Linkage Fees Key to Helping Residents in Hot Markets

Innovative funding strategies are one way communities can help ensure no one gets left behind in an economic upswing.
March 20, 2018
Smartly Resourced

From Los Angeles to Boston, more cities are using “linkage fees” as a stable funding source for much-needed resident programs such as affordable housing and workforce training. A linkage fee program attempts to link the production of market-rate real estate to the production of affordable housing. For instance, a community can charge a developer a fee for each square foot of new market-rate construction and use the funds to pay for an affordable housing initiative. These fees provide a sustainable way to ensure residents and workers are not left behind as cities boom and developers profit.

Cities are creating a variety of ways to link the fees to development, and then set aside the funds for different programs. Los Angeles, which passed the linkage fee ordinance in December 2017, hopes to generate between $80 million to $100 million a year and create 1,500 new affordable units annually.

Linkage fees are not new but the appetite for them is changing. Thomas Menino, the late Boston mayor, commissioned a study in May 2000 to compare his city’s linkage fees to those of other cities. The study concluded that “Few cities in the U.S. have official linkage programs, likely due to the fear of the program’s impact on economic growth, and existing market for housing creation, and/or a lack of political will.”

Since 2000, none of the cities examined in the study – San Francisco, Sacramento, Berkeley, San Diego, Seattle and Cambridge – have suffered declines in economic growth. In fact, these communities are facing a lack of affordable housing, as well as racial and income disparities exacerbated by their rapidly growing local economies.

Displacement is a very real issue. In 2015, Los Angeles Mayor Eric Garcetti created the Innovation Team (i-team) to understand and prevent the displacement of businesses and residents. The i-team created the Los Angeles Index of Neighborhood Change to measure gentrification and the Los Angeles Index of Displacement Pressure to predict displacement. Important data tools like this combined with a steady and powerful funding stream can go a long way in protecting vulnerable populations.

More cities, including smaller cities, are exploring linkage fees as a way to proactively raise revenue for affordable housing. Wynn Resorts is currently building a $2.1 billion casino in Everett, Mass., and it will be the largest single-phase construction project in state history. Slated to open in 2019 and spur more economic development, the mayor of Everett submitted a request to the City Council to fund a $50,000 study to initiate a linkage fee ordinance. Originally proposed over a decade ago with little traction, the current request passed unanimously. It is a hopeful sign that good things come to communities that wait.