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.
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.
Adopt a recoupment policy
|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|
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
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.
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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Allow fee reductions or waivers
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
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
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
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.
Waive impact fees for qualifying homes
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
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
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.
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.Back to top
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
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. Back to top
Adopt a recoupment policyAtlanta, 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. Back to top* 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.