EXACTIONS IN THE NEW DISINFLATIONARY ENVIRONMENT

This study demonstrates that the growing use of exactions in the 1970s were a product of the inflationary environment which created the illusion that they were shifted forward to the ultimate consumer of housing. Instead, local governments, through the exaction process, were capturing a portion of the increase in land values induced by inflation. In many areas the increase in land values was so great that even after the imposition of exactions, the real value of land increased. However, as the economy disinflates, inflation-induced profits disappear and the landowner realizes that he is bearing the burden of the exaction. As a result, the political concensus that favored the imposition of the exactions in the 1970s is forecast to break down in a low inflation environment.