Why it matters: The newly adopted Affordable Housing Linkage Fee will be assessed against all commercial and residential developers in order to help pay for affordable housing in the city.

Facts: On Wednesday, Dec. 13, the Los Angeles City Council voted unanimously to approve a “linkage fee” that would require commercial and residential developers to pay a fee of up to $15 for every square foot of new construction in order to fund construction of affordable housing. The fee, which will be broken down by market area and ultimate use of the property, will be deposited into the city’s Housing Impact Trust Fund, which has the broad goal of addressing “the evolving and varied affordable housing needs of the City.”

Following a 2016 study, the fee was developed to establish a nexus between new development and affordable housing demand. That study concluded that construction of new nonresidential projects creates a demand for affordable housing because nonresidential construction leads to the creation of low-wage jobs. Simultaneously, the study determined that construction of new market-rate residential projects results in increased spending that in turn generates a need for low-income jobs and creates a demand for affordable housing for low-income households.

The Los Angeles Planning Department estimates the fee will bring in up to $104.4 million annually.

Under the ordinance, the city will not begin collecting fees from developers for 120 days from the effective date of the ordinance, with fees gradually phasing in over the next year after that date. The proposed fees range from $3 a square foot for low-market nonresidential uses to $15 a square foot for high-market residential uses. The fee will be adjusted annually in July based on the consumer price index for urban consumers for the LA-Riverside-Orange County area.

Practice pointers:

• The cost of these new fees needs to be factored into the price paid for land in Los Angeles.
• In the event of a challenge, the fees appear likely to be upheld as a result of the California Supreme Court opinion in the case of California Building Association v. City of San Jose that concluded that nexus is not required for fees such as this one.
• Timing of new projects should take into account the fact that the full fee will not be in effect until 485 days after the effective date of the ordinance, due to its phased implementation.