An Empirical Estimation of the Price Effects of Development Impact Fees

Abstract

Empirical analysis of the price of vacant lots sold in three Toronto suburban municipalities during the 1977-86 period shows that development impact fees directly increased lot prices by approximately 1.2 times the size of the fee. The extent of the increase was related to city growth rates. In general, the faster the rate of growth the lower was the price effect of development impact fees. The effects of growth, however, were not consistent across the three municipalities as one municipality appeared to be lowering its fees in response to reductions in growth rates. The policy environment within which fees are implemented and the way fees are adjusted appear to influence their effect on lot prices. The estimated model also suggests that increases in expected future construction costs reduce current lot prices. General increases in the consumers' shelter costs tend to inflate the price of vacant lots. The expectation of future increases in the cost of land development, whether it is due to increases in material prices, wages, development approval processes, growth controls or impact fees, tends to reduce current lot prices. The indirect price effects of introducing and expanding development impact fees tend to counter their direct effects by reducing the size of urban growth premiums.