Impact Fees and Housing Affordability

Abstract

Approximately 60 percent of U.S. cities with more than 25,000 residents now impose impact fees to fund infrastructure needed to service new housing and other development (GAO, 2000). In 89 jurisdictions selected for study in California, the state in which impact fees are most heavily used, the average amount of fees imposed on singlefamily homes in new subdivisions in 1999 was $19,552, with fees ranging from a low of $6,783 to a high of $47,742 (Landis et al., 2001). Although California jurisdictions impose fees higher—perhaps much higher—than those in other jurisdictions, impact fees are an increasingly important cost of development, especially in the fastest growing areas of the United States. The increasing use of impact fees and the costs that they may add to the development process raises serious concerns about the effect using impact fees to fund infrastruc­ ture will have on the affordability of housing. This article explores this controversy. Part I reviews how impact fees work and the role they currently play in the provision of infrastructure and regulation of land use, and explores why impact fees have gained such prominence in recent years. Part I also surveys the empirical evidence about how and where these fees are being used, what the fees are used to finance, and the amount of the fees. Part II reviews the justifications for using impact fees to finance the provision of infrastructure and explores the dangers impact fees pose. Part IIIA examines the effect impact fees have on the price of housing, beginning with economic theory about who will bear the incidence of impact fees under different market con­ ditions. Part IIIB then surveys the empirical literature that seeks to test these economic theories by quantifying how impact fees affect the price of housing, the price of land, and the supply of land and housing. Part IIIC concludes by suggesting further research required to identify more clearly the effect impact fees have on the market for housing. Part IV turns to the effect impact fees may have on the affordability of housing for moderate-income households. This part also addresses the effect impact fees may have on the availability of housing to racial and ethnic minorities. Minorities disproportion­ ately fall in the lowand moderate-income groups for whom housing affordability is especially critical, and traditionally have had their housing opportunities limited by racial discrimination in the housing, lending, and other related markets. Part IV sug­ gests the additional research necessary to understand those issues. The article con­ cludes by calling for research aimed at enabling policymakers to adopt sophisticated and careful impact fee programs that will improve the efficiency of land development without sacrificing housing affordability or opportunity. Cityscape: A Journal of Policy Development and Research • Volume 8, Number 1 • 2005 Cityscape 139 U.S. Department of Housing and Urban Development • Office of Policy Development and Research

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