Raising infrastructure charges on land development: Incidence and adjustments

Abstract

Summary The development of land for housing requires investment in new infrastructure. While connection costs are generally paid by developers, the costs of upgrading the capacity of the system fall on existing consumers. In the context of the privatisation of the water authorities, there are proposals to raise the level of charges made for infrastructure provision. This paper examines the likely incidence of such charges and the possible adjustment which may be made by developers. A basic model suggests the cost would be borne by landowners, however there are various circumstances in which this would not necessarily be the case. Developers may pass on the cost in the form of higher house prices, especially in the short run. They will be in the strongest position in areas of rapid growth where they hold large land banks and where there are few alternative sites available for development. Failing this they may be forced to accept lower profits. Raising infrastructure charges can be expected to have some ot...