The Castle Rock Town Council unanimously approved changes Tuesday to how water system development fees are calculated, shifting to a model intended to reduce building costs for smaller homes.

The update follows an analysis of hundreds of homes built under the town’s 2022 landscape regulations, which reduced the average monthly residential water consumption by approximately 3,000 gallons, according to Castle Rock Water Director Mark Marlowe.

“The policy you enacted two or three years ago has been a success, and we have seen a radical reduction in outdoor water usage as a result of that ordinance,” Marlowe said. “These houses are also more efficient and will continue to be more efficient.”

Based on that data, officials concluded existing system development fees no longer accurately reflected the impact of new development on the water system.

Marlowe said a recent study found fees are more closely tied to a home’s finished square footage, with larger homes consuming a disproportionate amount of water compared with small- and medium-sized homes. While the new structure lowers fees across all home sizes, smaller homes will see the greatest reductions.

“We finally had the data to study what these new houses look like and what they are really using in terms of water,” Marlowe said.

Under the changes, the system development fee would between $21,750, for homes under 2,000 square feet, and $59,657 for homes in the 7,500 to 7,999-square-foot range.

The changes are expected to reduce system development revenue by about 10%, or approximately $4 million, Marlowe said.

Morgan Cullen of the Home Builders Association of Metro Denver supported the change, noting that development-related costs for a new single-family home in Castle Rock are estimated to exceed $100,000, or about 15% of a home’s final price.

“Castle Rock today has the highest impact fees of any local government in the Denver metro area,” Cullen said.

Council members and supporters said the revised fee structure could also encourage construction of smaller homes, helping address housing demand in the community.

“If it incentives builders to do smaller homes, that hopefully allows first-time home owners to get into the market a little easier,” Mayor Jason Gray said.

The new fees are scheduled to take effect July 1, 2026.