Thread by @ShaneDPhillips

I have a new paper at the @UCLALewisCenter! This one's pretty wonky, but I hope it helps illuminate how the timing of fees and other development costs really matters — a dollar paid today is very different from a dollar paid 3 or 5 years from now. lewis.ucla.edu/research/reduc…

The gist of the paper is this: Many development fees are paid early, at building permit issuance, with equity or debt. By the time devs recoup that expense they might be paying back 150% of that amount to their investors or lenders. This makes it more expensive to build housing.

I should note that, in general, this applies to for-profit as well as non-profit developers.

Cities don't really benefit from this. They could accept the fees later, adjusted for inflation — a fee deferral — and still be in exactly the same position, while lowering the carrying costs of developing new housing. It's win-win.

I discuss several ways a fee deferral program could be structured, including a simple deferral until the building opens (certificate of occupancy issuance) with inflation adjustment, or a bonding approach that lets cities use fees before they actually receive them.

A third option — the one with the most benefits but also the one that would need to be designed most carefully — is to defer until the building is sold or refinanced, which would avoid the need to pay with debt or equity altogether.

As I note in the conclusion, this wouldn't be the most impactful change in the world, but it also doesn't require any trade-offs. We're just wasting money, and the consequences are slightly higher dev costs and slightly fewer feasible projects. We shouldn't let that stand.

Development finance is complicated and this paper doesn't get into all the complexities (I'm far from expert enough to do that anyway), but hopefully it helps illustrate why these details matter and the many opportunities we have to make positive, targeted changes. Cheers!