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Friday, June 23, 2017

A Half-Hearted Two Cheers for the Victory of Federalism over Property Rights in Murr v. Wisconsin

Legal scholars like Ilya Somin who share my own libertarian inclinations are mourning the defeat of federally protected property rights in Murr v. Wisconsin. I am not ready to don black. While I agree with Ilya that there should be more robust protection for property rights, I am also pretty sure that the SCOTUS's interpretation of the federal Constitution's Fifth Amendment is the wrong institution to deliver such protection. The problem with relying on the federal judiciary to define "property" is that the federal courts are neither able nor willing to derive a comprehensive system of federal property rights from the dozen words of the Fifth Amendment "just compensation" clause. Instead, SCOTUS's takings doctrine tends gingerly to elevate particular aspects of state property law to constitutionally protected status, using these privileged parts of state law to trump other state regulations by declaring that the latter "takes" property by negating the former.

This enterprise of federalizing discrete parts of state law to safeguard "property" is, I think, a doomed enterprise. I prefer that state courts and state legislatures pull the laboring oar in defining and protecting private property. So, despite my fondness for private property, I offer a couple half-hearted cheers for Murr as the SCOTUS's wisely choosing the better part of valor. More vigorous efforts by the federal courts are likely to backfire either legally or politically, to the detriment of lasting protection of private property.

1. How might SCOTUS's protection for private property legally erode property rights? The problem is that the SCOTUS invites subnational officials to evade takings doctrine by manipulating whatever narrow aspect of state law the federal courts decide to federalize. Take Murr as a case in point. The Murrs owned two contiguous lots that they had received from their parents. Wisconsin's rules protecting the St. Croix River, however, barred the Murrs from building a house on each of the lots, because neither met the State's minimum lot size. Since the two lots together had sufficient combined acreage for a structure, the Murrs could maintain or refurbish their existing house already located on one of the lots.

Does the prohibition on the construction of one structure per lot deprive the Murrs of 100% of the economically beneficial uses of one lot? Or should SCOTUS treat the two lots as a single unit of property for which the Murrs already had a reasonable beneficial use? Chief Justice Roberts in dissent urged a position powerfully argued by Ilya's amicus brief on behalf of nine state governments: Roberts asserted "[s]tate laws defin[ing] the boundaries of distinct units of land ... should, in all but the most exceptional circumstances, determine the parcel at issue" for the purposes of federal takings doctrine. As I have noted in an earlier post, however, such a stance just invites states to slow-walk all efforts to subdivide parcels. If the federally protected aspect of state law is the lot line, then one can predict that counties will be loathe to allow farmers to split their farms up, multiplying lots lines and, thus federally protected property.

Ilya responded that such a worry is merely theoretical, because "[m]ost subdivisions are done for purpose of transferring part of the previously unified lot to a new owner," and such transfers "would increase the risk of takings liability even if the state wins Murr (which deals with situations where contiguous lots are owned by the same person or organization)." Ilya's response, however, overlooks how subdivision plats are really approved nowadays. Typically, a farmer or other large landowner sells an option to a developer to buy the land for subdivision and development contingent on approvals for subdivision from the local government (typically the county). At the time that the subdivision plat is submitted, there are usually no buyers of the lots to be split: Transfer of those individual lots is usually anticipated far down the road, once roads are graded, utility lines dug, and a few model homes constructed. By announcing a doctrine that subdivision freezes into place federally protected property rights, the SCOTUS would simply give counties more incentives to demand larger up-front payments from the developer -- a bigger letter of credit, a more ironclad assurance that the necessary exactions would be forthcoming.

In short, Ilya's position in Murr would force developers and farmers to pay for perhaps unwanted "takings insurance," guaranteeing them buildable lots if the split is approved -- but only at the price demanded by the authority approving the split. If you think that it is a bad idea to force citizens to buy health insurance, then why would you force them to buy takings insurance? (Okay, that was admittedly a cheap shot). More seriously, why would anyone think that a federal takings doctrine so easy for local governments to evade would do anything but add to the legal transaction costs of transferring title, by making local governments more wary of routinely approving lot splits?

2. How might SCOTUS's expansion of takings doctrine politically endanger property rights (or SCOTUS)? The problem with a vigorous federal takings doctrine goes deeper than the technicalities of Lucas' total takings rule and lot splits. More fundamentally, the SCOTUS just does not have the political clout to face down landowners -- and ultimately any federally protected theory of property rights will face opposition from precisely this potent source.

The gravest attack on property rights is excessively stringent zoning that is now strangling our nation's housing supply. Landowners -- especially homeowners -- are, however, devoted to the preservation of zoning. For them, zoning is not the contradiction but rather the instantiation of property values. Such "homevoters" (Bill Fischel's telling phrase and concept) vigorously defend such zoning rules through local politics that unite urban liberal Democratic "brownstoners" in Brooklyn with suburban Republicans in Westchester County. No politician will dare to tackle this interest group, and SCOTUS would be fools to think that they could significantly unravel the regulations with which these voters have swaddled their biggest investment. The SCOTUS that tried to tackle zoning would, I predict, face a backlash that would make the ire at Roe v. Wade look like a minor partisan snit. Environmentalists, historic preservationists, suburbanites invested in their exclusionary zoning, local officials invested in their most important governmental function, would all rise as one and smite the Senate that allowed any justices to be confirmed who would encroach on their sacred "zoning fee simple absolute."

The SCOTUS is well-aware that that the sacred cow of zoning is immune from any knife that the federal judiciary is capable of wielding: They would beat a hasty retreat faster than you can say Euclid. Indeed, there is no need to retreat: Even the Rehnquist Court never advanced into such a perilous quagmire: They essentially withdrew the federal courts from the business of takings doctrine in San Remo Hotel.

3. So where should we look for property rights protection? Mostly state law, I believe. the Oregon legislature is considering a bill to cut back on zoning. The California legislature has enacted a raft of laws like the Density Bonus Law and Housing Accountability Act that place serious limits on local power to destroy property rights. Only the state legislatures and state courts have the electoral legitimacy, experience, and fine-grained tools necessary to contest the hegemony of zoning. Such a contest is a grueling slog through the minutiae of how land-use regulation actually operates, in thousands of tedious administrative hearings and millions of pages of environmental impact statements and the like.

The pretense that the federal courts will ever provide a serious counterweight to zoning is, I think, a fantasy fostered by the sheer academic fun of takings doctrine and the theatrical drama of Supreme Court set pieces like Lucas and Murr. Like the solemn drama of a regal coronation in England, however, such theatrics are not really where the practical power lies. Cases like Murr merely ratify what we already really know: When it comes to property in land, the states are inevitably in charge, and it is there that we libertarians ought to direct our energies.

Posted by Rick Hills on June 23, 2017 at 05:13 PM in 2016-17 End of Term | Permalink


Re Murr.

Professor: Whatever happened to reasonable, investment backed expectations?

Posted by: G. Kanner | Jun 24, 2017 4:43:54 PM

Mr. Kanner, it is a pleasure to have you on the blog. I guess my answer to your question is another question: What did the Murrs reasonably expect when they purchased the second parcel in 1963?

One possible answer is that a landowner always reasonably expects to build on any lot that the county allows to be split off from a larger chunk of land, just so long as, at the time of the split, the lot is buildable under the zoning in force at the time of the split. On this view, the Murrs got a vested right to build a structure on the second lot as soon as they purchased it, if the lot were buildable in 1963 when they purchased it.

This answer, however, seems a bit odd to me. As you know, the law of non-conforming uses normally provides that an existing use of land is grandfathered, not an anticipated use. If I purchase a lot on which, at the time of purchase, a 55-foot structure is permitted, yet I build no such structure, then, when the lot is later down-zoned for only 40' structures, I do not have any vested non-conforming 55' use, and any structure that I later build must comply with the 40' zoning. The rule with zoning is normally "use it or lose it."

So why should lot area be different from height? The zoning may have allowed a structure to be built on the Murr's lot in 1963, but the zoning changed in 1976, disallowing potential structures that once were allowed. The Murrs had not yet built a second structure under the old zoning. Under the "use it or lose it" rule, they do not ordinarily get a any entitlement to build a structure on a substandard lot just because their planned structure is consistent with the zoning that had been in force when they purchased. Or, put in terms of reasonable expectations, why is it reasonable for the Murrs to believe that their purchase of a lot in 1963 froze in place all regulations that existed in 1963?

I have no answer to this question. I pose it only because I am pretty sure that even the justices most avid to protect property rights are not going to expand the doctrine of non-conforming uses to protect expectations that states and local governments have generally never recognized.

Posted by: Rick Hills | Jun 24, 2017 6:20:23 PM

This is a problem that the courts have created for themselves entirely out of whole cloth by creating the doctrine of regulatory taking in the first place. I keep hoping they'll go "damn that was a bad idea" and reverse themselves on it, but it seems unlikely.

If "taking" requires an actual physical occupation or legal seizure of the land (or part of it), calculating the "taking" becomes a trivial effort. It is not an exercise in reasonable expectation. It yields itself to a relatively straightforward calculation of the present market value, and also to a temporary use calculation in the form of a lease.

But regulatory restrictions are different. By their very nature they are temporary (though some may practically never be reversed). Calculating the "taking" requires some analysis of the expectations of the owner, which itself is a problematic exercise, benefiting as it does those who most intend to go against a public policy (which arguably is precisely what should not be rewarded). It goes to the very core of the government interest in regulation in the public interest.

"Regulatory takings" is a nonsense judicialism. If the regulatory taking was done in bad faith, or targeted to a specific landowner for discriminatory reasons - that is its own problem. But regulation that diminishes the value of land is, by its very nature, simply a political question that should be fought in the political sphere, not through the courts.

Posted by: Veiled Hedgehog | Jun 25, 2017 11:28:28 AM

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