Linkage Fee

What Is a Linkage Fee?

A linkage fee is a charge that a city or county places on new non-residential development — offices, retail centers, hotels, labs, industrial buildings — to raise money for affordable housing. The “linkage” is between jobs and homes. A new office tower or distribution center brings employees, and many of them, from custodians to retail clerks to entry-level professionals, may not be able to afford housing near work.

A closely related tool, sometimes called an affordable housing impact fee, applies the same logic to new market-rate residential development.

How It Works

1. Nexus study. The jurisdiction commissions an analysis that estimates how many jobs each type of building creates, what those jobs pay, and how many of the resulting households would need affordable housing. The study establishes the maximum fee the jurisdiction can legally defend.
2. Fee schedule. Fees are usually set per square foot and vary by building type, size, and sometimes location. Many places set the fee below the legal maximum and phase it in.
3. Collection and alternatives. Payment may be due at permit issuance or in installments. Some programs let developers build affordable units or donate land instead of paying.
4. Spending. Revenue typically goes into a local housing trust fund, which lends or grants it to affordable housing projects.

Boston created its commercial linkage program in 1983, one of the first in the country. Cambridge, Massachusetts, and Seattle run similar programs. Whether a locality can adopt one depends on state law: home-rule states give localities broad authority, while others require specific enabling legislation.

Linkage Fee vs. Inclusionary Zoning

Inclusionary zoning asks residential developers to include affordable units in their own buildings. A linkage fee targets buildings that contain no housing at all, so it collects cash rather than units. Many cities use both.

Criticisms and Limitations

• Effect on development. Developers argue that fees raise costs and can push projects to neighboring jurisdictions. Supporters respond that the fee asks new buildings to cover a fair share of the housing demand they create. How the tradeoff plays out depends on the strength of the local market.
• Revenue follows growth. A slow-growing area collects little, and collections drop in downturns.
• Legal scrutiny. In Sheetz v. County of El Dorado (2024), a case about a county traffic impact fee, the Supreme Court unanimously held that fees set by legislation, not just fees imposed on a single project, must meet the “essential nexus” and “rough proportionality” tests. The Court left open how precisely a fee schedule covering a whole class of buildings must be tailored, which keeps the nexus study central to defending a fee.