For typical homeowners with limited budgets, the decision to build an ADU is likely more straightforward: the more fees raise the cost, the less likely they’ll do it.

Homeowners commonly cite development cost as a key deterrent to taking on an ADU project. Portland, Oregon, provides a telling demonstration of how costly fees can suppress ADUs: in 2010, it waived system development charges of up to $16,000 and ADU permit applications took off.

A few Washington jurisdictions have taken similar steps. In 2017, Renton halved its ADU permitting fees—including park and transportation impact fees—knocking down the fee total by about $11,000. Initial results are promising, albeit modest: in 2018 Renton saw five ADU permit applications, matching the number it had over the seven previous years combined.

In 2018, Bellingham cut park impact fees by $1,000 and eliminated them for ADUs built inside an existing house. Permit applications have ticked up but it’s too soon to draw conclusions. Also last year, Clark County lowered impact fees on ADUs to one quarter of the fees it imposes on multi-family homes. Several cities in Oregon have recently reduced ADU impact fees as well.

Impact fees are especially hard on modest, low-cost ADUs

ADU price tags vary widely—a bare-bones renovation to a plumbed basement might be $20,000, while a high-end backyard cottage could run $300,000 or more—but most are far cheaper to build than other home types. Consequently, prospective ADU projects are more vulnerable to death by fee. As with any fee, an impact fee creates a stronger disincentive the smaller the budget, because it piles on a larger percentage cost increase. Most cities temper that effect by charging lower impact fees for ADUs than for single-family houses, while three of the cities in our list—Bothell, Cheney, and Everett—scale their fees according to ADU size.

Heightening the sensitivity to added cost, ADUs are usually built by people who are not real estate development professionals. Coming up with the money to pay for ADU construction is a big stretch for most homeowners, and fees make it that much more challenging. Cash-strapped owners trying to create low-budget ADUs take it on the chin the hardest, and when impact fees force them to take a pass, communities lose what they most need: low-rent homes.

ADUs on the modest side of the cost spectrum provide “naturally occurring affordable housing”—that is, homes that are relatively affordable without any subsidy. By charging impact fees that stymie production of these homes, cities widen their affordability gap. That outcome increases the need for publicly-funded subsidies to support the people who fall into the gap because they can no longer afford what the private housing market offers. Impact fees on ADUs rob Peter to pay Paul.

Accessory dwelling above a garage, photo by flickr_Brett V, used with permission.

Impact fees on ADUs—as with any housing—undermine equity and sustainability

Charging impact fees on any urban infill homes—including ADUs—undermines efforts to create green, equitable compact neighborhoods. First, when impact fees penalize homebuilding in urban centers, they push builders away to find better opportunities farther out. The result is more sprawl and climate pollution.

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  • Second, impact fees impose what’s in effect an extra price of admission on newcomers, buttressing the invisible walls of economic exclusion that plague ever-expanding portions of cities such as Seattle and Portland. Existing homeowners get off free, while the fees, by causing higher rents, inflict the most harm on those with the least housing security: tenants.

    Impact fees on ADUs penalize efficient use of existing public services

    Most public services are cheaper on a per-capita basis in compact neighborhoods, mainly because everything is closer together—shorter roads cost less. Compared with a house in a new subdivision that needs a host of brand new infrastructure to support it, an ADU built alongside an existing house can share existing roads, sidewalks, transit, utilities, and services.

    Alone among the cities we surveyed, Spokane’s road impact fee structure accounts for this spatial efficiency. The city charges just $106 for ADUs in it’s high-density core where transit is robust, but up to $1,000 for locations away from the core. In fact, this approach makes even more sense at the regional scale: charge impact fees in undeveloped areas, but not in cities.

    Eliminate impact fees on ADUs first; on all urban homebuilding next?

    If cities want to reap the benefits of more granny flats and backyard cottages, one action they can take is to nix impact fees. The low-budget, do-it-yourself nature of ADU construction makes it particularly vulnerable to added costs that can deter owners from taking the leap.

    Over half of the Washington cities for which we found data already exempt ADUs from impact fees, illustrating that many jurisdictions already recognize the problem. The Washington legislature is currently considering a bill to stimulate ADU construction. It includes a provision limiting impact fees.

    Growing momentum to eliminate impact fees on ADUs may also raise awareness that impact fees sabotage other forms of homebuilding too. When we know that adding homes to existing urban areas is a critical strategy for improving housing affordability, curbing sprawl, and cutting climate pollution, treating homebuilding as a negative “impact” that should be fined is like shooting ourselves in the foot.

    Notes

    Washington cities from our survey that exempt ADUs from impact fees: Bellevue, Bremerton, Covington, Edmonds, Granite Falls, Issaquah, Kirkland, Lynnwood, Marysville, Mercer Island, Redmond, Sammamish, Seattle, Spokane Valley, Tacoma, Vancouver, and Yakima.

    For detailed impact fee information on all the cities we surveyed, see this google spreadsheet.

    Acknowledgements

    Thank you to Sightline’s all-star research associate Nisma Gabobe who did the research heavy lifting for this article.

    Thank you to Bellingham city planner Christopher Koch, who generously shared the impact fee data he dug up on 17 cities. Mr. Koch did not contribute to the writing of this article or influence the views expressed in it.