Local government: Legal uncertainty over development fee threatening new housing

Jõelähtme Rural Municipality Mayor Andrus Umboja has warned that unless the government quickly enacts a social infrastructure development fee, residential construction in Estonia's main economic regions could grind to a halt. Like other municipalities near Tallinn, Tartu and Pärnu, Jõelähtme has grown rapidly over the past few decades. At the beginning of the century, the municipality had about 5,000 residents, a figure that has now grown to 8,000, with the population increasing by an average of 300 people per year in recent years. As the population has become younger and more families have moved in, a critical shortage of kindergarten and school places has emerged, particularly in the Tallinn-area small borough of Loo and the village of Liivamäe.

With the municipality's debt burden already high, Jõelähtme has for the past couple of years required developers submitting new detailed plans to pay a social infrastructure development fee of €6,300 per residential unit, whether an apartment, townhouse unit or single-family home. According to Umboja, the amount is marginal in the final price of a property and does not discourage people from moving in. He added that professional developers also support the system because it provides equal and predictable rules for everyone.

The practice, however, is now under threat because there is no legal basis in legislation for collecting the fee. The chancellor of justice has formally called on Jõelähtme Rural Municipality to bring the municipal council's regulations into compliance with the Constitution. If the municipality does not change its current practice, the justice chancellor plans to ask the Supreme Court to review the matter for its constitutionality. The Supreme Court has previously ruled against municipalities in similar cases.

In a letter sent to the government on June 25, Andrus Umboja wrote that no one stands to benefit from such a legal dispute and that the only solution is for the Riigikogu to pass new legislation establishing the fee. The Ministry of Regional Affairs and Agriculture sought to resolve the issue as early as January 8 this year by submitting a proposal to the cabinet to amend the Local Taxes Act and add the development fee to the list of local taxes. The government, however, rejected the ministry's proposal in January. Sigrid Soomlais, the ministry's deputy secretary general responsible for regional development, said the government did not support the proposal and as a result the draft bill did not proceed. Asked what would happen next, she replied plainly: "We do not currently have an alternative draft bill in the works."

According to Soomlais, local governments now have no choice but to follow the law as it stands and existing court rulings — which in practice means municipalities can no longer require developers to pay a social infrastructure development fee. Umboja stressed that while the state requires local governments to provide kindergarten and school places, municipalities do not have the resources to cope with the additional burden created by suburbanization.

If municipalities are barred from collecting the fee, approval of new detailed plans will have to be suspended. "If we cannot provide school and kindergarten places, then we cannot approve new detailed plans and that means new housing will not be built," Umboja warned. He said that failing to resolve the issue would significantly hinder development across Estonia's fastest-growing regions, including Harju, Tartu and Pärnu counties.