Impact fees, exclusionary zoning, and the density of new development

The increasing use of impact fees represents a new trend in local fiscal policy which can have important effects on real estate markets. The ramifications for economic efficiency as well as for the pattern of metropolitan area development are not well understood by real estate academics or practitioners. Current discussion focuses primarily on who bears the burden of the fees. This paper shows that impact fees have interesting implications for a broader set of important issues. The fees provide communities with added flexibility in pricing entry into their jurisdictions, allowing existing residents to transfer to themselves the surplus associated with new development. Using impact fees can reduce the incentive for communities to engage in fiscally inspired exclusionary zoning. The optimal density of new development can increase following the introduction of fees. Widespread use of impact fees ultimately may help alter the current centralization in core cities of relatively poorer people and other demanders of high density development.

Joseph Gyourko

Journal of Urban Economics

September 1991

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