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Warning on Builders' Fees

May 31, 1987

Homes in Orange County, already among the most costly in the nation, are getting even more expensive. It's an expense that touches every resident, not just new home buyers.

According to the latest surveys by building industry officials, the median price of a new, single-family detached home in the county is now about $190,000.

The median price of existing homes being resold is about $158,000, an increase of about 13% over last year. Only in Boston and New York is this figure higher.

Several obvious factors like interest rates and heavy demand caused by the growth of the job market outpacing the construction of new, and especially affordable, homes contribute to the high home costs.

Another less obvious reason is the builder's fees levied by local government against new construction to raise more income for city services and programs. The fees in Orange County, like home costs, are among the highest in the nation.

A report released Wednesday by the Orange County chapter of the Building Industry Assn. showed fees levied against builders and developers in San Juan Capistrano at $21,000 for an average home. San Clemente was close behind at $20,000.

The fees are ostensibly for roads, sewers and city services to the new homes, but builders claim some cities are charging more than necessary and some are also using the fees to offset budget shortages.

The disparity in fees reported in the BIA study does raise some questions over why a single-family building permit in the county's unincorporated area costs $447 and the same permit is $1,363 in Buena Park and $1,469 in Yorba Linda.

Many cities are struggling to find new sources of revenue to make up income lost by the passage of Proposition 13 and the end of federal revenue sharing, but relying too heavily on builders' fees has its own serious economic, and environmental, dangers.

The fees levied by local government are not really borne by the builders; they are passed on to the home buyers. That inflates the cost of housing, pricing many people out of the market, forcing them to live where home costs are lower and then commute into the county to their jobs.

That commuting adds to the growing freeway congestion, further deteriorates the county's air quality and overall environment and prompts some business firms to relocate or expand elsewhere.

Perhaps the most dangerous pitfall of development fees was noted by one building association official who cautioned cities about relying too heavily on the fees for income.

The fear is that the cities would then become so dependent on that revenue that they would begin to promote and approve constant growth just to maintain the flow of money needed to keep the city budget balanced. It's a warning well worth heeding.

Fees levied against new construction must be fair and reasonable and cover only the costs that the development generates. The fees should not be inflated to balance budgets or be set so high that they needlessly push home prices out of the reach of all but the most affluent buyers.

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