impact fees: overview » introduction

How do revised impact fee structures work?

Communities have adopted a variety of approaches to revising impact fee structures. Jurisdictions may base impact fee amounts on unit size or type, location, or density -- all features that are likely to reflect the demand for services introduced by each unit. Reducing the fees charged for smaller homes and/or homes located in areas with pre-existing infrastructure facilitates the development of more affordable homes without compromising the overall amount of revenue available to meet new infrastructure needs. Some states also authorize communities to offer full or partial impact fee waivers to developers of homes that meet specified affordability standards. To ensure there is no reduction in funding for new infrastructure, some of these jurisdictions require that the lost revenue be replaced with funds from another source.

Click on the links below to learn about ways communities are revising impact fee structures to help maintain the affordability of new homes:

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 fee reductions or waivers
Full or partial impact fee waivers help preserve the affordability of new homes. Some communities find alternative funding sources to offset these losses and ensure that public services infrastructure keeps pace with new development.

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.

An alternative approach is to pay for new infrastructure out of general revenue/local property taxes, rather than with impact fees. Proponents of this approach argue that it is unfair to make new residents bear the full costs of expanding infrastructure, as existing residents were not required to cover these costs when they first moved to the community. Others who share this perspective suggest that impact fees amount to an "initiation fee" imposed on new residents, and may have the effect of excluding working families who cannot afford this added cost.

On the other hand, some argue that if jurisdictions are denied the ability to charge impact fees for new development, they may not support new development at all, constricting the supply of new homes, and thereby raising housing prices.

Learn more about the continuing debate about impact fees. For an overview of the policy issues related to impact fees, and related research findings, see Impact Fees and Housing Affordability [PDF] 2005. By Vicki Been. Cityscape 8(1), pp. 139-185.

For a review of alternatives to impact fees for paying for infrastructure improvements, see the National Association of Home Builders three-part Infrastructure Series, which includes Building for Tomorrow: Innovative Infrastructure Solutions Part I, Infrastructure Finance Does Your State Encourage Innovation? Part II and Infrastructure Solutions-Best Practices from Results Oriented States Part III.