The Effect of Development Impact Fees on Land Values*

This paper presents an empirical analysis of the effect of impact fees on the value of land used in residential development. A random effects model is estimated to examine the relationship between impact fees and land values using forty-three Texas cities that impose impact fees. Prior research suggests that higher impact fees result in higher lot values, and the results of this research support this suggestion. Results indicate that for each $1,000 increase in impact fees, lot values increase by 1.3 percent. Additionally, these results suggest that developers are able to pass a small amount of the impact fee to the owners of developable land. However, for undeveloped land the results are mixed. For each $1,000 in assessed impact fees, undeveloped land values decrease by 0.042 percent. These results support prior evidence that suggests home buyers may ultimately bear the majority of the cost of impact fees. Copyright 2005 Blackwell Publishing Ltd..