The Capitalization Effects of Development Impact Fees

While a growing literature has considered the effects development impact fee programs have on new and existing home prices, the supply of residential construction, and employment growth, the nature of their effect on the price of undeveloped land remains poorly understood. This paper uses a 16 year panel data set containing residential, commercial, utility and school development impact fees to investigate the effect of these programs on the constant quality price of residentially and commercially zoned undeveloped land. Three important findings are obtained. School impact fees, which are paid by residential but not commercial developers, increase the value of commercially zoned parcels.

This result confirms expectations since the adoption of school impact fees reduces the reliance on property taxes and lowers the financial burden on commercial interests. Second, asymmetric effects of impact fee programs are found across rural and metropolitan environments. This suggests impact fees may interact significantly with the pre-existing local regulatory environment. Finally, impact fee programs supporting utility systems are found to have a uniformly negative influence on land values that does not vary across urban and rural environments.