April 20, 2012

Rethinking Impact Fees: What Impact Did These Fees Have on the Housing Crisis? PART ONE


Part I:  Introduction and Background

With this housing crisis there is plenty of blame to go around.  One could point to the exuberance of home builders, the credit markets that fueled their exuberance, easy no-proof mortgages for home buyers, or Wall Street and its thirst for profits using leverage and derivatives such as credit default swaps to ludicrous levels.  The rapid ascent and then descent in home prices could have other root causes hidden by the finger pointing taking place in the media.  A more fundamental question should be asked.  Did housing prices escalate to unreasonable levels merely because of greed or were other forces at work causing home prices to swell?

Beyond the costs of the actual infrastructure, house prices are a reflection of the improvements to the development where the house sits, such as the streets, lighting, landscaping, parks, etc., and to the costs of moving a short plat, subdivision, infill development, or planned unit development (“PUD”) through the entitlement process.

Prior to the 1940s infrastructure was primarily funded through property tax increases. After several municipalities went bankrupt during the 1920s and the Great Depression, they began moving toward developer-funded infrastructure improvements. 1 A rapid shift away from property taxes began to take place in the 1960s.  Chief among these new infrastructure financing tools were impact fees and system development charges which were one-time levies assessed on property developers to assist the local governments in paying for roads, parks, schools, sewers, water, and other infrastructure needs.  In the 1960s impact fees began to emerge  for sewer and water projects. Beginning in the 1970s fees began for roads, schools, and parks and then finally in the 1980s for other public services.2 Politicians continually shifted to impact fees during this period as a means of deflecting continuing pressure on property tax increases.

Government remains addicted to impact fees. “Why,” you might ask?  My answer will come with future posts. Please send me your thoughts on impact fees and their usefulness.

Please check back as future posts will build upon this article.  In the meantime here are some other resources regarding impact fees. The Municipal Research and Services Center of Washington is a great resource about Washington’s impact fee program.  Duncan Associates maintains a blog dedicated to impact fees.  It does a good job explaining more about the history of impacts fees, how they are used, and has a plethora of other useful information.  Here is their 2011 survey of impact fees across a variety of jurisdictions throughout the U.S.

1.  Vicki Been, “Impact Fees and Housing Affordability,” p. 139 Cityscape: A Journal of Policy Development and Research • Volume 8, Number 1 • 2005 Cityscape

2.  www.impactfees.com by Duncan Associates.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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