To help maintain housing affordability and/or stimulate development in targeted neighborhoods, some communities offer impact fee reductions for qualifying projects, or waive fees altogether. In some cases, state enabling laws require that the waived revenue be replaced with funding from another source. This replacement requirement helps to ensure that communities have sufficient funds available to meet their growing infrastructure and public service needs as impact fee revenue is reduced. While some communities use federal CDBG funds or proceeds from a local housing trust fund to fill this gap, other jurisdictions have come up with more creative strategies for replacing waived impact fee revenue. Learn more about state enabling legislation.

It is important to note that economists are still grappling with the question of who ultimately bears the expense associated with impact fees: developers, homebuyers, or land owners. If developers pass the cost of the fee on to buyers through an increase in the price of new homes, granting fee waivers should offer relief to working families. But if developers pass the cost back to land owners by reducing the amount they will pay for undeveloped lots, or if they simply absorb the charge, granting impact fee waivers may not affect the cost of homes at all. Until economists are able to ascertain which party will ultimately assume the cost of the fee, policymakers may wish to focus assuring that any waived fees go toward lowering housing costs for the homeowner.

Click on the links below to learn more about how communities are addressing housing affordability through impact fee waivers: Heart of the City, Burnsville MN -- Photo courtesy of LHB, Inc. Waive impact fees for qualifying homes In some jurisdictions, new housing may qualify for an impact fee waiver if it meets affordability thresholds or is located in neighborhoods that have been targeted for development or redevelopment. Offer forgivable loans to qualifying families To ensure that working families benefit from impact fee waivers, some communities transfer the benefit of the waiver directly to homebuyers, often in the form of a second mortgage or forgivable loan. Adopt a recoupment policy In places with excess infrastructure capacity that is sufficient to accommodate future population growth, impact fee payments may be used to recoup earlier investments that led to the surplus or to offset the revenue lost by reducing or waiving fees for affordable housing.

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You are currently reading: Allow fee reductions or waivers Working families benefit from impact fee waivers, some communities transfer the benefit of the waiver directly to homebuyers, often in the form of a second mortgage or forgivable loan. Other pages in this section: Adopt a proportionate impact fee schedule In contrast to a flat, per-unit fee structure, proportionate impact fees reflect variations in unit size, location and other features that have been shown to influence demand for services. Allow impact fees to be paid on a deferred basis By allowing payment of impact fees to be deferred until the end stages of the development process or paid over a period of years following occupancy, communities can help to reduce housing and development costs without affecting the level of services provided. Adjust fees based on existing infrastructure and service area In some areas the existing infrastructure already has adequate capacity to accommodate new homes. Lowering or eliminating impact fees in such neighborhoods helps preserve affordability and may create an extra incentive for affordable infill development. Click here to view other resources on impact fees.

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Waive impact fees for qualifying homes

Recognizing that impact fee assessments may lead to comparable increases in home prices, some communities offer impact fee reductions or waivers for developers of affordable homes. While some jurisdictions are required by state law to replace the foregone revenue with resources from another source, others can decide whether or not to impose this requirement.

Albuquerque, New Mexico began phasing in impact fees in July 2005, charging 34 percent of the proposed fee in the first year, 67 percent in the second, and 100 percent of the full cost beginning in 2007. In addition to varying fees based on the level of infrastructure already in place, the City allows fee waivers for certain types of development, including affordable housing. Specifically, the city waives impact fees completely for owner-occupied housing that is affordable to households earning 80 percent or less of the area median income and located in targeted redevelopment areas. New affordable homes in areas zoned for higher-density, mixed-use and mixed-income development are also eligible for impact fee waivers. All homes that receive an impact fee waiver are subject to a 5-year deed restriction, which ensures that the units remain affordable to qualifying families during this period.

The City also substantially reduces fees (up to 70 percent) for new industrial, manufacturing, institutional, and office development that helps promote a jobs-housing balance in primarily residential areas of the city. To the extent that such fee reductions bring commercial development to these neighborhoods, this policy can help address housing affordability issues by reducing commuting costs for area employees. Click here to learn more about impact fees in Albuquerque.


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Offer forgivable loans or silent second mortgages to qualifying families

To ensure that working families benefit from impact fee waivers, some communities continue to assess impact fees on developers but provide a forgivable loan or silent second mortgage in the amount of the fee directly to eligible homebuyers. This approach assumes that developers simply add the impact fee amount to the price of the home, and provides equivalent assistance to the homebuyer to balance out the added cost. 

The homebuyer is not required to make payments on either a silent second or a forgivable loan.  The silent second mortgage is paid off with proceeds from the sale of the house when the new homebuyer sells, and the forgivable loan is forgiven by a certain percentage each year until it is eventually completely forgiven.  If the new homebuyer sells before it is completely forgiven, they pay off the remaining balance of the loan off with proceeds from the sale of their house.  By allocating funds from a separate source to the home buyer, local governments can ensure that working families get the same benefit that may be achieved through a fee waiver without taking the risk that the benefits of the fee waiver may not be passed on to working families.

In Alachua County, Florida, income-eligible homebuyers may enroll in the Impact Fee Assistance Program to receive an interest-free second mortgage on their new home from the County, in an amount equivalent to the cost of the impact fees. Recipients are required to repay a portion of the loan if they refinance, sell, or rent their home within five years of purchase. The program is funded through appropriations from the County's general revenue fund. To qualify, households must earn less than 100 percent of the area median income, and the home price must be below an annually-adjusted sales price threshold (currently $258,000). Click here to learn more about the Impact Fee Assistance Program in Alachua County.


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Adopt a recoupment policy

Atlanta, Georgia*  uses impact fee waivers and reductions to promote affordability and development in targeted parts of the region, and iis unique in its use of a recoupment strategy to replace revenue lost to fee waivers. Homes located within Enterprise Zones or Empowerment Zones are entitled to receive a full waiver of impact fees, and new development within 1,000 feet of a rail transit station receives a 50 percent impact fee reduction. Impact fees also may be waived or reduced if the unit meets regional affordability thresholds.  A 100 percent impact fee reduction is given for homes renting at or below 60 percent of the regional median rent, or selling for less than 1.5 times the regional sales price for new homes.  A 50 percent impact fee reduction is given for homes with rents between 60 and 80 percent of the regional median rent, or selling for between 1.5 and 2.5 times the regional sales price for new homes.

In Georgia, as in some other states, state law requires that the lost revenue associated with waived impact fees be substituted with funds from another source. Atlanta has addressed this requirement by putting in place a fee "recoupment" strategy. According to Georgia state law, communities that adopt impact fees for parks, police and fire safety, and other public services and infrastructure must define a standard "level of service" that compares the existing demand for public services with the local capacity to provide those services (i.e., prior to the implementation of impact fees the jurisdiction provided 470 square feet of fire station space per 1,000 residents). Impact fees levied on new development should be used to maintain this standard level of service, but may not be assessed at a rate intended to achieve a higher ratio unless the local government is able to find other funds to achieve that higher standard in existing neighborhoods, as well.

In designing its impact fee schedule, however, officials in Atlanta determined that the city was already well-equipped to accommodate projected growth through 2010 and set the city's standard level of service at a rate that was lower than the ratio already in place. For example, prior to implementing an impact fee system city officials found that Atlanta had almost 7 acres of park per 1,000 residents -- a ratio they determined to be more than enough to accommodate existing residents. Rather than adopting the then-current ratio as the standard, they set the level of service standard at a much-lower 5.75 acres per resident. This adjustment had the effect of automatically building in excess service capacity to accommodate future growth.

Because the City's capacity to deliver public services exceeded the standard level of service from the start, impact fee revenue could be used for a variety of alternative purposes, including recouping the earlier investments that led to the surplus or offsetting the fee waivers and reductions granted to affordable housing developments. In Atlanta, affordable housing offsets typically consume about 25 percent of recoupment-based fee revenues; left-over funds are used to recover the cost of previous infrastructure outlays and further expand service capacity.


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* This example is drawn from Impact Fees and Housing Affordability -- A Guide for Practitioners. 2008. By Liza K. Bowles and Arthur C. Nelson. Prepared for the U.S. Department of Housing & Urban Development.