Here’s an unsavory recipe: Combine population growth with politics and property tax caps. What do you get? Impact fees.
The term covers a grab bag of assorted fees for water, sewer, roads, schools, etc., assessed to builders and developers when they apply for permits. Home builders have no choice but to pass them along to their customers—home buyers.
The fees are ostensibly assessed to pay for new development, but municipalities sometimes try to use them for projects they’ve been considering for a while, ones that will benefit existing homeowners, too. And they’ve been known to charge more money than they need. That’s when things get ugly.
“Impact fees are a means of politically passing the brunt of paying for infrastructure on to prospective homeowners,” explains Keyvan Izadi, a land use planner for NAHB. Also known as the “Welcome, Stranger” tax, the fees are frequently proposed by mayors who don’t want to pass infrastructure costs along to the voting public—and possibly hurt their chances for re-election. And sometimes they’re proposed by anti-growth city officials who want to stop development in its tracks. The fees are particularly prevalent in fast-growth areas and in municipalities with property tax caps.
The Chicago-based American Planning Association puts the national average for cumulative impact fees at $14,441 per dwelling unit. Fees top $100,000 in some parts of California. Since they’re added to a mortgage with interest, the net impact is even higher.
No matter how much they are, impact fees bump up construction costs and hurt housing affordability. NAHB’s economics department has determined that, nationwide, every $1,000 increase in housing costs prices about 400,000 would-be buyers out of the market.
Unfortunately, there’s no getting around impact fees in areas where growth boomed years ago. But the blow is a lot softer if you discuss them with your builder while you’re discussing your construction budget. That’s what builder Robert Short does in Denver, where fees average $17,000 a unit.
“I tell my customers, ‘This is what it will take to get your permit,’” says Short, president of Touchstone Homes. “They have a high level of frustration when they realize how much goes to the government, but they accept it as a cost of doing business.”
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