Eight reasons why impact fees thwart the creation of equitable, sustainable cities.
When people make a mess we expect them to clean it up. If a private business harms others, we demand it pay the damages. These norms stoke the allure of impact fees—charges levied on homebuilders to compensate for the presumed burden on public services caused by the homes they construct. But in the case of cities, there’s one big problem with that impulse: adding new homes to urban neighborhoods is a good thing overall, a net positive for people and the planet, not a transgression to penalize. And while impact fees may not eat brains, like zombies they are a contagion that will be exceedingly difficult to kill off for good.
Cities of all sizes throughout North America assess impact fees. They are stubbornly embedded in urban planning orthodoxy, typically funding utilities, roads, parks, or schools. In Cascadia, Seattle stands out as a shining example for not employing them. But in 2015 the city council, spooked by residents’ unease with rapid growth, directed planners down the exploratory road that if unchallenged will lead to impact fees in Seattle. Boosters dominate local media (here, here, here, here, here, here, here), and detractors are rare (here, here).
Impact fees may have their place in the exurbs, where they can help curb sprawl. But in the heart of the metropolis—where Cascadia’s consensus aims to build low-carbon, car-lite, transit- and walking-oriented communities that welcome everyone who wants to be our neighbors, regardless of race, ethnicity, class, or age—making it harder to build homes by imposing impact fees? That’s going backwards.
Here are eight reasons why Seattle would do well to stay off—and other Cascadian cities might consider getting off—the impact fee train.
1. Buildings don’t poop, ride buses, picnic in parks, or have school-age kids.
Homebuilders are not sorcerers who beget humans to fill their buildings. They build because existing humans need houses and will pay for them. The act of constructing a new home in a city doesn’t create the need for public services, the people who live in it do. Blaming homebuilders for the expense of an electrical power grid makes as much sense as blaming farmers—because they grow the food that people digest—for the expense of a city sewer system. That is, zero sense. What makes total sense is asking all community members to help pay for the amenities and services we all use, and taxing homebuilding just like any other business—both of which most cities already do (see notes). But those who nevertheless trumpet impact fees because “growth should pay for growth” are wasting their breath anyway, because the fees won’t come out of developers’ pockets. They’ll pass on the costs or they won’t build. Unfortunately either way, it’s bad news for affordability in housing-short cities.
First-time buyers and renters will bear most of the financial burden of impact fees through higher prices and rents.
2. Yes, Virginia, adding costs to homebuilding does make homes more expensive.
In a previous article I spelled out why fees on homebuilding raise prices. Impact fees are fees; they’re no different. The “no free lunch” reality of impact fees is supported by studies stretching back decades (here, here,here, here, here). Analysts with the City of Portlandrecently surveyed the literature and concluded that “existing research consistently finds a positive relationship between [impact fees] and increased housing prices.” That relationship may be complicated by marginal factors, but overall, in established, densifying cities, first-time buyers and renters will bear most of the financial burden of impact fees through higher prices and rents.
Impact fees add bricks in the walls of economic exclusion that deny access to opportunity in prosperous cities.
3. Pushing public policy that helps turn cities into exclusionary, wealthy enclaves is not a good look.
When a city imposes rules, fees, and zoning that inflate housing prices, incumbent homeowners win, while renters, and newcomers hoping to buy, lose. Compared to homeowners, renters and newcomers are more likely to be younger, lower income, and people of color. When we jack up rents with impact fees, we’re actually making a choice to pile on the inequity. In effect, the fees are a classist, regressive tax. They add bricks to the walls of economic exclusion that deny access to opportunity in prosperous cities.
4. You don’t get a free pass just for being early and hanging around.
Some impact fee advocates turn #3 on its head. They sympathize with long-term homeowners, whom they believe shouldn’t be charged for expanded public infrastructure that’s only needed because the city’s population is growing. “Long-time residents have paid in plenty already over the years,” goes the thinking, and so it’s perfectly fair for newcomers to bear the brunt of impact fees. But that rationale is based on a flawed understanding of urban infrastructure. First, operations, maintenance, and repair comprise the lion’s share of the public outlays for many services (see notes). Second, large capital investments—a new sewer treatment plant, for example—are usually funded by 30 to 40 year bonds. Spreading out the payback over decades minimizes the rate hikes, which shrink as more customers arrive and start using the service. Payback periods for different capital improvements often overlap. All told, when the costs of ongoing expansion are so smeared out over time, the length of residency becomes irrelevant. On average the cost for the service usually ends up roughly proportional to the number of people it serves. Consequently, what’s fair is to charge every resident the same. You move in, you start paying taxes and utility bills just like everyone else. What’s unfair is making newcomers, through impact fees, pay extra just to get through the city’s gates.
On the environmental side, compact development cuts climate pollution and preserves our forests and farms by curtailing sprawl.
5. Adding housing to cities is the world’s biggest urban planning no-brainer.
Perhaps the most agreed upon idea in the contemporary field of urban planning is the importance of concentrating new growth in urban areas. On the environmental side, compact development cuts climate pollution and preserves our forests and farms by curtailing sprawl. On the economic side, clustering jobs turbocharges innovation and productivity. On the equity side, abundant housing in prosperous neighborhoods is an escalator for upward mobility. Imposing impact fees on new homes in urban centers flies in the face of these immensely valuable, large-scale, long-term benefits. What’s more, most of the public services funded by impact fees are less expensive per person in higher density areas: shorter roads and pipes cost less; transit operates more efficiently when more people are around to use it. Simultaneously advocating for density and impact fees is Orwellian doublethink.
6. Impact fees are ossified relics of stale, suburb-centric thinking.
For expansion into undeveloped “greenfield” areas, policymakers have a legitimate case for impact fees. In that scenario, land may be worth next to nothing until a municipality extends basic infrastructure—roads, power, water, sewer—so that functioning homes can be built. If the public foots the bill, it’s a direct subsidy to the owners of the property served—and worse, a subsidy that encourages unsustainable sprawling growth. Impact fees justifiably recapture some of that subsidy from the property owners, while at the same time chilling the incentive to sprawl. In built-out urban places, however, the situation is different. There, new homes rarely need targeted new public investment to be viable. And besides, governments from the local through federal levels widely agree that housing should be directed to urbanized areas. Washington State’s Growth Management Act authorized impact fees over two decades ago but made no distinction between built-out urban centers and exurban greenfields. It’s past due for an update.
7. It’s fun to believe that someone else will pay… until it backfires.
Utility bills are regressive. Rising property taxes can put homeowners on fixed incomes in the red. Meanwhile, many municipal budgets are cash-strapped. Together, these factors make impact fees politically tempting: someone else pays (or so it seems). It’s akin to the rising popularity of forcing homebuilders to pay for affordable housing through inclusionary zoning (IZ), but just like IZ, impact fees precipitate adverse unintended consequences. To avoid doing more harm than good with impact fees, cities can instead fund infrastructure through taxes and utility charges that spread the burden equitably across all residents, businesses, and property owners. And to protect those who can least afford it, they can provide breaks or exemptions to low-income people, as local governments currently offer to Seattleites on property taxes and electricity and water bills.
8. If you’re trying to mitigate an affordable housing crisis caused by a shortage of homes, talking about new housing as if it’s toxic waste may not be the best messaging strategy.
Impact fees hinder equity and sustainability not only in concrete ways. Hitting homebuilders with impact fees also reinforces the public perception that the job of adding homes in city neighborhoods is a noxious activity, and that those who do it are trying to get away with something. Today, kneejerk cultural enmity for developers may be the most chronically powerful obstacle to rule changes that would help cities achieve the housing abundance necessary for equitable growth. Grandstanding about impact fees feeds the toxic narrative that homebuilding is the problem, rather than a critical part of the solution for affordability. The inimical words perpetuate flawed policy. You don’t have to love developers (or capitalism) to recognize that they are a necessary means to a shared goal: more homes for people who need them, lower prices, greener cities, more equity.
One of the biggest urban challenges of the 21st Century is keeping prosperous cities from becoming wealthy enclaves so that people of all backgrounds and incomes can take advantage of the opportunity great cities offer. Impact fees, by discouraging homebuilding and raising prices, work against that goal. Seattle would do well to continue its brave and remarkable record of keeping the impact fee zombies at bay. The rest of Cascadia’s non-exurban cities would do well to follow Seattle’s lead and set about releasing their cities from the zombie curse.
According to the Seattle Times, “construction companies in Seattle paid $466 million in just the sales tax related to construction of buildings last year.” In most cities homebuilders are charged a variety of utility hookup charges and permitting fees, and often pay for public improvements around their buildings such as sidewalks and street trees. In Seattle builders who sell their homes pay a Real Estate Excise Tax that’s partially used to fund public infrastructure such as roads and bridges. With the intention of making “growth pay for growth,” King County (Seattle’s surrounding county) also collects a sewer capacity chargefrom owners of residential properties built since 1991.
A recent Seattle Times story framed the impact fee debate around the perceived injustice of rising water rates, and the lost opportunity “to make developers of new buildings pay for adding stress to its systems.” It’s true that utility bills are regressive, but as the story reveals, operations, maintenance, and repair, not new capacity, are the biggest cost drivers. Seattle old-timers’ taxes paid for a badly designed system that now needs some very expensive fixes, including a $423 million stormwater storage vault. Furthermore, development actually decreases the need for such vaults because under modern regulations new buildings almost always discharge less stormwater runoff than what they replaced.