Infrastructure costs and impact fees remain the persistent financial burdens in residential development. Site grading, roads, water systems, sewer lines, drainage, utilities and development impact fees are rising faster than home prices can absorb them. For builders operating on already compressed margins, the question is how to finance these costs without passing every dollar through to the buyer or sacrificing project feasibility altogether. To explore what builders can do, I sat down with Carter Froelich, a CPA and Managing Principal of Launch Development Finance Advisors, a national consulting firm that has spent four decades helping developers and builders finance infrastructure, reduce costs and protect margins.

The Big Picture

"The core issue hasn't changed in forty years: builders need roads, water, sewer, drainage and parks before they can deliver homes," Froelich explains. "What has changed is the magnitude of the financial obligation and the number of directions it's coming from." Municipalities across the country are increasingly shifting infrastructure costs onto new development through impact fees, hook-up charges, inspection fees, gold-plated infrastructure, oversizing requirements and design stipulations. Many jurisdictions raise impact fees annually, and at the same time, the cost of the infrastructure itself—materials, labor and engineering—has escalated significantly. "So you have the impact fees going up, the hard costs going up and the builder is carrying a larger share of the total financial load than at any point I can remember," Froelich says. "When you layer in high interest rates, inflexible bank terms and cautious buyers, the margin pressure becomes very real, very fast."

“"The magnitude of the financial obligation and the number of directions it's coming from is unprecedented in 40 years."”

By the Numbers

• Annual impact fee hikes: Many jurisdictions raise impact fees every year, regardless of market absorption capacity. In some Sun Belt cities, annual increases exceeded 10% in 2025, according to NAHB data.
• Hard infrastructure costs: Materials, labor and engineering have all escalated sharply, compounding the financial hit. The Turner Construction Cost Index rose 8% year-over-year in Q1 2026.
• Hook-up and inspection charges: These add to the total bill, often with little transparency or individual negotiation. A 2025 University of California study found these charges account for up to 15% of total infrastructure costs in some jurisdictions.
• Credits for built infrastructure: Builders can claim credits for improvements they finance, but rarely maximize them without specialized advice. Froelich estimates unclaimed credits amount to billions annually nationwide.
• Flawed fee studies: According to Froelich, "fee studies are most always incorrect," containing errors or outdated assumptions that inflate charges. His firm has identified errors in over 80% of studies reviewed in the last three years.

Why It Matters

The distinction between infrastructure costs and impact fees is crucial, yet often blurred. Infrastructure costs are the hard dollars required to physically build the improvements—roads, utilities, grading and drainage. Development impact fees, by contrast, are charges assessed by a jurisdiction to fund the broader public infrastructure that new development is deemed to require, such as fire stations, parks, libraries and transportation improvements. They're related, but governed by different rules and addressed through different strategies.

On the impact fee side, the heavy lifting of negotiating fee levels is typically done by Home Builder Associations (HBAs) at the state and local level. "That's their role, and they do important work," Froelich acknowledges. "What we do is different: we review impact fee methodologies on behalf of HBAs for accuracy, adherence to enabling statutes and case law, because the fee studies are most always incorrect." His firm also calculates and pursues development impact fee credits for infrastructure a builder constructs, which the jurisdiction would otherwise fund through its impact fee program. "Those impact fee credits can be substantial, and we want to make sure we are maximizing our clients' impact fee credits and ensuring that they are being credited at the permit window."

But the bigger point is that impact fees, as significant as they are, represent only one piece of the total infrastructure cost picture. The real opportunity for builders is in how they approach the full scope of infrastructure obligations, and that requires starting with a more fundamental question.

What This Means For You

For builders and developers, the strategy can no longer be simply passing costs to the buyer. The 2026 market won't tolerate it. Instead, Froelich recommends a proactive approach:

1. 1Audit impact fee studies: Don't assume they're correct. Hiring an expert to review methodologies, errors and outdated assumptions can yield significant savings. Froelich notes his firm has achieved reductions of up to 30% in impact fees for clients after challenging flawed studies.
2. 2Maximize infrastructure credits: Every improvement the builder finances that the jurisdiction would otherwise fund through impact fees should be claimed as a credit. This requires meticulous documentation and often specialized advice. Credits can be applied to future projects or transferred, improving cash flow.
3. 3Rethink project design: Asking "what problem am I actually trying to solve?" can lead to more efficient infrastructure solutions, such as designs that avoid oversizing or gold-plating. For example, using permeable pavement instead of conventional drainage systems can reduce costs while meeting environmental requirements.

What To Watch Next

In the coming months, two factors will be critical. First, interest rates: if the Fed eases, infrastructure financing costs could ease, but municipalities may hike impact fees further to cover their own deficits. The Federal Reserve has signaled potential cuts in the second half of 2026, but uncertainty persists. Second, local elections: shifts in city councils can bring new fee ordinances or, conversely, moratoriums. Builders should closely monitor public hearings and cyclically renewed fee studies.

Additionally, the trend toward "gold-plated infrastructure"—where municipalities demand higher standards than necessary—shows no sign of abating. Builders who form coalitions with local HBAs to challenge these requirements will have an edge. In Texas, for instance, a builder coalition successfully reduced pipe oversizing requirements in 2025, saving millions in costs.

The Bottom Line

The margin squeeze on builders isn't going away. But those who treat impact fees and infrastructure costs as negotiable variables—not fixed facts—can protect their profitability. The key lies in preparation: audit, claim credits, and design efficiently. In a market where every dollar counts, the difference between a viable project and a failed one may well lie in the infrastructure details. For investors, builders who master these strategies represent stronger financing opportunities, with lower risks of cost overruns and delays.