Impact fee

An impact fee is a payment a developer makes to a city, county, or utility district when a project is approved or permitted. It is meant to cover the new development's share of the cost of public infrastructure: road capacity, water and sewer connections, school seats, park land, fire stations. The fee is usually set per unit, per bedroom, or per square foot, and often varies by the type of home.

The policy argument for impact fees is that growth should pay for growth, rather than existing residents paying higher taxes for facilities that serve new arrivals. The argument against is that the fees are added to the cost of every new home, whether or not the promised facilities are built nearby, and that they fall on new housing while older housing that uses the same roads and schools pays nothing.

In a pro forma, impact fees are a line in soft costs, paid before construction and financed like any other cost. Assume fees of $10,000 per unit on a 100-unit building: that is $1,000,000 of added cost, which under our default financing assumptions requires about $68 per unit per month of additional rent to carry. Whether a fee is worth that depends on what it buys and who would otherwise pay for it, which is a question for public policy, not arithmetic.