New home constructions like this are subject to SDCs

What SDC Increases Mean for Affordable Housing in Bend

It’s hardly news that housing in Bend is expensive and isn’t getting any cheaper. The reason why isn’t exactly news either: people want to live in Bend and many are willing to pay top dollar for that privilege.

(Not yet clear on why people want to live in Bend? Then check out our primer on moving to Bend and guide to Bend Neighborhoods, or see what the Washington Post has to say here.)

New developments have met the growing demand to some extent. But the supply of new, affordable housing has definitely lagged behind the construction of higher-end homes. The reasons for this are complex and multi-faceted. But one item that tends to come up in relation to Bend’s affordable housing crunch is SDCs.

Even if you’re in the middle or higher end of the market for Bend real estate, SDCs–System Development Charges–are something you should know about. So, what are SDCs, and what do they have to do with housing prices?

Basically, Oregon state law allows cities and towns to charge a one-time fee on new constructions or additions. This helps fund local infrastructure. The idea is that new constructions require new infrastructure and cost the city money. It therefore makes sense to recoup these expenses via SDCs.

In Bend, SDC fees are quite significant, and on July 1, new higher rates went into effect. New single-family homes are now assessed $6,800 toward roads, $5,377 toward water, and $4,795 toward sewer. The most significant chunk goes toward parks and recreation, at $7,947. Water and sewer increases from 2017-18 are quite modest, but road fees are a whopping 35% higher and parks and recreation fees 8% higher.

How SDCs Impact Affordable Housing in Bend

Whether or not SDCs are relevant to affordable housing depends largely on who you ask. Some make the argument that SDCs simply reflect the very tangible burden that new housing places upon city infrastructure, as the Bend Bulletin’s editorial board does here.

It’s difficult to argue that SDCs are unnecessary, or that regular rate increases are unwarranted as the city continues to expand.

But one thing is clear: the city’s one-size-fits-all fee structure for single-family dwellings fails to incentivize the construction of smaller, less expensive homes. A developer might pay the same fees for a six bedroom mini-mansion as for a two bedroom, 1000 sq. foot home.

This has been a significant issue. Low-income housing is already disappearing from Bend.

Housing on the outskirts of town, the site of most new developments, tends to be cheaper relative to the city center. But there’s enough demand for new, higher-end housing that developers haven’t had any reason to pay the same premium SDC fees for smaller constructions.

The argument against tiered SDC rates depending on property size goes that they’ll amount to another tax on the well-off. Owners of larger homes are already subject to higher property taxes. Several alternatives have been proposed, but it is unclear that these will have the desired effect on developers.

Are Affordable Housing Exemptions Enough?

The City of Bend hasn’t ignored the issue. In the Fall of 2017, councilors voted unanimously to approve SDC exemptions for low-income housing.

Developers constructing homes affordable to lower-income Bendites now forego water and sewer SDCs and 75% of transportation SDCs. These homes must then remain affordable for the next 5 years. Otherwise developers will receive a bill for the full SDC costs.

This is on top of preexisting rate decreases for ADUs (Accessory Dwelling Units, often called tiny homes). Homeowners constructing ADUs on preexisting lots have to fork over $1,817 for streets, $3,206 for parks, and a variable amount for water and sewer. But with a maximum of one ADU allowed per lot, tiny home complexes aren’t something being explored by Bend developers.

While affordable housing exemptions are a positive step, the number of exemptions allowed in the budget is basically capped at about 100 per year. And low-income housing is still subject to 100% of the city’s parks and recreation SDCs, which represent the largest chunk of the total.

In approving significant rate hikes for 2018-19, Parks and Rec has been accused of being tone-deaf to Bend’s housing crunch. Others counter that these increases simply reflect the cost of keeping Bend’s superb recreation sites accessible to everyone.

Whatever the efficacy of the city’s low-income exemptions, these changes do nothing to encourage middle-income housing. So it seems likely that higher-income housing will continue to dominate new developments.

What do SDCs Mean for Current Homeowners and Home Buyers?

SDCs are intended to fund the development of new infrastructure. While developers saddle the fees, these inevitably trickle down throughout the housing market. In Bend especially, new developments represent an outsize portion of home sales. This means that they also have an outsize impact on the rest of the market.

Developers are basically looking to recoup their investment, and higher SDCs will inevitably translate into higher prices for new homes. Demand will continue to outstrip supply of Bend homes for the foreseeable future, so developers have no incentive not to pass SDC increases onto consumers. And as the market for new homes goes, so does the market for older homes.

How long will it before before we can expect to see a direct impact upon the market? It won’t be the case, of course, that new SDC rates will have an immediate effect on housing prices. But simple economics dictate that the impact will be felt, in combination with the various other factors dictating the marketplace.

The City of Bend obviously needs funding for infrastructure improvement and expansion. But SDC rates actually don’t pay for all the necessary improvements. Tax bonds end up covering the shortfall. So regular SDC increases are at best a band-aid, and one with perhaps unintentional consequences for the whole market.

We won’t presume that there’s any easy solution. But SDC scheduling that more proactively encourages affordable housing could be a step in the right direction.

If you’re looking for affordable housing in Bend, check out our Guide to Affordable Homes in Eugene and Bend. Better yet, get in touch with us, and we’ll put our noses to the ground to find you one of Bend’s few affordable homes.

 

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