NCPA - National Center for Policy Analysis

Impact Fees Rising

July 8, 2003

Cities or counties charge developers or builders thousands of dollars in impact fees for each new house built. The fees are typically passed on to buyers, thus raising the cost of new homes.

The fees originated in Texas in 1987 but are now used in 22 states nationwide.

  • In Texas, cities can charge impact fees to build streets and extend water and sewer systems, but elsewhere they pay for libraries, parks, roads, schools, sewers and even community art projects.
  • However, new homebuyers also pay property taxes to retire bonds that paid for infrastructure projects benefiting existing residents -- leading some to suggest that new home buyers are being asked to pay twice.
  • McKinney, Texas, officials, for example, will double impact fees by 2005 to $3,700 per home -- about $2,000 less than the state maximum.
  • By contrast, fees for new homes in Pleasanton, Calif., exceed $50,000 and help pay for parks, schools, public buildings, streets and low-income housing.
  • A 1998 study by the Real Estate Center at Texas A&M University determined that if the median cost of new homes went up by $1,000, 24,000 potential home buyers wouldn't be able to afford homes in that median price range.
  • That number represents less than 1 percent of all potential home buyers in Texas, says Gary Maler, the A&M center's associate director.

However, someone buying a $100,000 house pays the same impact fee as someone buying a $400,000 in the same area -- thus people in lower price ranges pay proportionately more.

Source: Paula Lavigne, "Growing cities relying more on new-home fees," Dallas Morning News, July 6, 2003; Mark G. Dotzour, "New Subdivisions Pay Their Way,"

Publication 1219, January 1998, Real Estate Center at Texas A & M University.

For Texas A&M study

http://recenter.tamu.edu/pdf/1219.pdf

 

Browse more articles on Tax and Spending Issues