Development Fees Set To Spike In Dallas

Commercial real estate projects in Dallas are about to get more expensive.

The Dallas City Council passed a number of development fee increases on Wednesday related to permitting, engineering, inspections and more. The updates, scheduled to go into effect May 1, will double or triple the cost of some fees, with services like excavation set to increase by 2,407%, per the Dallas Morning News.

The development services department’s fee structure had not been updated in close to a decade, a recent study by a third-party consultant firm revealed. Only 55% of its overall costs were being covered by existing fee revenue, leaving the city to fund a budget shortfall of $20M. 

Pushing through a decade’s worth of fee increases in one fell swoop was a concern for the development community, which is likely to pass those costs through to tenants, District 1 Council Member Chad West said during the meeting. He encouraged department staff to identify efficiencies that will prevent future spikes.

“As costs go up, the developers aren’t just eating that, they’re passing that on to our people who are renting the homes and to our small businesses that are renting commercial space,” he said. “It’s impacting our residents and our voters and our taxpayers.” 

Multifamily developers may be the hardest hit by the updates, David Lehde, director of government affairs for the Dallas Builders Association, told Bisnow. The sector has been hammered by rising costs over the past few years, making any additional hikes difficult to absorb.

“We are especially concerned about the significant increases in multifamily permit fees,” Lehde said in a statement. “Anytime there is an increase in fees, it is a challenge for the multifamily sector, as they have more items to factor in for costs, including any need for affordable units to be part of the development.”

The fees are unlikely to make a significant dent in other large projects, Cawley Partners CEO Bill Cawley said. If the additional revenue is used to streamline the existing permitting process, the end result could be a win-win for all parties involved.

“The city has been losing lots of property tax revenue from completed projects because of the long permitting process,” Cawley said by email. 

The updates are expected to bring in an estimated $8.5M in additional revenue this year, but the increases should eventually eliminate the department's budget shortfall, Development Services Director and Chief Building Official Andrew Espinoza said during the meeting.

“The goal is to get full, 100% cost recovery,” he said.

UPDATE, MARCH 28, 3:47 P.M. CT: This story has been updated to include reactions from Lehde and Cawley.