Operation by Doug Wheeler
The Florida housing affordability crisis continues to have a negative impact on families and workers, with many Floridians struggling to find achievable housing options. The James Madison Institute (JMI) recent background, “Assessing Florida Local Government Impact Fees: 2024-2025,” reveals how local impact fees and other land use regulations can contribute to this pressing issue. While these fees are intended to ensure that new growth does not burden existing residents, this report highlights how their design and implementation carelessly exacerbate housing affordability issues, particularly for low- and middle-income families.
Understanding the impact fees and their results
Impact fees are fees charged by local governments for new developments to fund community and infrastructure needs, such as roads, parks, emergency services, schools and other amenities. Though they are intended to support the growth of the community, these fees often have unintended consequences. Previous JMI research shows that impact fees can increase the prices of new and existing homes by about $1 for each fee charged.
Furthermore, these fees tend to regress and disproportionately affect low-income households. Smaller, more affordable homes will carry a greater proportional burden of impact fees, making homeownership more and less possible for many Floridians. For households with economic margins of homeownership, even moderate fees cannot be purchased, especially in a scenario in a tight housing market, when these fees are fully capitalized to the selling price.
Beyond its regressive nature, insufficient structural impact fees also thwart the construction of new, affordable homes. High or unpredictable fees increase development costs, and builders focus on more profitable high-end projects, thereby reducing overall home supply.
Right size solution
To mitigate the negative impact of fees on housing affordability, the background suggests that several reforms be considered.
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– Appropriate size fees: Flat rates incorrectly assume that all developments will have the same impact on public facilities, so the fees should be tied to unit size rather than flat rates, reducing the regressive impact on smaller, more affordable homes.
• Link fees to actual costs: Ensure that impact fees reflect the marginal costs of development to local governments, promoting fairness and efficiency. In this way, the fees act like user fees, minimizing the negative impact on development. Fees linked to unit sizes are more likely to support proportionality.
Improved transparency: Easily access the pricing formulas, reducing uncertainty for builders and buyers. Once the formula for calculating the impact fee has been established, the fee schedule must be calculated and published. Your schedule should be easy to understand, up-to-date and relatively stable. A schedule with these characteristics makes it easier for developers to plan projects by reducing uncertainty.
– Evaluate fees early: As there is a significant delay between the application date and issue date, evaluating fees at the time of application can reduce uncertainty. Municipalities should assess impact fees upon application and do not retroactively apply any subsequent changes.
Although intentional, government policies such as impact fees and land use restrictions could have unintended consequences that exacerbate the Florida housing crisis. Just as Florida is fighting over the issue of housing affordability, it is essential to reevaluate policies that inadvertently block access to housing. Among other land use regulations, local governments can encourage development environments where more Floridians have the opportunity to achieve homeownership.
Doug Wheeler is director of the George Gibbs Center for Economic Prosperity at the James Madison Institute.
