Opinion: Carolina Beat

City Planning and Property Rights

Rethinking Regulation

Governments tend to move inexorably toward more regulation, and this has certainly been true in the field of state and local regulation of development and building. Some rules are necessary, but the burden should be on government to justify any infringements on property rights on strict constitutional grounds.

The United States Supreme Court has recently begun to breathe life into property rights. This is a welcome direction in the Court’s thinking, because there will be more jobs, income and liberty if there is less regulation and more reliance on cooperation, information, education, private contracts and the real estate market. Property rights, which have been eroded over the past sixty years, will be restored to the position guaranteed them in our Constitution. Order and beauty can still be maintained to reasonable standards.

While a few regulations may improve the economy by making the city more attractive, a few too many will make it unattractive by adding “the straw that broke the camel’s back” to the cost of living and doing business. For example, it is sometimes maintained that the cost of regulation is only a small percentage of the cost of a house and that therefore it causes no economic damage, but, since incentive is based on marginal costs, another few dollars can make housing prices in one community uncompetitive with those in another, or make a type of housing uncompetitive, so housing will not get built which would have been built in the absence of the rules, and the economy and the quality of life will get worse, not better. It is sometimes not understood that for every good effect of regulation there are unintended, unwelcome consequences.

For the republic’s first one hundred fifty years the Supreme Court upheld economic due process and the “takings” clause of the Fifth Amendment to the Constitution, but from 1926 (in the Euclid Village zoning case) until recent times it has abandoned strict scrutiny and tended to allow legislative bodies latitude in regulating the economic and property fields to the point where lawmakers virtually only have to state a purpose in a law’s preamble to provide the grounds for validation. The Court has allowed regulatory takings without compensation of a property’s value as high as ninety-five percent.

This reasoning comes as a shock to affected owners. At a hearing on “highway overlay district” zoning, which required deeper setbacks and lower building heights than for similar properties elsewhere, I heard a farmer tell his county’s commissioners: “You would not take fifty thousand dollars from me at gunpoint, yet through this zoning ordinance that is what you will do, by reducing the value of my property.” He saw it as unfair. It was, and it was illegal, because the Fifth Amendment states in unambiguous language: “nor shall private property be taken for public use without just compensation.” The reason for requiring payment was to protect individuals from bearing unfairly costs which should be shared by all. Development rights to the farmer’s property, which was his life’s savings, were being taken for public use, and he should have been compensated. The county commissioners passed the ordinance and took his savings anyway to salve the aesthetic sensibilities of its “democratic” majority, which was being as despotic as the Founding Fathers knew such majorities could be. The commissioners also knew that it would be more popular with the county’s voters to take the money from the farmer than from them.

The Supreme Court in two recent decisions has shown interest in restoring property rights. First English Evangelical Lutheran Church of Glendale v. Los Angeles, which said that compensation may be required for moratoriums, and Nollan v. California Coastal Commission, which said that regulations must have a nexus, a close connection, with the purpose of the law in question, will force some careful thinking by public officials about which regulations are important enough to warrant paying for the takings and which exactions from owners are legal.

This process will improve cities, not hurt them, because city councils will have to be more selective about regulating when it costs the taxpayers money. As a result, business costs will be lowered and profits will increase, so more jobs will be created. The cost of living will be reduced. Innovative planning and design will be stimulated, because while regulation helps to bring irresponsible developers and builders up to standard, it also tends to bring the good ones down to it. Blandness and mediocrity become the standard under tight rules.

The present regulatory system should be modified whether or not the Supreme Court requires it. Consider some legal reasons first, followed by economic and practical ones. Regulatory taking has been justified under the “police power” of government, the power to protect the public’s health and safety. Yet, as law-professor Bernard H. Siegan points out: “Zoning, whose constitutionality the Supreme Court upheld in 1926, is essentially prior restraint on a use of property that poses no threat of nuisance . . . Thus, zoning authorities are censors, with the power of government to force their ideas on the public. Nevertheless, the High Court of that period removed almost all prior restraint from one business (publishing) and effectively imposed it on another (real estate and building).”

Property is fungible; that is, readily convertible from one form to another, such as from real estate to cash, or to stocks and bonds and retirement accounts. If the zoning of real property is valid as a prior restraint, then so might be the regulating-away of money property on the grounds that the money could be put to some noxious use – an idea which would not be considered by lawmakers, yet it is not thought absurd in respect to real property.

Zoning has become the basic city-planning regulatory tool. It is often considered essential to the protection of neighborhoods, yet in the absence of zoning property owners have remedies available against noxious neighbors. They can seek injunctions or compensation for damages, so zoning’s prior restraint is not necessary for their protection. In fact, where zoning is in force, they probably cannot even get redress for damages against location near them of a use permitted by it, with the result that they can lose some rights they might otherwise have had.

There is also a question as to whether zoning results in development patterns any better than, or even different from, those where there is no zoning, as in Houston. Professor Siegan confirms my own observation when he says, “The pattern of land use in Houston is probably not appreciably different from what it would have been under zoning.” Land prices tend to produce natural zoning, because commercial, office and industrial uses can thrive only in strategic locations, and they therefore command high land prices. This is the reason why, where zoning ordinances are in force, economics often compels rezoning to the marketable use after a lengthy procedure which pushes up project costs, which in turn get passed along to the consuming public, increasing the cost of living. Business is impeded and jobs are lost.

Zoning is a very blunt instrument, and it is straining the case to claim that it has been effective. It requires the governing body to determine, sometimes years in advance, where certain land uses may go, and zoning authorities frequently remake their maps to correct their mistakes. It is worth remembering that zoning theory is drawn from studies of market-driven land use patterns, but zoning practice distorts them and freezes them so that they cannot respond readily to changing conditions. Aside from the prior-restraint argument against it, zoning is the wrong way to determine land-use locations.

A better method would be to wait for the marketplace to make the location decisions. It will make the right ones, because otherwise the sellers and buyers of the real estate as well as the future users of it and those who will be connected to it in commerce – all of us – will lose. When the private process has determined the best locations, the governing body can and should apply the regulations which are really necessary, such as safe locations for driveways and buffering by trees or walls to cut down on noise and light noxious to adjoining property owners; a floating zone system with regulations in place, ready to land where needed. Site plan approval can be a part of it; so can notification of the neighbors for their comments.

The distinction between less-protected property rights and specially-protected speech rights does not seem justified. Property rights are necessary to free speech, which government can shut off by threatening speakers’ property, and I have seen owners’ protests against government rules and practices silenced by subtle threats to hold up their projects. Political speech can be muzzled by threats to property, too. It should also be recognized that claimed rights of privacy in the home depend on real property rights to give a legal basis to the home’s physical existence. Property rights are, therefore, fundamental to rights of both free speech and privacy.

There are obvious problems and inequities with some common city-planning regulations besides zoning. The development moratorium is one of them. It may now require compensation, because First English Evangelical Lutheran Church ruled on a case of that type. In moratorium cases individual landowners are paying for government’s failure to meet its obligations to provide streets, water and sewer facilities on time. Richard A. Epstein in Takings: Private Property and the Power of Eminent Domain calls these prohibitions “difficult to justify, for the state acts as a common carrier that must service all comers on payment of user fees tied to costs of installation or use.”

There are other effective ways to promote good planning and development. It is well understood that growth can be managed through the placement of sewer and water mains and major roads. Development follows them and little of it is done without them.

Purchase of development rights is a very effective device for public control. It is cheaper than purchasing the land, and it conforms to the Constitution, as contrasted to regulations which take property without compensation. For example, in the case of the farmer and the overlay zoning the rights being taken should have been purchased from him for fifty thousand dollars, which would still be cheaper than buying his land. Another device is the use of deed restrictions in the conveyances of land. They can control use more effectively than zoning because they cannot be broken by political action, and they are private contracts, freely made. Government can promote their use and enforce them, as Houston does.

More innovation will be applied to urban development by property owners, developers and builders when regulation is reduced. The application of the thousands of individual minds of the producers and consumers in the marketplace can be one of the most powerful city-planning tools. Committees and councils of government are necessary, but they are usually dull and uncreative. Our cities will be more vital and beautiful where innovation is encouraged.

While the planners and regulators have gotten professional educations, it is only recently that professional educations have been offered for the key people, the developers and the real estate industry. A few graduate city-planning schools, sometimes in conjunction with business schools, are beginning to offer them comprehensive curricula. Graduates of these schools will have the education to find new solutions to urban development problems, to cooperate well with city planners and to develop and build responsibly. We need more of this kind of education, and perhaps developers and planners should be in the same schools to learn from each other.

Developers are not the enemy of the public, as officials and news media sometimes portray them. They are the agents of the consumers of real estate, which includes all of us. They have a strong incentive to cooperate with well-conceived city plans without being coerced by law. They tend to be increasingly-well educated, sophisticated and responsible, and they usually use professional planning consultants to supplement their own talents. Besides, in the absence of regulation by law they are still impelled by the natural regulation of markets, competition and financing to serve the public welfare. Inform them; educate them; inspire them; reward good work; hold conferences; discuss objectives and problems with them. If city officials’ ideas are good, they can get many of them adopted by persuasion rather than force of law. Most developers are good citizens and will do the best they can, like everyone else. They want to create developments and buildings which are a credit to their name – in beautiful, workable cities.

The Supreme Court seems to have revived respect for the doctrine of John Locke and the Framers of the Constitution on property rights. This impetus to preserve individual liberties in the urban planning and development process should be welcomed, and, both to comply with the law and because it is right, efforts should be underway to reduce regulation and to develop a system relying more on the real estate market, education, cooperation, private contracts and covenants. Only where these fail should we regulate; and then compensation must be paid where property rights are taken. The result will be better cities with more jobs and income for their citizens.