Affordable Housing Institute : US

Indeed, in eminent domain takings, the government labors under a high burden of proof, and proceeds paid to a taxpayer are tax-free.

The due process and just compensation thresholds raise the bar high enough that government tends to exercise eminent domain only when the case for doing so is truly compelling - and where citizens are willing to put their money where their mouths are.

But what happens when government does not physically seize the affected property, merely prevents its economic use? Do these rise to the level of ‘regulatory takings’ for which just compensation must be paid? This is a thorny puzzle, because virtually any law affects a property’s value, up or down, to some degree. And as urban development and land use planning become more comprehensive, laws affecting economic value and use become more prevalent.

Now and then, aggrieved property owners - most high-court cases seem to involve highly ornery and stubborn citizens - fight to claim compensation when government:

• Declares their area a wetland (see Palazzolo v. Rhode Island, or

• Decides to keep Lake Tahoe blue by enacting building moratoria that impact newcomers who bought land intending to build (see
  Tahoe-Sierra ).

All of this is enormously relevant to affordable housing. In the US, we have a huge inventory of existing affordable housing property - something in the vicinity of 2,500,000 apartments - financed and regulated under one or more government programs. Nearly all of these have some future date on which they property could convert and
go market. When this arises, government invariably wants to keep the housing affordable. But how badly, and will government pay for what it wants?

In 1988, faced with an imminent loss of that housing, and acting on entirely understandable political imperatives, Congress enacted the Emergency Low Income Housing Preservation Act . This took away the owner’s contractual right - breached the contract, as has been subsequently adjudicated - and offered a menu of incentives that might or might not represent ‘just compensation.’ ELIHPA was challenged as
Unconstitutional, arguing that however well motivated, ELIHPA failed to provide owners with just compensation, and superseded by LIHPRHA, which did provide just compensation using an eminent-domain-style valuation process . Under LIHPRHA, many properties were
preserved nationwide. But Congress gradually become uncomfortable with LIHPRHA’s perceived high cost and unquestionably painful settlement processes. In 1996, LIHPRHA was functionally repealed and owners regained their rights, with new resident protections known as
enhanced vouchers, a special form of portable rent-paying assistance that enabled these families to stay in place. Perhaps surprisingly, many properties were able to convert to ‘market use’ while keeping most of their residents in the housing, allowing the owner a market economic return and the resident an affordable home.

Meanwhile, back in Oregon, the voters have delivered another blow. Measure 37 mandates that the state must either pay compensation for a regulatory taking or suspend the law with respect to an individual property. And a glance at the arguments pro and con is revealing:

Supporters say current law is unfair. Opponents say fairness will cost too much. In other words, Measure 37 isn’t so much about whether we like green space, but if we do, who pays to keep it green - its owner, or the state?

Whatever the benefits of Oregon’s land-use rules, said [Ross Day, a Portland lawyer for the conservative group Oregonians in Action who co-wrote the law], “the people paying the cost are property owners.”

In the United States, the referendum is frequently a tool to bypass a cabal of elected officials, spurred by angry voters:

“If Enron does something like this, people call it theft,” Mr. Day said. “If Oregon does it, they call it land-use planning.”

In the property arena, referenda have been used for such measures as:

• Capping real estate taxes, as in California’s Proposition 13 26 years ago, which kicked off a wave of such measures nationwide.
• Repealing rent control perceived as having run amok , as in Massachusetts 12 years ago.

And unlike physical takings, regulatory takings are intangible, and their cost is highly arguable and very complex:

Richard J. Lazarus, a professor at the Georgetown University Law Center who specializes in environmental law, called the measure a blunt instrument that “is one of those very simple solutions, but, boy, did they open a can of worms.”

Indeed they did, for the issues are truly complex. Land gains its value from scarcity, and scarcity is driven in part by government policy, so for every owner whose land is driven down by a restrictive regulation, there are several abutters whose land values have gone up because of that same legislation. We all would like to live next to a park. None of us want to be the one whose land is compelled to be that park. If the tragedy of the commons is to be avoided, government must balance these interests. Government raises money by taxing fairly (”what is fair?” hey, that’s somebody else’s department, not mine!), and then uses the revenue raised from taxation to buy parks, or green space, or affordability, or any other public good that we collectively support. You want green space? said the voters of Oregon. Then pay for it.

“There is a resentment in rural areas of urban policy makers and the urban elite.”

But people value only what they pay for. The very same folks who were quick to pass a law preventing conversion (because passing a law is easy and costs nothing) will be slow to pay the same costs they were willing to impose on others:

“In Oregon, they’re serious,” said Michael M. Berger, a partner in the Los Angeles law firm of Manatt, Phelps & Phillips. “It helps make people sit up and take notice that this is something they have to deal with. This is a big shock to the body politic - it’s a very red-state thing to do, and Oregon is very blue, so this shows it cut across everyone.”

Yet though hard to judge, they are likely to become ever more common:

“It’s no coincidence that they passed this Measure 37 in a state that has prided itself on having the most extensive planning and regulatory scheme for rural lands,” said J. David Breemer, a staff lawyer with the Pacific Legal Foundation, a conservative advocacy organization. “This type of initiative and legislation will be more common now.”

Stay tuned - there are sure to be many developments from this, not just in Oregon, but throughout the nation:

“I’ve been getting calls from California, Idaho, Washington, Alaska and Wisconsin,” said Mr. Day. “They all want to find out what our secret recipe was to get it passed.”

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