When Is a Park Fee Unconstitutional?

Happy Tuesday, and welcome to another edition of Rent Free. This week’s newsletter includes stories on: 

• New York Mayor Zohran Mamdani’s “Rental Ripoff Report” and its tacit admission that rent regulation is bankrupting the city’s rent-stabilized buildings. 
• A new poll showing widespread support for reforming California’s environmental review law. 
• San Francisco’s attempt to boost construction by slashing affordability housing mandates. 

But first, our lead story on a new constitutional challenge to the exorbitant park fees one California city is charging to approve a simple lot split the state law requires it to approve.

The case is an interesting example of traditionally conservative or libertarian Takings Clause arguments being levied in defense of more liberal-coded zoning reforms.

California developer Mircea Voskerician is suing the city of Menlo Park over a $127,000 “recreation in-lieu” fee it’s charging him just to subdivide a lot owned by his company. 

Per the complaint, Voskerician purchased an 18,500-square-foot lot in 2024 and shortly thereafter filed an application with the city to subdivide the property into two. 

Under California’s Senate Bill 9 (S.B.) 9 law, cities like Menlo Park are required to approve lot split applications “ministerially”—meaning without any public hearings or discretionary review from planning or elected officials.

Menlo Park complied with this requirement and approved Voskerician’s application. It also charged the developer the six-figure parks fee for his trouble. 

California gives localities lots of flexibility to charge impact fees on new housing, something localities have exploited to practically limit the number of S.B. 9 projects. (More on that later.)

While Menlo Park’s fee might be kosher under state law, Voskerician’s lawsuit contends it violates the U.S. Constitution. 

The constitutional problem with high permit fees

In its Nollan and Dolan decisions, the Supreme Court has ruled that the Takings Clause of the Fifth Amendment limits local governments to demanding that permit applicants surrender only the money or property necessary to mitigate the public impacts their proposed project would cause.

The court’s 2024 decision in the Sheetz case confirmed that the Nollan-Dolan standards apply to permitting conditions imposed by local legislatures and not just local bureaucrats using their own administrative discretion.

In this new lawsuit, Voskerician, who is being represented by the Pacific Legal Foundation (PLF), argues that his lot split is not creating some great new strain on recreational facilities in Menlo Park. Therefore, the city cannot charge him such a high park fee. 

“The Supreme Court has made it abundantly clear that cities cannot force property owners to foot the bill for problems they didn’t create. Menlo Park cannot ignore that precedent to demand a six-figure exaction for a routine subdivision,” said David Deerson, an attorney with the Pacific Legal Foundation.

Since Sheetz, property owners have filed a flurry of lawsuits arguing that the holding in that case makes various types of impact fees or affordable housing mandates unconstitutional.

In addition to Voskerician’s case, PLF has litigated three cases challenging cities’ application of fees or other exactions on S.B. 9 projects. Two of those cases have been settled, and fees refunded to the plaintiffs. Another, filed against San Luis Obispo, is still pending.

Voskerician’s lawsuit gives the courts one more opportunity to rule against localities’ common practice of shifting an undue share of the costs of public services onto new development via impact fees and similar mandates. 

The practical problems of high permit fees 

Bringing that burden back within constitutional limits would likely make a lot more new development financially feasible. It would certainly make S.B. 9 projects a lot more feasible.

When it was first working its way through the Legislature in 2021, proponents pitched S.B. 9 as a means of creating a lot more “missing middle” homes in California’s choicest neighborhoods. By allowing property owners to subdivide single-family lots and build two new homes on each half, the law would allegedly kick off a building boom of affordable duplexes and starter homes.

Early estimates of the law’s impact forecast it enabling 700,000 new homes. Four years on from its enactment, just 2,412 duplex project applications have been submitted, according to a state dashboard that tracks S.B. 9 implementation. Another 663 lot split applications have been submitted.

One reason for S.B. 9’s dismal performance is the high impact fees localities can charge on projects making use of the law.

Since 2021, the California Legislature has considered a handful of S.B. 9 “clean up” bills to get the law working. Some have passed. The more comprehensive fixes have stalled out.

A successful constitutional challenge to impact fees could see courts make S.B. 9 more productive, where the legislative process has thus far failed.

Following a series of public “Rental Ripoff Hearings” held earlier this year, New York Mayor Zohran Mamdani’s administration has released a report detailing how it intends to address the complaints tenants raised in those hearings about building quality and landlord business practices. 

The report’s policy recommendations include more proactive city code enforcement, higher penalties for code violations, and legal recognition of building tenant unions. 

It also proposes legislation that would force landlords to choose between asking prospective tenants for their credit history or for proof of income. Many currently ask for both.

Many of these policies were already proposed in the mayor’s Block by Block plan that was released in May. 

“We are making it clear that every New Yorker deserves a safe home—and every landlord who refuses to provide one will be held accountable,” said Mamdani on the release of the report.

Landlords contend that it is state and city regulations, not property owners’ negligence, that are responsible for conditions of disrepair reported in the rent ripoff hearings. 

“Buildings cannot be maintained on frozen revenue. Boilers, roofs, elevators, and facades do not repair themselves,” says Kenny Burgos, president and CEO of the New York Apartment Association, in a statement referencing the Rent Guidelines Board’s recent decision to freeze rents at the city’s nearly one million rent-stabilized units. 

Bigger picture, property owners argue that the state’s 2019 rent law, which greatly limited landlords’ ability to raise rents on vacant or renovated rent-stabilized units, has led to a physical decline of the rent-stabilized housing stock.

A recent brief by the New York University Furman Center found rent-stabilized units have cut maintenance spending following the 2019 law.

Reading between the lines, the Rental Ripoff Report tacitly accepts the premise that the 2019 law disincentivized building upkeep.

Under the pre-2019 regulations, “the main driver of tenant displacement shifted from abandonment and divestment to speculation and rising rents,” reads the report.  

To rephrase slightly, the pre-2019 rules incentivized landlords to invest in their buildings in pursuit of higher legal rents. Now, the rents are capped, and that incentive is gone. The old problems of disinvestment and building abandonment are now returning. 

Mamdani’s Rental Ripoff Hearings attracted criticism earlier in the year when it was revealed that they’d exclude the testimony of New York’s public housing residents, who, by some accounts, rent from the city’s worst landlord—the city’s own housing authority.  

The Rental Ripoff Report includes a brief section on public housing that notes NYC Housing Authority tenants are more likely to report multiple problems with their units. The report blames these heightened maintenance issues on “federal disinvestment”—another tacit recognition that it takes money to keep buildings in good repair. 

The mayor is still banking on the idea that stepped-up enforcement can force private landlords to spend more money on their buildings. The obvious response is that that money has to come from somewhere, and it’s not coming from the rent under the freeze and the 2019 law. 

Check out Reason’s latest video on the rent freeze and its potential to create more zombie apartments.

In an effort to boost construction, San Francisco has slashed the required amount of affordable housing developers must include in their projects. 

Last Tuesday, the Board of Supervisors voted 9–2 to reduce the percentage of units developers must offer at below-market rates from 15 percent to 5 percent across most of the city. In the Mission District, these “inclusionary housing” requirements were reduced from 17 percent to 8 percent. 

The Board also exempted projects of 24 units or less from the inclusionary housing requirements entirely. Under the prior regulations, only projects of ten or fewer units were excluded. 

The changes come on the heels of the latest triennial study from the Controller’s Office finding that the city’s inclusionary requirements rendered all forms of development financially infeasible and that the burden of the policy was “significantly worse” than when it was last studied in 2023. 

Hundreds of cities across the country have “inclusionary zoning” policies that require or incentivize developers to include below-market-rate units in their projects. 

The research on inclusionary zoning policies is generally pretty negative. 

By requiring builders to include money-losing units in their projects, the policy effectively imposes a high rate of tax levied on a very narrow base of new construction projects. The result is less construction and higher housing costs—presumably the opposite result one would want from an affordable housing policy. 

The San Francisco Controller’s last study from 2023—which likewise found the city’s affordable housing mandates were having a depressive effect on new development—prompted the Board of Supervisors to temporarily reduce the inclusionary requirement to 12 percent of a new project’s units. 

Those temporary reductions are set to expire in November. With this year’s controller report finding an even more challenging environment for new development, the Board opted to permanently slash its inclusionary requirements. 

Mission Local reports that the reduction in the city’s inclusionary requirements is part of a wider deal between Mayor Daniel Lurie, supervisors, and affordable housing groups that also places an initiative on the city’s November ballot to spend increased property tax revenues on affordable housing subsidies. 

In 2026’s challenging development environment, a number of cities have moved to lessen the burden of their inclusionary zoning policies on new construction. 

Albany, New York, cut its inclusionary requirements from 13 percent to 5 percent earlier this year, while also hiking the per-unit lieu fees developers pay to opt out of building the units themselves. 

The Oregon Legislature passed a bill requiring cities in the Portland metro region to offer tax breaks that fully offset the cost of any inclusionary zoning mandates they apply. Portland, Oregon, adopted a similar local policy in 2024. 

A new poll shows overwhelming support for a ballot initiative that would substantially pare back the California Environmental Quality Act (CEQA), the state’s landmark environmental review law. 

The poll, conducted by the Public Policy Institute of California (PPIC) between June 29 and July 6, found that 73 percent of voters would vote “yes” on Proposition 45.  

The initiative would set binding timelines for CEQA reviews of “essential projects” (broadly defined as new housing, transportation infrastructure, water and energy projects, and more) and dramatically limit the scope of what those reviews would require. 

Today, CEQA requires that the builders of everything from new housing to new bike lanes study a wide, indeterminate list of environmental impacts their project might cause and then mitigate those impacts where possible. These studies can take years, and litigation over allegedly insufficient reviews can add additional years, and in extreme cases, decades, to project timelines. 

The proposed reforms on the November ballot, which are being sponsored by the California Chamber of Commerce, would limit CEQA reviews to checking whether a project is in compliance with existing laws and regulations. 

Reviews would have to be completed within 365 days. Lawsuits challenging the adequacy of those reviews would have to be decided within another 270 days.

Most CEQA reforms in recent years have exempted certain classes of projects (student housing, urban infill housing, etc) from the law entirely. Proponents of the Chamber’s initiative argue its amendments to the law are more modest. It streamlines CEQA reviews but still requires that projects undergo that review. 

Others argue the measure represents a much more significant update of the law. 

Converting the “study everything” law into a checklist of regulatory compliance “would be a huge change,” Christopher Elmendorf, a law professor at the University of California, Davis, told Reason back in May. “Basically, it ends CEQA in anything like the form we’ve known it.” 

It’s still a long way to November. Time will tell if the support for Proposition 45 reported by the PPIC holds. 

• Chicago Mayor Brandon Johnson proposes a raft of new regulations that would limit landlords’ ability to not renew current tenants’ leases. Richard Day offers some critical comments at his Chicago-focused Substack A City That Works. 
• A federal judge dismissed a Santa Barbara landlords’ challenge to their city’s rent freeze. An attorney for the property owners told local outlet Noozhawk that the plaintiffs were considering filing an amended complaint by next month and that the lawsuit is “not over.” 
• A recent report from researchers at Rutgers University catalogs the last decade of housing construction on land owned by religious institutions. 
• Indianapolis considers eliminating parking mandates. 
• An initiative that would have imposed a two-year rent freeze on housing in Washington, D.C., fails to make the ballot.
• New Jersey Gov. Mikie Sherrill signs legislation restricting landlords from using rent recommendation software. This software has gotten a lot of (unfair) blame for raising rents above market rates.