Tuesday, June 01, 2010

When does a regulatory taking become a physical taking?

Slate has a piece today on Jay Bybee's 9th circuit opinion that rent control is per se unconstitutional.  The reporters argue that the opinion is silly--that the courts have long upheld the right of municipalities to regulate land use (Euclid v Ambler being the iconic case that enshrined the rights of communities to zone).  But the Supremes have also maintained that when a regulation deprives owners of property of all economic value, it consitutes a taking under the 5th amendment and thus is either impermissible or must be accompanied by compensation to the property owner (Lucas vs South Carolina Coastal Commission).

It is pretty clear that rent control (something that I dislike based on both equity and efficiency grounds) is consistent with the ability of communities to regulate property for a public purpose.  On the other hand, if rent control were set at zero, then it us pretty clear that it would amount to a regulatory taking.  The question is the level at which rent control would require a taking.  For instance, if cities told landlords that they had to cut their rents by 50 percent, I think one could make a pretty good case that the takings rule would apply.  But this is a legal issue and not an economic one--I am not sure whether one could draw a bright line at which a regulation consistutes a taking.


Sid Burgess said...

Good question.

doc said...

The strongest argument made in the Slate piece, I think, is that the plaintiffs in the case bought the property (a trailer court) at a time at which rent controls existed, and thus bought the property at a price that reflected the impact of the existing rent controls on income earned from the property.

The locality in which the property was located was then annexed into another town, and that town (pursuant to state law) passed an ordinance incorporating the existing rent controls. The plaintiff's case is based on a (hypothetical) moment-in-time during which no rent controls existed...so they are angels dancing on the head of a pin.

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David Barker said...

Excellent post, Richard.

Doc, I don't see why buying a property at a discounted price should diminish a taking claim. If I buy a GE bond and then GE gets into trouble and I sell the bond to a third party at a discount, that third party still has a valid claim to full repayment. Similarly, the landlord bought the legal claim along with the property, and so should have a case that is just as valid as the original owner.

I realize that courts don't always see it that way, (see the debate over “distinct investment backed expectations”) but they should. Now, a statute of limitations is a different matter. If time has run out for a claim, it has run out, and that is that. Whether the “gap in time” invalidates the statute of limitations is beyond me.

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