Construction and renovation costs in Dallas will rise this year, but it's a matter of when and how. While the term “development fees” may make most of it a no-brainer, it's the everyday Dallasites who end up paying the bills.
The Dallas City Council is scheduled to consider an ordinance on March 27 that would amend and add fees related to permitting, engineering, inspections and other items, and is expected to go into effect as early as May 1. Fees increase by more than 2,400% on certain projects, while many other fees are set at double or triple his price for the builder.
The fee increase is expected to impact both residential and commercial projects, potentially leaving the city's Development Services Department to close a funding gap of more than $20 million. The private sector argues that this fee will make real estate, especially housing, even more expensive.
Whether you add a few thousand dollars to a multi-million dollar project or a few hundred dollars to renovate your home, someone has to pay the difference. Like it or not, that person could be a homeowner, a renter of an apartment or office space, or a shopper in a recently renovated retail center.
While the new rates will lower the cost of some services, most services will increase by double- or triple-digit percentage points.There are also services that our department has traditionally provided. For free Things that will start charging in the future and things that will start charging in the next few years.
It's not normal to see such drastic changes in a year, but this is not a normal situation.
“My understanding is that the last time we actually adjusted permit fees was close to 2015,” said Andrew Espinoza, director of development services and chief building officer. “It's been a long time and I'm disappointed we didn't do a better job of getting through it. We had to look carefully at our model and make sure it was sustainable.”
Cities typically increase rates every few years and provide a schedule to help builders and developers properly tally costs and budgets in advance. This is especially important for large projects that are capitalized many years in advance in order to predict accurate payment models to debt and equity holders.
A rate study prepared by an outside consulting firm found that Dallas' development services department only makes enough revenue to cover 55% ($50 million) of the total cost, with the city paying the rest. It has been shown. For the city and prefecture, that meant difficult decisions had to be made.
“My view is that the development community generally understands and agrees that the development services sector should be self-sustaining through various permits, inspections, and other ancillary fees,” developer Larkspur Capital said. said Karl Anderson, president of
“The surprise comes at a time when many projects are being shelved or canceled altogether, especially as inflation has severely affected construction costs, operating costs and apartment rents, resulting in several years worth of price hikes.” It was a time when we were suddenly able to make up for what we had missed.And there were also funding constraints.”
Private sector stakeholders were unaware of the rate hike and its weight last year and protested accordingly. After hearing feedback from organizations such as the Dallas Construction Association and the Real Estate Council, the department agreed to further expand its efforts and incorporate feedback.
According to a memo written by Assistant City Manager Majid Al Ghafri, the Development Services Department is losing out on $1.8 million in additional new revenue as each month passes without the new fee structure being implemented.
The City Council is scheduled to evaluate a timeline for implementing the new fees at its March 27 meeting.
The City Council could choose to implement all fees starting May 1, which could generate $8.5 million in additional revenue for the department this year.
Alternatively, the council could choose a phased rollout. On May 1st, builders will be responsible for paying 50% of the new rate, and July 1st will be the start date for paying 100% of the new rate. The second option provides an additional $6.8 million in revenue.
Development Services favors the first option.
Either way, fees are being incurred and will be directly and immediately impacted if either schedule is implemented.
Anderson said basic permit fees for apartments (excluding new inspection fees and incidental fees) will roughly triple in price virtually overnight. That would only undermine the viability of new projects and much-needed additional housing, he said.
An example of a Department of Development Services presentation shows that under the new pricing model, service fees for permits, plan reviews, and inspections for a 150-unit multifamily project would be $75,900 higher than what the city currently charges. Masu.
The new rates will increase the price of individual residences within the new multifamily construction by 190%, from $225 to $652 each. This figure is lower than the $2,705 per unit suggested by consultants.
“Ultimately, all of these fees will be passed on to consumers in the form of higher rents,” Anderson said. “Having said that, we understand the urgent need for DSD to increase rates, as new leadership continues to turn over rocks and uncover previously unknown issues. We understand that you are passionate about solving legacy problems.”
Housing costs in the region and the income required to purchase a typical home continue to rise in line with interest rates and inflation. A recent analysis by real estate and rental platform Zillow Group Inc. shows that the income needed to comfortably purchase a home in Dallas has increased by $53,679 since January 2020.
Some projects with an oversupply of multifamily and single-family space may be slowed by rising rents, but it is unlikely to impact Dallas' core.
When Espinoza took the director's job two years ago, he had to choose what challenges to prioritize.
“Customer wait times, acceptable delivery times, technology, lack of customer service, lack of meaningful and open engagement with stakeholders. Those were our top five,” he said.
“When you think about the amount of time we've actually been strategically focused on them, I'd say we've done a relatively good job of changing the trajectory of the organization 180 degrees.”
Anderson said he believes the new leadership team is very strong and the development community will be encouraged by the progress made so far.
“However, there is still a need to significantly extend the permit timeline, which DSD leadership acknowledges and is working to move forward in that direction,” he said. “They were very open to communication and worked with us on solutions.”
The ministry's 2023 annual report says wait times for residential and commercial building permits have been a thorn in the side in recent years, but things are starting to change.
Espinoza said another benefit that will further the department's momentum is moving to a 100% online plan review submission process, which eliminates the need for people to visit the office and allows the department to better track results. I think it's possible to do it.
Espinoza knows all too well the risks of a city of this size and volume.
“Dallas moves very fast and expectations are very high,” Espinoza said. “What we have to do as a city is make sure that our workflow, teamwork, culture and philosophy align with those expectations.”
