A major consideration when planning to build a custom home is the cost of permits and fees owed to the County. The impact fees for building a residence on vacant land in Montgomery County can reach over $60,000. Montgomery County residents can avoid paying the high cost of impact fees by tearing down an older home and building new in its place. But Montgomery County has begun holding hearings into a new proposal that would change that.

The bill proposes two major changes to the impact fee structure. The first would apply the current school impact fee to new builds on teardown properties where the original home was built before early 2004. The second change creates a new impact fee, with proceeds going to the county’s affordable housing initiatives. The new fee would be levied at $9 per sq. ft, for any square footage over the size of the previously existing home.

A custom built City Lily Stone model surrounded by potential teardown homes.

Proponents see the bill as closing a “loophole”, while opponents see it as a “double tax”, pointing to higher existing property taxes that will be applied once the new home is completed. Some activists and non-profits support the bill, and say the funds for affordable housing are much needed. The building industry has been opposed, concerned the change will price many customers out of the market.

Residents have also expressed concern that the bill would prevent them from staying in their neighborhoods as their families grow. The new legislation proposes to apply impact fees to home renovations where at least 50% of the home will be modified.

While there has been lively debate on the proposal, it does seem likely that it will pass. The Montgomery County Sentinel quotes Mary Beck, Office of Management and Budget Manager, as stating that County Executive Marc Ehlrich “favors the impact fee so much he intends to act as if it already has passed.”

Some nearby counties such as Howard County already include impact fees on new builds on teardown properties. This past November the Howard County Council voted to more than triple current school impact fees from $1.32 per sq. ft to $4.75 per sq. ft in 2020. The bill includes another increase to $6.50 in 2021, and further increases to be determined based on the consumer price index.

With far less vacant land available for new construction, particularly in areas of high demand, it’s no surprise Montgomery County has seen a decrease in revenue from new home construction. If you’ve been stalling on plans to build a new home on your lot in Montgomery County, now is the time to start. The cost for construction materials, labor, fees and taxes have never gone down, they’ve only increased over time. The best prices you’ll ever find are those available to you now.


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