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Supreme Court Could Halt Chilling Effect on Housing Market

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The Supreme Court could halt a chilling effect that has contributed to the United States housing affordability crisis.

The justices heard oral arguments in Sheetz v. El Dorado County earlier this month, a case brought by a California homeowner regarding the $23,420 traffic impact fee he was hit with when he applied for a permit to build a 1,800-square-foot manufactured home on a residential-zoned lot he owned. The justices are expected to issue an opinion this spring.

“These sort of arbitrarily high impact fees do have a major chilling effect on the construction of new housing,” Charles Gardner, a research fellow at the Mercatus Center, told Newsweek on Friday.

“When you have impact fees that are set at very high levels, regardless of whether it’s through an administrative process or by legislation, they can actually disincentivize new homebuilding and contribute to housing affordability challenges nationwide,” Gardner said.

Municipalities commonly use impact fees to account for the effect of the development of city services, like roadways, sewers, water, police, fire departments, and schools. They are aimed at helping towns recover costs rather than generate revenue.

New home construction has ramped up since taking a nosedive during the COVID-19 pandemic. Sky-high prices driven by a shortage of homes in the U.S. have supported residential construction. Last June, permits for future construction rose to a 12-month high.

Some studies show that impact costs can actually help encourage construction in some cases, like in Florida, where impact fees have been shown to increase residential housing construction in suburban areas. Those fees can also reduce political pressure against growth in housing stock.

But Gardner said that when these fees are disproportionately high, these costs can be the ones that push homeownership beyond the means of prospective low-income homeowners.

“The issue is the national housing affordability crisis,” Gardner said. “It’s very real, and it’s reaching more parts of the country now than just the coast and just California.”

According to the Department of Housing and Urban Development, the cost of homes has more than doubled between 1998 and 2021. Seven in ten Americans say that young adults today have a harder time buying a home than their parents’ generation did, and about half of Americans say that the availability of affordable housing has become a significant problem in their area, a 2021 Pew Research survey found.

George Sheetz, the homeowner bringing the case before the Supreme Court, has already lost against El Dorado County twice in the courts. But he’s been undeterred in his efforts to fight the “ridiculous” cost he had to pay for the permit, telling Fox News, “I never dreamed we’d ever get to [the Supreme Court], to be honest with you. I just wanted to fight the fight because I knew what they were doing was wrong.”

A sign posted in front of an available home in Folsom, California, on March 22, 2023. The Supreme Court heard arguments in a case disputing impact fees that were required for home builders in El…

Justin Sullivan/Getty Images

“What the county did to Mr. Sheetz was fundamentally unfair,” his attorney, Paul Beard, told Fox News on Thursday. “The county asked Mr. Sheetz to pay for pre-existing deficiencies on a highway and local roads as the condition of issuing him a permit.”

“Why should he have had to pay for those pre-existing deficiencies and for those impacts caused by other uses?” Beard asked.

While it’s possible that the justices issue a very narrow ruling in Sheetz’s case, Gardner said it’s important for the Supreme Court to address impact fees because they vary so much by state.

In Florida, for example, there is a stringent standard for how municipalities impose these construction fees. But in other states, like California, Maryland, Washington and Arizona, courts have carved out an exception that allows higher fees if they’re set by legislation.

“There’s no one silver bullet to fix the housing crisis, but exorbitant impact fees certainly disincentivize housing production, not just slumming it but affecting the decision whether you’re going to build at all,” he said. “Mr. Sheetz’s fee was over $20,000…for building a single house. You can understand how that can discourage people from the decision to build in the first place.”