Sure I do. You’re coming at it from your point of view, me from Randal’s topic. The point of Randal’s post is even linked for you: housing affordability. The point you make in:

I cannot and capital is mobile so the only place for it to come is the LAND SELLER. If the cost of pavement or sewer pipes goes up that too comes from the LAND SELLER. If I could increase my return with granite counters I would already have that in my proforma when I calculate how much is left over to bid on the land.

is too narrow: you pass all your costs to the cost of the house.

If you have a price point for the finished unit and a margin, and the platted land price is too high for you to hit those, you don’t buy. You already know your impact fee is part of the price point, as are app fees, T&M, interest on your paper.

Who should pay for the new infrastructure? We all should. .

The reason for impact fees is homeowners across the country quit wanting to pay for infrastructure for new homes that didn’t benefit them. The term is ‘growth pays for growth’.

Returning to your scheme will likely result in homebuilding coming to a screeching halt.

These new houses add a tremendous amount to the general fund (directly from property taxes, income and sales taxes, etc and indirectly from taxes charged for the commercial economic activity this growth generates)

Residential units don’t pay for themselves – they cost the general fund money. I’ve discussed this on this blog already.

The point I was making was that your theory is not always true that developers would choose the smallest lots.

You’re right: I should have said ‘if they want to or can carry the paper’. Apologies.

DS

“The addition of a new fee does not make anyone able to better qualify; in fact, I specifically said it impacts final house price.”

Right, if I could simply increase the price I would do it without the fee. I cannot and capital is mobile so the only place for it to come is the LAND SELLER. If the cost of pavement or sewer pipes goes up that too comes from the LAND SELLER. If I could increase my return with granite counters I would already have that in my proforma when I calculate how much is left over to bid on the land.

Who should pay for the new infrastructure? We all should. These new houses add a tremendous amount to the general fund (directly from property taxes, income and sales taxes, etc and indirectly from taxes charged for the commercial economic activity this growth generates). Expanding the systems to accomodate them is a good investment. In the “good old days” the city would put in the streets, sidewalks & utilities on their dime to get the “tax base”.

Did you cherry pick to make your point about developers always maximizing profit by maximizing density? The point I was making was that your theory is not always true that developers would choose the smallest lots. If that were true the planners would not have mandated minimum densities. What about the 1/2 acre lots in the 10,000 sf zones that I did before the minimum density laws?

How does the addition of a new fee make a buyer suddenly able to qualify for a larger mortgage or have a larger amount abvailable for a down payment?

The addition of a new fee does not make anyone able to better qualify; in fact, I specifically said it impacts final house price.

Impact fees pay for things that must be paid for and are not free. You the developer certainly aren’t going to pay for them out of your pocket, so who will – someone living across town who doesn’t want the additional traffic from the new homes? Sure they will.

For example, new schools required by the new home. User fees will not pay for new schools (maybe they should – this certainly will reduce the birth rate). Impact fees pay for new sewer and water pipes and WWTPs. User fees will not pay to install new pipes needed to supply new homes until sufficient time has passed to build up enough capital in a capital account; during the years this happens under this scheme nothing will get built.

You, of course, know this, being a developer and all; you also know that if you were required to pay for the pipes you’d tack it on to the cost of the home. As you do today if you go thru to build houses (don’t flip after platting) and are required to pave the road and put up street lights, install turn pockets on the arterial leading to your development to mitigate the impact of the new trips you are creating. As you tack on to the final price the cute pansies and violets you install under the subdivision monument sign, the street trees you are required to put in, the front yard landscaping to make the house sell faster (if its not spec.), the people you pay to cut the grass in the common area until you final transfer, yada.

My point is infrastructure is not free. It has to get paid for, and impact fees do it so taxpayers elsewhere don’t. It’s not a hard concept to grasp, really. I’m not sure why there’s mendacization on this simple subject that’s easy to grasp, unless someone wants to hand-wave away from something else. Maybe we can tack on the cost of the new infrastructure required to the new home and call it something else, like a growth fee.

I just completed a condo project on land where I could have built 300+ units in 6 story buildings, instead I made a much better return with lower risk by building 100 units in 3-story buildings (there was no minimum density requirements on this land).

This is completely consistent with my point. Thank you for helping.

Your FARs were still way higher than SFR, and you chose to build densely** rather than build SFR because you packed as many dwelling units per unit area as you were comfortable carrying the paper and the risk for. That is: you built up. And like I said folks slap on some granite countertops and get a higher ROI to get the amount they want to make. Your small cost of upgrades made the units far more valuable for a little more loan and risk on your part.

DS

**[gosh, I wonder if there’s a market for dense units…I wonder…I wonnnnderrrr…]

Let me tell you, land prices are not just “set”, they are backed into. Again, if I could charge $425,000 for a house that is now worth $400,000 why wouldn’t I already be doing it? How does the addition of a new fee make a buyer suddenly able to qualify for a larger mortgage or have a larger amount abvailable for a down payment?

You pay your price for the raw land knowing you have to subtract 12-20 % for ROW, ~2-5% for stormwater, ~x% park space (or fee-in-lieu), any other % for offsite traffic mitigation (traffic light, channelization, turn lane’turn pocket). The remaining acres (say, 6.5 here) gives you how many houses you can build according to the zoning which says min lot size.

You know this going in, so the # of houses you can build is backed into and you know that, say, the zoning says your minimum lot size is 8000 sf giving you ~net 4/ac * 6.5 = 26 homes. Your profit on a house for this size lot is x. You know that the project will take 2-3 years from start to finish, less if you have the capital, more if you have to carry paper and deal with the bank, and that you must build 22 homes to break even after all costs.

So, pack impact fees on top of this (already known) and where does this screw up anything? It doesn’t affect land price, it affects final house price. It is better for the developer to be able to parcel down smaller; in this example, say to 5000 sf because that gives you ~7-8 nethouses/ac * 6 (more infra) = 42 houses and here maybe 34-35 houses to break even. This is way better for you as you likely will make more money depending on your price point. It is always – always, always better for a developer to parcel down to the smallest lot size possible. That is how it works on the ground and why it is hard to provision affordable housing, because most costs are fixed and it is hard to cut corners enough in the material/time/labor cost to make it much less. It is way easier to slap granite countertops and a few nice fixtures and window upgrades and there your margin is higher with little more cost. This is how most developers work – it is far easier to make more money by slapping in the granit countertop than it is to cut costs for affordable housing.

So, the impact fee comes into play only because 42 houses = 9.1 trips/day = ~380 trips/day vs 26 huses = ~235 trips/day. 42 houses is a far greater impact on roads and water and sewer, and it starts happening right away. The developer doesn’t care about roads crumbing faster from 42 houses or slower from 26 houses, they only care about controlling material costs and project slowdowns to get the last loan payment made to have the last 4 or 7 houses be pure profit.

I don’t know how you charge a user fee to flush a toilet over what you do now, unless you raise rates which will reduce usage and slow your capital collection thus slowing provisioning of infra.

But impact fees are never going to go away unless someone can figure out how to pay for stuff on the ground.

Non-starter.

DS

You do have a point that the fewer landowners might sell or that land that could be used for development pre-tax might be better used in a different way post-tax thereby reducing supply and thus increasing prices and inefficiency.

The amount landsellers are willing to take for their land is no more flexible than the amount anyone else is willing to take. When impact fees are imposed or increased, the first response is to reduce the supply of housing. This increases the price, which brings some of the builders back into the market.

This issue is addressed, in a slightly different context, starting on page 15 of this paper.

If impact fees are raised that simply results in less available to the land owner who is often a retired person that is a pillar of the community. If builders could increase costs on their houses and buyers would willingly pay those increased prices, they would have raised those prices already.

So, in the short run develpers may pay the tax because they have land that they already own and in the longer run the value of vacant land will fall to offset the higher cost of the fees.