Government decisions regarding impact fees are not just bureaucratic details; they are critical choices that can make a substantial difference in the availability of achievable housing for Hoosiers across the state.

Understanding Impact Fees and Indiana Law

An impact fee is a one-time capital charge imposed by local governments at the time that a new building permit is pulled. The purpose of these fees is to help fund new or expanded public infrastructure, operating under the philosophy that “growth should pay for growth.” They are designed to shift the financial burden of new infrastructure from the existing community to the new residents who create the demand for it. 

Indiana Code 36-7-4-1311

The legal basis for this practice in Indiana is Indiana Code 36-7-4-1300 (FindLaw). This code is essentially the state’s permission slip for cities and towns to legally collect impact fees. By adhering to the rules within Indiana Code 36-7-4-1300, towns can ensure these charges are classified as fees rather than taxes, meaning the money must be spent on specific infrastructure projects that directly benefit the new development.

These fees are utilized for several primary reasons, including:

  • Funding infrastructure (like roads and parks) without increasing property or income taxes for current residents.
  • Managing rapid growth and keeping pace with the immediate need for expanded public services.

The Rising Cost of Achievable Housing

The financial burden of impact fees is not borne by the developer or builder –  the cost is always passed on to you, the homebuyer – increasing the final sticker price of the home. This directly affects the availability of achievable housing. If a town raises its park impact fee by $3,000, the price of achievable housing in that area effectively goes up by $3,000 overnight – eliminating 1,653 working families’ ability to qualify for a mortgage and achieve their dream of owning a home. 

Recent reports highlight how communities are increasingly relying on these charges. In one example from the Greater Indianapolis area, the Franklin City Council approved more than doubling the park impact fee for single-family homes (Daily Journal). This trend underscores a regional movement toward using these fees as a primary method for managing local growth. 

Legislative Efforts to Address the Indiana Housing Shortage.

Broad discussions at the Indiana State House are focusing on legislative actions to address the state’s severe Indiana housing shortage. Lawmakers are debating new caps and regulations on impact fees to prevent them from further driving up the cost of “starter homes” for first-time buyers and worsening the Indiana housing shortage.

The Potential Impact of House Bill 1001

House Bill 1001 (2026) is a cornerstone of this effort. This legislation, designed to reduce “government red tape,” introduces specific restrictions on local governments regarding construction-related fees.

Key provisions in the bill regarding impact fees include:

  • A specific cap on certain construction-related fees to prevent them from becoming an “excessive” burden on new builds.
  • A requirement that the fees be spent on infrastructure projects located within one mile of the new home being built.
  • A restriction on the ability of local units to increase fees related to Indiana building permits after December 31, 2026.
  • A 180-day delay for any approved increases to Indiana building permits and approvals, providing builders and buyers with more predictable pricing.
  • Annual reporting by units of government on the number and type of permits and how long it takes for the unit to make its decision. 

These measures aim to strike a balance: allowing local governments to fund essential infrastructure under Indiana Code 36-7-4-1300 while ensuring that fees collected with the authority granted by Indiana Code 36-7-4-1300 do not create insurmountable barriers to resolving the Indiana housing shortage. By limiting the cost associated with Indiana building permits and adding transparency to the process, the state hopes to increase the supply of achievable housing. 

Ready to influence policy on impact fees and help solve the Indiana housing shortage? Take a stand for achievable housing and reach out to your State legislator today and tell them that you support housing achievability and that you support HB 1001 .