Construction fees on ‘granny units’ challenge local builders

Sonoma County builder Orrin Thiessen walked up a narrow, unfinished staircase and with pride began describing the 550-square-foot granny units being built as part of his Green Valley Village housing development in downtown Graton.

The small dwellings now are little more than an array of 2-inch by 6-inch wood framing studs and plywood floors and walls. The compact design of each includes a kitchen, living area, bathroom, bedroom and laundry closet.

“It’s got everything you need,” Thiessen said, standing in the living room, holding his arms out.

The construction of these slight apartments in Sonoma County is considered a key part of helping to ease the housing affordability crunch. But building them, he said, simply isn’t financially viable, especially in rural parts of the county where smaller sewer districts charge heftier connection fees and rates.

Local cities and towns have been rushing to reduce impact fees and restrictions to encourage construction of these so-called granny units, prompted by changes in state laws and the devastating 2017 wildfires. For example, Santa Rosa sharply reduced its impact fees for these smaller housing units, also known as secondary homes, and are starting to see significant response from builders and homeowners.

In some cases, other municipalities are charging 50 percent or even 33 percent of the regular hookup fee for sewer connections. Homeowners and builders say each incremental fee reduction helps bring down the overall cost of construction of the smaller homes.

Recent changes to state laws require municipalities, special districts and water corporations to charge a proportional fee scale based on a secondary home’s size or its number of plumbing fixtures. The Graton wastewater treatment district, as well as the Sonoma County Water Agency, charge a reduced connection fee that’s 80 percent of the regular fee for a single- family home.

Thiessen cited Santa Rosa’s fee reductions and new approach to encourage building granny units as a model that appears to be working as intended. In 2018, the number of permit applications the city received to build these homes hit a record high of 118, up from 33 the previous year.

That total exceeds the entire number of applications to build these homes - 85 - from 2008 to 2017. In the first two months of this year, the city already has gotten 15 more permit applications from builders.

Across the county, local leaders are alleviating the complexity and high cost of building granny units. In large part, they see it as part of their strategy to contend with the shortage of affordable homes.

In 2017, Healdsburg city officials approved reduced impact fees for granny units to conform with state law. The city’s sewer capacity fee, for example, was reduced to $3,193, or 33 percent of the $9,676 fee for a single- family home. The sewer capacity fee had been $8,708, or the same as for a multifamily unit, or apartment.

Likewise, Healdsburg’s water fees also were reduced to 24 percent of the $5,834 charged for a single- family home. Healdsburg officials say they are considering increasing the size restriction on these small dwellings, from 850 square feet to between 1,000 and 1,200 square feet.

“We’re conforming with state law,” said Stephen Sotomayor, Healdsburg’s housing administrator.

For Graton resident Susan Ballinger, 52, the cost and government bureaucracy involved with building a granny unit are “daunting.” Ballinger, a landscape designer, owns a ?quarter-acre property with a 1,008- square-foot home she bought in 2006. She said she’d like to build a 1,000- square-foot granny unit.

“That’s part of the reason I was interested in this property to begin with,” she said. “It would help me financially to cover my bills, my mortgage. As I get closer to retirement, I’m looking for ways to make money.”

David Clemmer, president of the Graton Community Services District board, defended the sewer hookup rates, which he said were in line with those of the county water agency. Clemmer said the district, with only 450 households paying for costly infrastructure, is small compared to Healdburg or Santa Rosa’s wastewater systems.

“The sewer connection fees are slated for capital reserves so that when the infrastructure wears out we have the funds to replace it,” Clemmer said. “We’re a small district; we have to charge that.”

Mike Thompson, assistant general manager of the Sonoma County Water Agency, agreed with Clemmer that smaller districts usually pay more in sewer connection and service fees.

“A lot of this comes down to economy of scale,” he said.

Thompson said he thinks the county water agency is in compliance with state laws for granny units. He said the desperate need for more housing in the aftermath of the 2017 wildfires was one of the reasons the agency has decided to review its construction impact fees to build these homes.

The agency, Thompson said, is in the process of selecting a consultant to do a connection fee study with the hope of having new fees, if needed, in place for the 2020-2021 fiscal year. He said helping to boost local rebuilding efforts following the deadly fires is a top priority for the agency.

“One of our big efforts on fire recovery is to construct a new sewer system in Larkfield Estates,” he said, adding that the neighborhood previously was on a septic system, which did not allow granny units.

Construction of a sewer for Larkfield Estates will cost between $50,000 andto $65,000 per home, but the agency will delay homeowner payments until 2030. For connection fees, about $12,000 per residence, homeowners will be offered 20-year loans at 2 percent, he said.

“This will allow them to create granny units that can be used as income,” he said.

Meanwhile, Thiessen’s Green Valley Village project consists of 10 1,665- square-foot, two2-story homes. Thiessen is building eight of them and two are “sweat-equity” homes being built through nonprofit Habitat for Humanity. Six of the eight houses will include granny units, costing about $100,000 to build and he’s adding that cost to the price tag of each home. However, since he has to pay about $25,000 in impact and sewer connection fees for each granny unit, he is taking a loss of $150,000 to build them, he said.

“The fees aren’t going to kill me,” he said. “But it’s a housing issue. The fees are preventing small apartments, condos and small homes from being built because the fees are regressive.”

Originally, he had planned to build 24 apartments on the ?1.4-acre property on Edison Street in Graton. But the sewer hookup fees alone for two dozen apartments would have cost around $216,000, he said.

Combined with other impact fees, the total cost to build them would have been $720,000, he said. In general, small homes and apartments cost about ?$50 per square foot in impact fees, compared with $20 per square foot for larger homes.

“It didn’t pencil out,” Thiessen said. “For 30 years, builders haven’t been building small apartments, granny units or condos because they don’t pencil out - the smaller the unit, the less it’s going to pencil out.”