Traditionally, the cost of infrastructure (such as wastewater lines, sewer lines, streets, etc.) was paid by the initial homebuyer, even though the useful life of the infrastructure was measured in decades. Each homebuyer absorbed the cost, financed it in their mortgage (driving up monthly mortgage payments) and then passed these costs on to the next buyer.
Modernly, private transfer fees are used to lower home ownership costs by spreading infrastructure costs over the useful life of the improvements.
Spreading infrastructure costs is nothing new. Other mechanisms include PIDs (Public Improvement Districts), Mello-Roos, TIFFs, and similar forms of real estate assessments. However, unlike PIDs, TIFFs, etc. (which require a monthly or quarterly payment), a private transfer fee has one major advantage, which is that the fee is paid once at the time of sale. This means that a homebuyer does not have to include the private transfer fee in their total debt when qualifying for the mortgage. It also means that the homebuyer is not “financing” the infrastructure costs in their mortgage.
Infrastructure costs money. The question is how to pass those costs on to the homebuyers who use and benefit from the infrastructure: the choice is to either put the burden on the initial buyer (and ask them to pass the amount on to the next buyer) or to spread the costs out over time.