Regulatory Barriers Clearinghouse
Strategy-of-the-Month Club
 
October 2008
 
Local governments impose fees on new developments to
offset the costs of providing public services, such as
roads, water, sewer, parks, and libraries. Developers
pay these one-time charges, known as impact fees, and
typically will seek to pass on the charges to buyers
through increased home prices. The effects of impact
fees on housing affordability remain controversial, but
many argue that development costs rise as impact fees
increase, making housing less attainable for lower- and
middle-income families. A publication prepared for the
U.S. Department of Housing and Urban Development,
Impact Fees & Housing Affordability, examines
different impact fee programs, and provides
recommendations to reduce their adverse effects on
housing affordability.
 
The report provides an overview of impact fees and other
financing mechanisms that local governments can evaluate
in light of their need to provide infrastructure
services. The report's guiding principle is the fact
that the cost of providing a service should be
proportional to house size. Recognizing that alternative
financing mechanisms - such as raising taxes - can be
unpopular, the authors of this report focus on equitable
impact fee assessment methods. Imposing flat-rate impact
fees can place a disproportionate burden on families
purchasing the smaller housing units. For example, a
flat-rate impact fee of $10,000 raises the cost of a
$200,000 single-family home by 5 percent, while the same
fee on a smaller $100,000 single-family home raises the
cost of the unit by 10 percent. To avoid overburdening
the often low- and moderate-income purchasers of smaller
homes, this report recommends assessing impact fees on
the basis of a dwelling's square footage. In addition to
guidance on implementing equitable impact fee programs,
the report provides practitioners with strategies for
maintaining housing affordability, such as impact fee
exemptions, fee waivers, and deferred payments. The
report also contains examples of innovative impact fee
programs from around the country.
 
To view the report in its entirety, please visit
 www.huduser.gov/rbc/search/rbcdetails.asp?DocId=1802.
You can also order a hard copy of the report by going
to www.huduser.gov or by calling 1-800-245-2691, option 1.
 
We hope this information proves useful to you in your
efforts to grow your region's affordable housing stock.
If you have regulatory reform strategies or resources
that you'd like to share, send us an email at
 rbcsubmit@huduser.gov, call us at 1-800-245-2691
(option 4), or visit our website at www.regbarriers.org.
 
Feel free to forward this message to anyone who is
working to reduce regulatory barriers to affordable
housing.
 
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