After more than a year of discussion, the city stopped its talks over raising impact fees Tuesday and settled on a 72 percent increase -- a blow to one of Mayor Charles Meeker's top priorities for his third term.
The City Council's 5-3 vote represents the first significant hike since 1988 for the fees that help pay for parks and roads. It takes the charge for a single-family home from $682 to about $1,170.
Meeker had sought twice that much -- roughly $2,400 -- noting that Raleigh's consultant said its fees are only about a third of the state average and could have risen to $3,404.
(The state average? What other municipalities have impact fees? Charlotte? Banner Elk?)
And here are some good examples of governmental ignorance-of-economics-is-bliss:
City staff has estimated a 72 percent raise will bring in about $2.7 million a year for roads and parks. But that number assumes that the level of home-building stays the same after the fee hike, and it does not count the city's plans to split the increase over two years.
Hmm, impact fees have no effect on development? Gotta ... Google it:
... impact fees reduce rates of residential development by more than 25 percent.
Of course, you need to actually read the article to figure out how high impact fees must be to reduce housing by 25%.
Another:
Others worried that bringing fees up 72 percent will translate to higher home prices, stalling growth and hurting the city's first-time home buyers. Conventional wisdom says that developers will pass along the fee to new home buyers.
"I wonder how many local families are going to be prevented from buying a home because of what we're doing today," said Councilman Philip Isley.
And ... Google says:
... an additional $1.00 of fees increases the price of both new and existing housing by about $1.60 and reduces the price of land by about $1.00.
Source: KR Ihlanfeldt, TM Shaughnessy - Regional Science and Urban Economics, 2004
The perverse result of an increase in housing prices above and beyond the impact fee amount is due to property tax savings.
According to the research, new home prices might rise by $1170 to $1872. For a $100,000 house, this is less than a 2% increase. That might bite. And, there will be fewer $100,000 houses since developers will prefer to build houses where the fixed impact fee will be a smaller portion of the price.
