The Effects of Impact Fees on the Price of Housing and Land: a Literature Review

Abstract

Since the 1970s, development impact fees have emerged as a way to pass the cost of new infrastructure to the development community. Although development impact fees intend to transfer the burden of infrastructure provision to the developer, it is widely believed that the homebuyer ultimately absorbs the cost through inflated housing and land prices. This article examines the planning practice implications of development impact fees on housing and land prices. The review of the literature suggests that impact fees contribute to housing price infation in communities where there are no reasonable housing substitutes and that tax burden and infrastructure enhancements are capitalized into the price of home and land.

Impact fees and single-family home construction

“…While roughly a dozen studies have analyzed the effects that impact fees have on housing prices (for a review see [12,17]), the literature on the relationship between impact fees and housing construction is comparatively thin-consisting of empirical studies by Skidmore and Peddle [24] and Mayer and Somerville [20] and theoretical studies by Brueckner [6] and Turnbull [26].…”

“…12 All of our empirical models are also estimated separately for three size classes of homes (small: 600-1500 square feet of interior living space, medium: 1501-2200 square feet, and large: 2201-5000 square feet). We stratify by home-size class for two reasons: (1) as outlined above, a number of the derivatives determining the effects of impact fees on housing construction vary with home value, which is highly correlated with the size of the home, and (2) we are particularly interested in whether impact fees increase the supply of smaller homes within suburban areas.…”

“…Off-site costs stem from the fact that new development eventually necessitates improvements/additions to the system that allow for more capacity. 12 Areas are determined according to US Census MSA definitions. Central city areas are taken directly from Census definitions.…”

The link between infrastructure charges and housing affordability in Australia: where is the empirical evidence?

“…The premise for any price impact argument is based on the concept of who actually bears the burden of the infrastructure charge. Infrastructure charges were originally intended to transfer the burden of infrastructure provision in high growth areas from the public purse and existing owners on to property developers (Evans-Cowley and Lawhon 2003). However, the literature indicates there are a number of parties that may be liable for the ultimate payment of these fees.…”

Trade-offs at a regional level in spatial planning: Two case studies as a source of inspiration

“…Since the 1970s the comparable construction of the development impact-fee has emerged in the USA. Many local governments, confronted with rapid growth in their community, have adopted it as an alternative to an increase in property taxes (Evans-Cowley and Lawhon, 2003;Jeong, 2006;Nicholas and Conrad, 2003). In all these constructions the trade-offs basically refer to the specific development plan, or local level, and the obligations are more or less closely related to the development goals (proximity principle).…”