It costs money to pull permits and carry out inspections for new building, whether it’s a $150,000 house or a $20 million apartment complex.
Proposed changes to what Raleigh charges for these tasks would hike fees for developers by $6 million annually to meet what the city considers its cost of doing the work. With these changes, Raleigh’s Development Services Department would increase its budget from $13 million to $15.4 million, offering perks such as increased opportunities to meet with inspectors face-to-face and to have one inspector sign off on the work of multiple trades, including electricians and plumbers.
According to a new city survey, Raleigh residents see the handling of growth as an important city function that isn’t particularly well handled. The new fees are intended to make sure new construction pays the city’s cost for ensuring high standards and that developers are served in a timely manner.
The new system, scheduled for a February 21 public hearing before the city council, will bring Raleigh’s fees closer to those of comparable cities, although they will still lag far behind the amounts charged by benchmark governments in Austin, Texas, and Loudon County, Virginia, according to a study Raleigh commissioned.
“The fees were no longer aligned with what the cost of services were,” says Hamid Dolikhani, the department’s assistant director. “If it had remained with the old fee rate, the gap would be around six million dollars.”
Council members who were interviewed and developers both appear likely to support the changes. “I won’t say how I’m going to vote, but I agree with the principle,” says council member Kay Crowder.
As might be expected, there are some caveats on the developers’ side. Raleigh developer Tom Anhut, who cochaired a yearlong advisory committee of developers, said in a letter presented to council on January 17 that the committee is worried about Raleigh recovering 100 percent of its direct costs for new commercial projects. The city, meanwhile, is setting new fees for residential development that will pay back about 89 percent of its costs. It will eat the rest so that Raleigh home prices remain competitive with other markets.
“Our goal has always been to ensure that Raleigh remains an attractive, competitive and viable place to do business and that there is recognition of the perpetual increase in tax base and economic benefit derived from development,” Anhut wrote. “Additionally, the study’s scope was limited to the fees associated with Development Services which is just one aspect of the overall cost of development in the City of Raleigh. There are other significant costs and requirements which are unique to Raleigh that we believe should be taken into account when benchmarking the overall cost of development against other municipalities.”
Anhut, who did not return a call from the INDY, ended his note with the hope that any fee increase would be phased in to give developers time to adjust.
Austin is often compared to Raleigh, Nashville, and other meccas for growth and development. It charges development fees far in excess of Raleigh, most notably for commercial projects. A chart presented at a January lunch session showed that Raleigh’s land development fee for a three-lot subdivision is $702 and would increase to $2,155 under the new proposal.
“That increase would be felt more by the land seller,” says Suzanne Harris, vice president of governmental affairs for the Home Builders Association of Raleigh-Wake County. “The developer’s going to say, ‘Sorry, how much did you want for that land?”
The increased figure is still less than the amounts charged by Cary and Charlotte. In Austin, the corresponding fee for a three-lot subdivision is $10,766. For an office building, Raleigh’s land-development fee would rise from $1,576 to $2,293. Again, Austin’s is far higher: $14,049. Finally, a house in the $250,000 range would bring fees of $1,600, compared to a little more than $1,000 currently. Austin’s fee at this level is roughly comparable with Raleigh’s.
Harris says increased fees can lead to higher home prices at a time when affordable housing is a key issue for Raleigh. Again, comparing the City of Oaks with Austin, the median cost for existing housing in Raleigh is $156,000, up 5.9 percent since 2006; Austin’s is $225,000, up 38.9 percent during the same period, both according to a 2015 survey.
The association Harris represents, as well as other developers, became part of the process of setting new fees, and groups speaking for schools, neighborhoods, and hospitals were invited to join in. Developers’ representatives aren’t likely to try to derail the entire proposal, but they would like some of its effects to be moderated.
“I think the ship has sailed on [the entire package], honestly,” Harris says. “I don’t know that we would get a lot of foothold to say, ‘Crush it.’”
As in Anhut’s written comments, developers may home in on modifying the new fee structure so that, for instance, it is phased in over a couple of years and that people who are already in the permitting process could continue at the rate quoted them.
Council member Mary-Ann Baldwin says the new fee structure could eventually lead to recovery of about $1 million in the department’s indirect costs, such as financial, human resources, and legal services.
“It’s a starting place,” Baldwin says.
This article appeared in print with the headline “Development’s in the Details.”