Local governments often charge developers impact fees to finance local public goods. This has been practiced in Chinese cities for more than two decades; however, no empirical studies have tested the effect of impact fees on real estate prices. Using a panel data set for 35 large- and medium-sized cities from 1998 to 2008, we find that impact fees lead to a significant increase in real estate prices. For a given city, an increase in impact fees by one yuan leads to an increase of about 5 yuan in the price of newly-built housing; a 1% increase in impact fees leads to an increase of 5 percentage points in the housing price index and 7 percentage points in the land price index.