Incomplete ‘Report’ Criticizes City Building Permit Fees

Industry study on city collection of building permit fees could lead to legislative action.
(Published Sep 3, 2019)

The Housing Affordability Institute released its second report on Aug. 20 claiming cities are overcharging building permit fees, and driving up the costs of new homes. From 2014 to 2018, the builders and developers say city fees outweighed city expenses by $78 million.

—Read the report: Building Permit Fees: Boosting the Bottom Line for Minnesota Cities

Problems with industry claims

The report does not provide the complete picture. Some of the largest omissions include:

  • Omitted: Building permit fees are based on valuation. State rules specifically state, “Building permit fees shall be based on valuation.” Builders say that cities can only charge fees that are “fair, reasonable, and proportionate to the actual costs of the service.” While that is true, the more specific state requirement for building permit fees— not other fees—is that building permit fees shall be based on the value of the residential or commercial construction project.
  • Omitted: Builders and developers are involved in setting valuation. State rules also require that when developers apply for a building permit, they must provide an estimated permit value that reflects the cost of construction. Based on this information provided by the developer, the building official then sets the valuation.
  • Omitted: Building permit fees do not adequately account for city costs. The report failed to include other readily available data. Cities are required to report all fees and expenses related to development. To fairly analyze the data, all the fees collected and city expenses—which also include administrative, engineering, planning, and zoning expenses—should have been examined for the report.
  • Omitted: Information from years when the economy was weaker. Residential development and the economy have been doing well in the last five years. If the snapshot was for the previous five years, it would tell a very different story of many cities that used taxpayer money to cover city expenses related to new development not covered by developer fees.

Action needed

Given the one-sided nature of this report and media coverage, we need your help. Talk to your legislators about how development fees and expenses work in your city. Emphasize that cities are in the best position to determine if their tax base should help pay for development. This is a policy decision that should be examined community by community—not by builders and developers.

The League has resources to help:

Previous industry report

The Housing Affordability Institute released a previous report on Feb. 4, 2019, that incorrectly blamed city fees and regulations as the largest reason for high housing costs. The League addressed the inaccuracies in the report through testimony at the Legislature.

—Read previous League article: Industry Study of Metro Home Building Costs Released

What is the Housing Affordability Institute?

The Housing Affordability Institute is a nonprofit organization formed by the Housing First (formerly Builders Association-Twin Cities) Minnesota Legal Defense Fund and is directed by a steering committee comprised of appointed individuals working in the housing industry. The group is seeking to “examine and propose solutions to the burdens government places on housing affordability and the housing industry.”

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