Impact fees and single-family home construction

The development community has argued that impact fees that finance public infrastructure are a tax on residential development, which reduces the construction of new homes. Our theoretical model shows that impact fees may expand housing construction within suburban areas by reducing exclusionary regulations and increasing the percentage of proposed projects receiving local government approval. Using panel data estimation techniques that allow us to control for unobservable heterogeneity and potential endogeneities, we find that impact fees earmarked for public services other than water and sewer system improvements increase the construction of small homes within inner suburban areas and of medium and large homes within all suburban areas. (c) 2006 Elsevier Inc. All rights reserved.