Linkage Fees

Overview

Florida, like much of the nation, has insufficient affordable housing. As a result, many local governments have adopted various methods to address the shortage of affordable housing, including the implementation of linkage fees. Linkage fees are used to generate revenue that will support the creation of new affordable housing.

Problem

Because linkage fees subsidize new affordable housing, they might seem like something the Florida Apartment Association would support. They can, however, have negative consequences. Linkage fees are essentially a tax on either commercial or residential development, and they can actually harm housing affordability by increasing the cost of housing construction. These additional construction costs will ultimately translate into higher rents in order for the project to remain viable. Thus, the fee serves to make affordable housing even less available by increasing rent and/or, in extreme situations, constraining the market. If fees and taxes are overly burdensome, a developer may decide to build in a different market where it is less costly to build. 

Background

Linkage fees are a method for local governments to collect from commercial and/or residential development money that is then placed in a housing trust fund for others to use in building affordable housing. The fees are typically charged based on square footage, with rates ranging from less than $1 per square foot to upwards of $25 per square foot. The amount, however,  is completely at the discretion of the county or municipality. 

Linkage fees are upheld by both federal and state law. The legal basis of linkage fees is confirmed through a two-part Supreme Court test: 

• The nexus between what the government wants the landowner to do and a legitimate state interest. 
• The requirement on the private landowner must be related “in nature and extent to the impact of the proposed development.”

Establishing a linkage fee involves completing a nexus study, determining an implementation plan, and of course, adoption. Each of these processes is further outlined below: 

• A nexus study is used to determine the connection between the impact of a new development on the demand for affordable housing, along with the fees allowed. For example: What is the “linkage” between the new development and the demand for affordable housing based on local employment, wage, and development data? For a residential development, this would include the linkage between the residential development and the construction and maintenance workers needed, on the one hand,  and their expected earnings and affordable housing costs on the other.
• The implementation plan determines the logistics of the fees, including who will administer the fees, the review and timeline process, how the fees will be used, and the process for alternatives to the fee, if any.
• Adopting the fee involves drafting the ordinance, hearing public comment, and establishing the regulations, including a review process for the amount of the fees. 

Florida Legislation

In 2020, the Florida Legislature passed HB 1339, which authorized local governments to create a linkage fee for the purpose of funding affordable housing, and provided that certain developers are entitled to a full offset of the fee. This bill provides guidance and standards for local governments to continue requiring certain linkage fees. In exchange, however, a county or municipality must provide incentives to fully offset the linkage fee costs to the developer of a residential or mixed-use residential development.

Examples of Linkage Fees in Florida

St. Petersburg

St. Petersburg completed a nexus study draft, but tabled its discussion of instituting linkage fees due to the Coronavirus pandemic. One commissioner noted, “I think the administration realized that in such a large economic uncertainty and downturn, the last thing that we should be doing is looking at increasing fees on anyone for anything. … While our affordable housing initiatives are just as important as they always have been, putting that on developers at this time really seems very irresponsible.”

St. Petersburg’s fee would have imposed $1 per square foot of gross floor area on any building permit for residential, industrial, or commercial new structures or an addition that increases the gross floor area of an existing building. Developers who do not want to pay the fee could build affordable housing or include affordable units in their property instead.

Winter Park

The city of Winter Park did not complete a nexus study, but adopted its ordinance in 1990. The fee is 50 per square foot for residential and non-residential development. In Winter Park, the fees are due when the building permits are issued.

Coconut Creek

The city of Coconut Creek completed a nexus study and adopted its ordinance in March 2006. Their fees range from 15 cents to $2.42 per square foot of non-residential construction.

Jupiter

The town of Jupiter did not complete a nexus study, but adopted its ordinance in May 2015. It requires a fee of $1 per square foot of non-residential construction.

Alternative Solutions

Proactive advocacy

The apartment industry can stress the counterintuitiveness of taxing housing producers in order to create housing. If a local government is committed to moving forward with a linkage fee, the apartment industry should make sure the local government officials are aware they must offset the costs associated with the linkage fee, as required by HB 1339. 

In addition, the industry is encouraged to talk about the incentives that will drive housing affordability, found in the FAA Housing Affordability Toolkit. It may also be helpful to share  the data regarding the direct effect municipal policies have on increased rent found in the Drivers of Multifamily Housing Cost and Affordability Study. According to the study, “If a project faced all of the cost increases discussed in Section 4.2, rents may need to increase by 12%-17% to maintain consistent returns. This is the difference between a new garden-style apartment in Orlando being affordable to a two-person household earning $64,000 annually and to a household making $75,000.”

A commercial linkage fee may be an alternative solution. As previously noted, linkage fee nexus studies gauge the affordability demand as a result of the production of a new development. Commercial development is directly correlated with jobs, which ultimately create the need for new housing to meet a growing workforce. 

Example of a Potential Strategy

If a linkage fee ordinance is proposed by your local government, review the Florida Apartment Association’s Housing Affordability Toolkit and consider these questions:

Is the linkage fee for residential development?

If it is, then you may want to create a strategy. If it is not, then there is no problem. The local government should be encouraged to establish a linkage fee for commercial or industrial development.

Have you voiced your concerns to local legislators?

The local government won’t know the effects of this ordinance on your business if you don’t tell them. It may be useful to set meetings with the local officials to explain your concerns and the unintended impact a linkage fee may have on affordable housing. If you can’t meet with the officials or have already done so, you should next voice your concerns during the public comment period at the local city or county commission meeting.

Are officials  aware that the municipality must offset the costs of the linkage fee if it is mandated?

If they are not, make them aware of HB 1339 and be sure that they include the proper incentives to truly offset the costs. Otherwise, developers may choose to build housing elsewhere. Refer to the FAA Housing Affordability Toolkit for which incentives developers prefer. 

What happens if my city passes a residential linkage fee?

Talk to them about amending it to include a section that explains that if a developer includes affordable units in the development, then the linkage fee will not be required. Work with the city to provide the proper incentives to offset the costs.