Developers Pay Developer Charges

Existing empirical studies of the price and quantity effects on new dwellings from developer charges (DCs), or impact fees, are limited by a lack of naturally occurring variation in the DC size. It is therefore difficult to isolate any behavioural effect from the mechanical relationship of DC and price arising from larger dwellings being levied with higher DCs. To overcome this problem we use data over a period incorporating a surprise policy change in Queensland, Australia, that introduced a cap on DCs which required them to be later changed, both upwards and downwards, for different dwelling types in different local council areas. Our model estimation shows that there are no measurable effects on price or quantity of new dwellings from DCs, supporting the practitioner's view of the charge being economically benign and fully incident on the landowner, even when the landowner is a property developer. When we instead include the baseline DC for each sale prior to the policy change, the problem of capturing only the mechanical effect arises once again, and model estimates using this baseline DC are similar to others studies that have instead claimed large behavioural price effects from DCs. The results are consistent with a real options view of the developer's economic situation