Impact Fees and the Price of New Housing: An Empirical Study

Abstract

Development exactions in the form of impact fees are being used increasingly by local governments to fund the cost of providing public services necessitated by growth and development. This paper presents the results of an empirical study designed to ascertain the extent to which impact fees are capitalized into the price of new, single‐family dwellings. On June 3, 1974, the city of Dunedin, located in Pinellas County, Florida, began assessing impact fees of $1,150 against all new, single‐family construction. Using data on 5,839 new home sales in Dunedin and three other cities in Pinellas County from 1971–1982, it was found that builders were able to pass forward the total cost of impact fees to new home buyers. However, the price differential due to impact fees for new dwellings in Dunedin compared to the price of new dwellings in the other three cities disappeared after approximately six years. This is explained by the nature of the fee structure in Dunedin, adjustments in factor costs, increases in the price of housing in competing cities, and unrealized expectations regarding the benefits to be provided by impact fee collections.