Explainer Episode 26 – Land Use Restrictions and Legislative Reform

In a conversation moderated by Kimberly Hermann, Braden Boucek and Emily Hamilton discuss several proposed legislative reforms to land use restrictions.

Transcript

Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.

[Music and Narration]

 

Introduction:  Welcome to the Regulatory Transparency Project’s Fourth Branch podcast series. All expressions of opinion are those of the speaker.

 

Jack Derwin:  Hello and welcome to the Regulatory Transparency Project’s Explainer Podcast, part of RTP’s Fourth Branch Podcast series. My name is Jack Derwin, and I’m Assistant Director of RTP. Today, I’m happy to be joined by Braden Boucek, Emily Hamilton, and Kimberly Hermann to discuss several potential legislative reforms to land use restrictions.

 

Braden is Director of Litigation at the Southeastern Legal Foundation and has over 20 years of litigation experience. Emily Hamilton is a Senior Research Fellow and Director of the Urbanity Project at the Mercatus Center at George Mason University. Her research focuses on urban economics and land use policy. And our moderator today, Kimberly Hermann, is General Counsel at the Southeastern Legal Foundation and primarily works on issues related to government overreach, the separation of powers, economic liberty, property rights, and free speech. Thank you all so much for joining us today. 

 

And, with that, I’ll turn it over to you, Kim.

 

Kimberly Hermann:  Great. Thanks so much for having us. Recently the three of us authored a paper called, “The Legislative Exits from the Land Use Labyrinth.” What we really focus on in the paper is talking about the labyrinth of rules that determines the types and locations of permissible construction through the residential housing market.

 

These laws and regulations limit the housing supply and increase housing costs. So what we did in the paper was try to examine some of the current judicial standards that can be used to challenge these regulations and discuss some of the legislative options that are available when the judicial relief process does not come out in favor of the property owner.

 

So, with that, Braden if you could — if we could just back up just a moment and you could tell our listeners a little bit about what land use restrictions are and the land use labyrinth, in general.

 

Braden Boucek:  Sure thing. Thanks, Kim. Most people think about property rights restrictions and they, generally, think of what we call physical takings of property. The paradigmatic example being when the government wants to build a road and it needs to knock down someone’s house to do so. And what we don’t think of is the much more common type of land use restriction which are just laws and rules that restrict a property owner’s ability to develop or use their property in which they see fit.

 

Some of the more common examples that you might think of are minimum lot requirements, parking requirements, bans on multi-family housing, density restrictions. Something that’s come up a lot in recent years is, of course, restrictions on the ability to use one’s home as a short-term rental property as on Airbnb or similar sites.

 

So those are the kind land use restrictions that are far more common and do much more, these days, to restrict and inflate the ultimate cost of housing and housing [inaudible:03:02] availability in cities across America. 

 

Kimberly Hermann:  Yeah. When we look at some of those land use restrictions that you’ve just been talking about, you know we talk about some in the paper how there’s a lot of consequences from those regulations. And one of them that we really try to focus on is how they affect housing affordability, right? Because this is really an important thing. In the current economy, there’s a lot of talk about affordability and as people make decisions, especially coming out of COVID with respect to business opportunities, there’s also a lot of regulatory uncertainty.

 

So, Emily, can you elaborate a little bit on housing affordability and how it’s linked to residential land use in the context of these land use restrictions that Braden was just mentioning?

 

Emily Hamilton:  Yeah. Thanks, Kim. So as Braden explained, there are tons of limits at the local level on the amount and the type of housing that home builders can provide in a given area. So if we’re talking about something like minimum lot size requirements as one example, if a locality zones a certain amount of land for residential use and puts a minimum lot size requirement across all of that land, the total area divided by that minimum lot size is going to be a hard cap on the number of houses that can be built and, in turn, the number of people that can live in that area.

 

Localities also implement a lot of rules that drive up the cost of housing that can be built. And that’s, in part, by limiting new construction to things like single-family detached houses, exclusively, rather than permitting lower cost types of housing that could include anything from townhouses up to large apartment buildings or mobile homes that all offer more affordable options than current rules often permit to be built.

 

And, as a result of all of these regulations, what we see is that currently about half of renter households in the U.S. are housing cost-burdened, meaning they spend more than 50 percent of their income on rent alone generally leaving them without enough money left over to meet some of their other needs. And this problem is getting worse over time. If we look decade by decade going back to the 1960s, renter households are consistently spending a larger portion of their income on rent in spite of experiencing rising standards of living in many other areas of consumption patterns.

 

Kimberly Hermann:  Wow, those numbers are pretty staggering when you actually think about that over — was it you said 50 percent of renters are housing burdened? And, so, clearly we need to do something about that as a country and one of the things that is talked about a lot, Emily, from what I understand is that there’s a counter-productive kind of aspect to many of these land use restrictions that Braden was mentioning. 

 

And when you, actually, look at these land use restrictions, what can we do to not necessarily stop all land use restrictions because at the end of the day, many times the government does address legitimate concerns about land use with these restrictions, right? We might see that they put them in place to reduce noise or traffic or pollution or other public impacts that come into place. But, here, it looks like they can also have the effect of increasing housing costs.

 

And, so, one outlet that we have discussed, at length, in this paper is the ability for property owners to go to the courts and say, “Look I want to build two houses on this piece of property. I want to build a duplex which would decrease housing costs and increase the level of affordable houses out there, but I can’t because of this property regulation or because of this land use restriction that we have.” What is it, Braden, that property owners can do if they want to turn to the courts? Is there an option for them there or is the only resolution to, kind of, just take it with a grain of salt?

 

Braden Boucek:  Well, as it currently stands, the courts are not a very promising place in which to bring these sorts of property rights claims. And that should strike everybody as a little bit odd. After all, we bring constitutional law claims all the time to the courts and everyone’s very familiar with what that looks like.

 

And among the paramount concern for the Founders who drafted the Constitution was, of course, property rights. Most of the people at the time of the nation’s Founding were property owners and probably nothing animated the American Revolution quite so much as concern for property rights. And the Constitution does have constitutional protections in there for property rights. Mostly notably in the Fifth Amendment which precludes governments from taking people’s property except upon a showing of public use and upon just compensation.

 

However, that doctrine does not overlay very well with the sorts of takings that we’ve talked about here. We refer to those as regulatory takings; it’s distinct from physical takings. In a regulatory taking are the things that we’ve discussed: when a property owner’s rights to use and enjoy and develop their property are burdened but not just taken outright.

 

And, so, perhaps a really good example is one that we discuss in our paper. And that has to do with Dennis and Carol Kelleher. In 1999, they purchased an undeveloped lot in New York with the expectation they were going to build a small summer home. They got local permits but a New York agency denied their permits because they preferred that the land remain undeveloped.

 

Even though the Kellehers were able to argue that this resulted in a 98 percent reduction in value, the Court said that this was not something that was not a taking within the meaning of the Constitution. Now, the Supreme Court has clearly recognized that there is such a thing as a regulatory taking when laws go, “too far.” But other than saying you can’t go too far, we really don’t know what that means, and the courts have given us a series of amorphous standards that are oftentimes shifting to establish what is and is not too far.

 

As a consequence, I don’t mind saying that the regulatory takings doctrine is something of a mess. Just this last term, Supreme Court Justice Clarence Thomas noted that the regulatory takings doctrine was a mess and asked for us to revisit it. But the courts have shown no inclination of really substantively re-engaging with this doctrine and giving more, kind of, concrete rules for when a regulatory taking is compensable and under what circumstances.

 

For the foreseeable future, the courts are not the promising way in which to bring these regulatory takings claims. That’s not to say all is not lost, however, but courts under the existing framework are not the ideal vehicle.

 

Kimberly Hermann:  So, Braden, in that example that you gave, the property owners had their piece of property, and then the government came in and, after they owned the piece of property, said that they could not build on it. And, so, to them the property was, essentially, worthless but they had no recourse in the courts. Is that what I’m hearing you’re saying in that example?

 

Braden Boucek:  That’s exactly right. And when the Kellehers asked the Supreme Court to clarify why their investment-backed expectation was not enough to prove a taking, the Supreme Court declined it. And property owner after property owner has been asking the Supreme Court to clarify its doctrine and, to date, none have really prevailed.

 

Kimberly Hermann:  Wow, so it sounds like until the Supreme Court clarifies its regulatory takings law and, as you mentioned, as Justice Thomas put it, puts a fresh look on regulatory takings jurisprudence that the courtroom battles in these cases are, more often than not, going to result in a win for the government defendants. And since the Supreme Court has refused to enter this fray, the question then becomes what can be done to protect private property rights and promote housing affordability at the same time.

 

As we discuss in the paper, one of the most promising answers appears to lie with the Legislative Branch. Emily, can you give us an idea of some of the tools that we propose legislative—the different city councils and the different state legislatures—could, actually, use to further housing affordability while protecting private property rights.

 

Emily Hamilton:  Yeah, one of the models that we identified for helping with both of those problems, is Arizona’s Property Ownership and Fairness Act. And this is a state law that gives property owners recourse through a relatively simple administrative process to seek compensation when new local regulations that were passed after the state law was implemented reduce the value of their property by limiting their rights to develop that property.

 

For example, if there’s a piece of land zoned for, say, multi-family housing and the local government comes in and says, “Actually, we are going to down zone this for a lower density type of development.” That would, in general, reduce the value of that piece of land and give the property owner the opportunity to seek compensation for that devaluation of their land. So it offers them protection from, at least, the uncompensated regulatory takings that Braden described.

 

And what we’ve seen in many cases, is that under the Property Ownership and Fairness Act that Arizona has, localities have responded by choosing not to implement broad-based down zonings. There have been a few instances where local policy makers or local residents have proposed a down zoning that would limit multi-family construction or historic districts that would limit development of, really, any type. And local policy makers have, in some cases, been enthusiastic about these new rules that would limit development rights. But once they realize how expensive implementing these rules would be under the Property Ownership and Fairness Act, they’ve generally reverted and said, “We’re going to leave development rules as they were previously.”

 

So under the Supreme Court standard, down zoning is, generally, what we could consider free to local government policy makers to pursue. There’s no budgetary trade-off that they have to make in order to limit property owners’ development rights. But in Arizona, they would have to pay the market value of limiting those development rights which has led to a lot less down zoning relative to what we’ve seen in recent years in some other states.

 

Kimberly Hermann:  Now, when you say, “down zoning,” can you break that down a little bit for our listeners just so that we can all understand what exactly you’re talking about. So if you have a piece of property that’s zoned for single-family homes, are you talking about not allowing it to be used for, say, multi-family homes? Or is it vice versa where it was multi-family homes and now you can only do single-family homes on it?

 

Emily Hamilton:  Yeah. Down zoning refers to a change to current zoning rules that would result in less permissive rules for development. So, for example, it could be a piece of land zoned for multi-family housing that could be down zoned to single-family housing. Or it could be a piece of land zoned for single-family housing on quarter acre lots that could be down zoned to single-family housing on one acre lots. So it’s any rule change that reduces permissible density from what was allowed previously.

 

Kimberly Hermann:  Okay. And, so, arguably that would then result in less affordable housing out there. Is that the conclusion that would result there?

 

Emily Hamilton:  That’s right. It limits property owner’s rights to build housing and, in turn, down zoning contributes to housing affordability problems by limiting the amount of housing that can be built and at what price.

Kimberly Hermann:  Okay. That makes a lot of sense. I just wanted to make sure we that down to understand exactly how this Arizona law works. Another tool that you mention in the paper is the use of state preemption laws. Can you walk our listeners through how this works in practice and how it’s different than the Arizona Property Ownership and Fairness Act?

 

Emily Hamilton:  Sure. There have been a few recent cases of state policy makers setting limits on the extent to which their localities can limit housing development. And, in turn, these state policy makers are hoping to make lower cost, more affordable housing development feasible.

 

One example is, Oregon, which in 2019 passed a state law preempting single-family zoning across much of the state and requiring Oregon localities to allow duplexes and, in some cases, up to fourplexes to be built on lots where previously only a single-family house would have been allowed. So it’s state policy makers stepping in to set some limits on just how far their localities can go to restrict housing construction and make housing more expensive than it would otherwise be.

 

And this approach is quite different from the Arizona approach. The Arizona law, as it’s been demonstrated in practice, generally keeps land use regulations from becoming more restrictive over time, and it protects property owners in the process. But it doesn’t address current land use restrictions that were already in place before the state law was passed. So existing barriers in Arizona aren’t being touched to allow more multi-family housing to be built or denser single-family housing to be built relative to what was in place before the law.

 

And contrast the Oregon law, we can think of as being more forward-looking and saying these localities have single-family zoning in much of their residential land now. But we, at the state level, are going to require a little bit denser and a little bit lower cost housing to be permitted going forward.

 

Kimberly Hermann:  Okay. One question I have about that and, Braden, maybe this is for you — either you or Emily who want to answer this. But with these state preemption laws, you talked about how, basically, you’d be putting in a state law that tells the local governments that they can’t do X, Y and Z. If I’m understanding that correctly, does that infringe on the local government’s right to regulate property and to put land use restrictions in place? Or is this just simply a good tool that could be used to ensure that private property rights aren’t infringed upon?

 

Braden Boucek:  Well, to a certain degree, Kim, that’s going to depend on the constitutional structure of your state and the rights that localities have in relation to their state government. As a broader working principle, though, localities are generally creatures of their state government and derive their powers from the state government, in the first place.

 

So in many states, such as my native Tennessee, the power to regulate local land use only comes by dint of statutory delegation from the State itself. It naturally follows, then, that with some qualifications the states are able to pair those grants of authority back. But, again, it’s going to be a little bit state-by-state specific. 

 

But, you know, perhaps to respond to your point more generally, I would say that I don’t think anybody thinks that we should totally divest localities of their ability to regulate local land use for legitimate problems. There, obviously, are some very real problems that come from development that cities are wise to be responsive to. But, simply, by paring some of these back to making it a little more accommodating for future housing, with keeping in mind future generations, we think that you can balance the competing interests there.

 

Kimberly Hermann:  That all makes good sense. As you’re talking about the local governments and them still having control, generally, or at least the level of control that their given in their states over land use restrictions and private property, what can local governments do, Emily, to further affordable housing while also balancing that with private property rights?

 

Emily Hamilton:  One thing we’ve seen with cases of pre-emption in land use regulations in Oregon and elsewhere is that local government policy makers have a lot of tools at their disposal to block housing construction or make housing construction unfeasible. So state preemption can be a very long path toward, ultimately, liberalizing land use regulations and allowing more housing to be built at lower prices.

 

But when reforms are implemented at the local government level, there’s a much greater chance that local policy makers are bought into these reforms and, actually, want to see them succeed at their stated goals of improving conditions for housing construction and housing affordability.

 

So when the local politics are such that reform is feasible that’s, in my opinion, the best place for successful reforms to be done. One of my favorite examples of that type of reform is Houston’s minimum lot size reforms that were first implemented in 1998 and later expanded to cover more of the city in the 2010s.

 

This reform reduced minimum lot size in Houston from 5,000 square feet, which is already relatively small compared to what we see in a lot of localities across the U.S. But Houston policy makers reduced it from 5,000 square feet down to 1,400 square feet, essentially, making it possible to build three tall, skinny, what’s known as detached townhouses or, in some cases, traditional townhouses where only one single-family house would have been permitted previously.

 

This has resulted in tens of thousands of new small lot houses being built in Houston and has contributed to making Houston a place where the median home price is lower than the national median home price, even though Houston has experienced decades of population growth and economic growth.

 

So I’m optimistic on the one hand about the incentives being better at the state level for approaches like preemption because state and policy makers, in general, are more inclined to weigh the costs and the benefits of land use restrictions that constrain development. But when you have local leaders and local politics that make reform at the local level feasible that’s, I think, where we can see some of the greatest and longest lasting successes.

 

Kimberly Hermann:  Yeah. And, then, when you get to that point there’s not a need for private property owners to turn to the courts because the local land use restrictions are, arguably, not taking their property because they can do what they want with that property within reason. And they can put it to its best economic use in creating affordable housing where affordable housing is needed. And, then, it sounds like we don’t have the issue about the lack of clarity from the Supreme Court with respect to when is there a taking and when is there not a taking.

 

Braden, just to pass it over to you for any last thoughts on these three different tools that Emily has run through, what are your thoughts with respect to the constitutionality of them and do you see the Supreme Court jumping into the fray to clarify a regulatory takings doctrine anytime soon in the context of these tools?

 

Braden Boucek:  Well, I generally think that the doctrine is unstable and there’s enough interest, both internally and externally, to seeing that addressed that I think at some point in time the Supreme Court’s going to have to start weighing into it and giving some kind of clarification. But it would be best to not wait for it and address the problem proactively along some of the lines that Emily suggested.

 

I mean, just echoing Emily’s comments, we have a rising generation who is bearing the cost of housing in ways that previous generations have not. And this rising generation wants their chance at the American Dream, too. That’s going to include home ownership, but it’s just increasingly becoming inaccessible for younger people who are trying to get their chance, as well.

 

So, I think, it’s just a greater and broader cultural awareness of the costs of these housing regulations such that we can balance them with the competing interests would be something we’d all do better to think about going forward.

 

Kimberly Hermann:  Hopefully, some of the solutions that we presented in this paper can help move the needle on that a little bit because, as you mentioned, especially now in our post-COVID worlds where property and housing costs have gone through the roof and the availability of houses, the supply is way down. At least, where I’m living here in the Atlanta area, you’re hard-pressed to find houses let alone any affordable houses. And, so, I think anything that we can do as a country to move the needle on this and use the tools that we have available, would be beneficial across the board.

 

Thank you guys so much for joining me today to talk about this and to just explore these topics, and I look forward to continuing to work you guys on this going forward.

 

Emily Hamilton:  Thanks, Kim. And thanks for having us, Jack.

 

Braden Boucek:  Yeah. Thank you so much.

 

Jack Derwin:  Of course. Thank you all so much for taking the time to join us and for taking the time to author the paper, as well.

 

And thank you to our audience for tuning into this episode of RTP’s Explainer Podcast. You can subscribe on any major podcast platform and check out our website regproject.org or our social media accounts @fedsocrtp to learn more. Thank you 

 

[Music]

 

Conclusion:  On behalf of The Federalist Society’s Regulatory Transparency Project, thanks for tuning in to the Fourth Branch podcast. To catch every new episode when it’s released, you can subscribe on Apple Podcasts, Google Play, and Spreaker. For the latest from RTP, please visit our website at www.regproject.org.

 

[Music]

 

This has been a FedSoc audio production.

Braden Boucek

Director of Litigation

Southeastern Legal Foundation


Emily Hamilton

Senior Research Fellow

Mercatus Center, George Mason University


Kimberly Hermann

General Counsel

Southeastern Legal Foundation


State & Local

The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speaker(s). To join the debate, please email us at rtp@regproject.org.

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