Summary:

California’s housing crisis is exacerbated by high development costs, including traffic Impact fees imposed by local governments under the Mitigation Fee Act.  These fees, intended to offset infrastructure impacts, often add up to 20% of a project’s construction cost, even for housing near transit where residents drive less.  Senate Bill 358 (SB‑358), signed into Law in October 2025, modernizes this framework to align fees with actual traffic impacts and incentivize sustainable, transit-oriented development.

Background: The Mitigation Fee Act

The Mitigation Fee Act (Government Code §§66000–66025) requires local agencies to:

• Identify the purpose and use of development fees.
• Establish a nexus between the fee and the project’s Impact.
• Ensure proportionality between the fee and the public facility’s need.

Historically, traffic Impact fees were calculated using standard trip-generation rates, often ignoring location efficiency (the ability to access daily needs within a short distance) and transit access.  This penalized infill housing and unnecessarily raised costs.  SB 358 addresses this by considering location efficiency and transit access in the calculation of fees.

What SB‑358 Changes

SB 358 introduces key reforms to make traffic mitigation fees fairer and evidence-based, providing reassurance to all stakeholders.

1.  Mandatory Fee Reduction for Qualifying Housing

• Local agencies must reduce vehicular traffic Impact fees by at least 50% for housing developments that meet prescribed characteristics.
• No longer optional—cities cannot charge full fees unless they provide written findings supported by substantial evidence that the project will not reduce automobile trips.

2.  Updated Eligibility Criteria

To qualify for reduced fees, a housing development must:

• Be located within a transit priority area (½ mile of a major transit stop).
• Provide no more than one onsite parking space for 0–2 bedroom units and two spaces for units with 3+ bedrooms.
• Be within ½ mile of three or more specified amenities, such as:
• Supermarket or grocery store
• Pharmacy or drugstore
• Restaurant or coffee shop
• Park or hardware store.  

3.  Elimination of Previous Provisions: This change ensures that the new system is clear and free from any outdated rules, keeping all stakeholders well-informed.

• Removes the old rule allowing proportional fees for developments that partially meet criteria.
• Deletes the outdated convenience retail requirement and replaces it with proximity to multiple amenities.

4.  Transparency and Accountability: This provision ensures that all decisions are made with substantial evidence, instilling confidence in the process.

• If a local agency denies the reduced fee, it must justify the decision publicly with substantial evidence during the project approval process.

5.  Land Dedication Clarifications

• Restricts roadway widening dedications except for traffic safety or specific frontage conditions (>500 feet).

Impact on Local Governments and Developers

• Local Governments: Must update fee schedules and adopt objective standards for qualifying developments.  New administrative duties include conducting evidence-based research and attending public hearings.
• Developers: Significant cost savings for transit-oriented projects—Impact fees often represent 10–20% of total construction costs, so a 50% reduction can improve project feasibility and affordability.

Why SB‑358 Matters

This reform aligns fees with actual traffic impacts, rewarding developments that reduce car dependency.  Benefits include:

• Lower housing costs
• Increased infill and transit-oriented development
• Reduced greenhouse gas emissions
• Compliance with constitutional standards for proportionality (reinforced by Sheetz v. County of El Dorado, 2024).

✅ Compliance Checklist for SB‑358

Before approving a housing project, confirm:

• Located in a transit priority area.
• Meets parking limits (≤1 space for small units; ≤2 for large units).
• Within ½ mile of three or more amenities.
• Apply a fee reduction of at least 50% unless substantial evidence supports the full fee.
• Document findings and make them publicly available.

Bottom Line

SB‑358 is a game-changer for California housing policy.  By tying traffic Impact fees to real-world travel behavior, it removes a significant barrier to building affordable, transit-friendly communities—helping California meet housing and climate goals.