"Givings": When Regulations Create Value - #18 — Sightline Daily (formerly Tidepool)

"Givings": When Regulations Create Value - #18

Posted by Eric de Place

07/21/2006 04:20 PM

Community planning protects heritage--and property values

[Note: This is part of a series.]

Northwest voters are facing a line-up of so-called "takings" ballot measures. The basic argument in favor of these initiatives is that when a regulation reduces the value of property, the owner should be compensated for the diminished value. Supporters argue (incorrectly) that such regulations amount to a "taking"--a legal standard that requires compensation.

First, there's a factual claim to sort out. Simply put: most regulations are not takings. Property regulations are litigated frequently and extensively, and the courts have decided--over and over again--that communities are not obliged to pay for the privilege of regulating property.

Second, there is a larger confusion about property values. Regulations sometimes diminish the value of property, but regulations often increase the value of property too. Many regulations amount to a "giving."

So why don't we see outraged developers and speculators vowing to send fat checks to the government for the profits they've reaped because of planning and sensible regulation?

Admittedly, we're not seeing that sort of taxpayer rebellion just yet. But in Oregon, where Measure 37 has enshrined a prototype pay-or-waive law for property owners, we are seeing something similar.

Here's the back story: on the outskirts of Portland, a rural landowner successfully applied for a waiver from existing land-use laws. Rather than cough up nearly $10 million in tax dollars as compensation, the county waived certain restrictions, and will now allow her to create 54 subdivisions. But her neighbors, who have been farming for more than 100 years, are not amused.

So now the farm family is suing the county, on the grounds that permitting suburbs next door amounts to reducing their property's value. They think (with some justification) that suburban neighbors will create all kinds of problems for them, including complaints about routine farming practices. The farmers' lawsuit underscores precisely why communities have regulations in the first place: to protect against anything-goes development, and to plan carefully for smart growth and thoughtful preservation.

The farm lawsuit is a nifty example of the bizarre consequences of amped-up "takings" measures, but it is actually rather unimportant in the big scheme. Among the more serious and pernicious consequences is federal flood insurance eligibility. In short, without the ability to prevent development in flood plains, communities can lose their eligibility for flood insurance--a loss than can severely harm property values community-wide. [Look for more on the topic of flood insurance in weeks to come. -EdP]

For the Oregon farm family, as well as for property owners susceptible to floods, regulations create and support value. Community governance that protects farms and reduces the risk of flooding is simply smart policy: and it's smart policy that boosts property values.

The farmers' lawsuit is only the second of its kind in Oregon, but it is reasonable to expect more of this. Especially so if the takings measures in Washington, Idaho, Montana, and California pass muster with voters this autumn. The measures would be a boon for out-of-work lawyers who will have plenty to sue over, but perhaps not so wonderful for property owners.

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Comments

Posted by Arie v. 07/21/2006 06:10 PM

Perversely, some actually see the lowering of property values as a potential benefit of I933. The idea is that heavy regulation and scarcity of developable land has decreased supply and pushed up prices. Not to seem indifferent, but increased traffic and infrastructure costs will negate any gains in affordable housing.

This posting provides yet more reasons rural property owners should be more concerned than anyone. However, as we see so often don't always count on folks to vote in their best interests.

Different topic: Eric, Do we know yet what the polls are saying about how folks view the initiative? All my take so far is anectdotal. --Arie

Posted by sprice 07/21/2006 06:10 PM

This is a bit off target, because of the suburban/farming conflict discussed above, but there is a 20 year old study by ULI on large master planned communities. What is facinating about it is that it shows that if a developer has control over the entire city/town, the zoning and land use restriction put in place are very strict, much more so than typical for public cities. Because then one entity can reap all the benifits of the land use regulations. But the tables get turned when its an individual property owner who wants to develop. Then they ar in a position to maximize their leverage of public infrastruture and use as much of the "commons" as they can get away with.

Posted by Eric de Place 07/21/2006 06:43 PM

Arie,

There has been some limited polling done on Washington's 933. I plan to share some results with readers before too long. But to summarize in a very, very brief way: the polls seem to be showing that huge numbers of likely voters (on the order of 50%) are "persuadable" one way or the other. I should also mention that poll results are seldom as clear-cut as people think and it's not clear (to me, anyway) which side is favored by the results.

But, as I said, stay tuned to find out more...

Posted by David Sucher 07/22/2006 10:21 AM

"...developers and speculators vowing to send fat checks to the government for the profits they've reaped because of planning and sensible regulation?"

Probably because the system is not set up that way.

Personally, I think a system in which land use entitlements generally (the next logical step from recognizing both "takings"and "givings") can be acquired by direct explicit compensation to the genmral public, and probably more importantly to the immediate neighbors, is worthy of consideration. Incorporating costs and benefits into land use entitlements explcitly is a much larger topic that can be addressed in a comment but I believe that there is a fair literature on it, especially -- and this shouldn't put off liberals -- from the libertarians.

But such a revolution in land use law is not likely to happen for a host of reasons; the main one is that the current land use system benefits too many existing property owners because by restricting supply it acts to support value which has enormous economic benefits. Can anyone seriously believe that the owners of major shopping malls want to get rid of zoning restrictions which limit the ability of new entrants to the regional market? That doesn't mean that I think that the current system is a fair one -- I still sympathize with the I-933 proponents, as should any ethical person.

The reality is that more people satewide benefit economocally from restrictive zoning than lose. That's the politics of I-933 right there in a nutshell.