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On the topic of 5th amendment violations
If this right of second refusal is an unconstitutional taking of the financial interests of the mortgage-holders, it seems pretty straightforward to me that rent control is an unconstitutional taking of the financial interests of property owners, and I have no idea how we've managed to get this far without a court ruling to that effect.
The Supreme Court has ruled unanimously that rent control is not an unconstitutional taking because the owner is renting voluntarily. He can just stop renting and sell the property if he wants to.
This seems obviously bogus to me because the value of the property depends on your ability to commercially exploit it. If a new regulation reduces or destroys your ability to commercially exploit the property, the value of the property is now obviously lower, it will not be worth as much to anyone who would buy it. I cannot see how the lost value of your property is not a taking!
The issue courts have seen with this logic is that vast swaths of regulation lower the value of property, including longstanding practices like zoning and setbacks and even nuisance. A property might indeed be more valuable if the owner can store cars on the front lawn or dam a stream.
Where I think the line is currently drawn is that regulation cannot completely extinguish the value of a property and it can't be specifically targeted. That's a workable legal one, but probably a suboptimal policy.
[ BTW, that court case is actually a pretty good example of bad facts making bad law. A mobile home situation is one where the "renter" owns the home on top of the pad and is substantially invested in an asset that costs more to move than it's worth. This is probably one of the strongest cases for how a landlord/tenant situation can be financially coercive because the realistic cost to the tenant of moving out is giving up a huge asset. ]
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I see a couple issues with this.
First, a new (restrictive) regulation might actually increase the value of your property if it applies to other properties in your area. So for example, suppose you own a brownstone in a "historic district" and a regulation requires you and everyone else in that district to maintain the exterior of your property in a certain style. As a result, the district is quaint and beautiful and everyone wants to live there. Not guaranteed to happen, but not out of the realm of possibility either.
The other issue is that government is constantly doing things which have effects on peoples' property values. A new regulation about parking might result in more people parking on your street, making it look more busy and less attractive. The same thing with a new bus route. Or a Cannabis license to a business in the downtown area of your town. Or a prison being built a mile away. Or an airport 20 miles away changing its take-off and landing patterns.
As a practical matter, it would be impossible to adjudicate all these little issues. There just aren't enough judges, courts, or lawyers. So the only realistic choice is to limit the concept of a regulatory taking to the most extreme cases.
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This theory of ownership seems bizarre to me. If I convince the local paper to run an article saying my house is much nicer than my neighbour's, and this results in his property value going down while mine goes up, am I stealing from him?
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Again:
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Not in NYC he can't. He has to buy out the existing tenants.
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The constitution says what the SCOTUS says it says, for better or worse, and for better or worse it does not regard restrictions on how you can use your property to be taking away of your property per the 5th.
If you buy a tenement because you believe (1) that people will pay rent to live in it and (2) that due to former fact, other people will want to buy it in the future, that is entirely speculative, and the government is under no obligation to compensate you if general laws make either or both of these untrue.
If the government disallows you to use your munitions factory to supply Saudi Arabia, you are not entitled to compensation due to the 5th. If the government decides that they do not want any brothels within the city limit, they do not have to pay you the difference to what you could have made if sex work had been kept legal.
If the government decides to institute 100% land value taxes so rational actors will be indifferent towards owning land (which I find personally a much nicer idea than rent controls), and property prices crash as a result, that is a business risk.
I think that there are some goods where capitalism is working very well (e.g. things with supply elasticity, e.g. shovels), and goods where markets do not work very well (e.g. things without supply elasticity, like land). People who are investing in the former are capitalists, and we might tax them but should keep in mind that they have an important ecological niche in society. People who are investing in the later are rent-seekers, and we do not need to be very careful not to step on their toes.
If you invest a million dollars into the production of shovels, that is honest capitalism. Nothing is preventing the next 99 guys with a spare million to also invest in shovels, and over time this will result in an effective supply with shovels.
Of course, it is hard to make money under honest capitalism. Perhaps you have a hunch that there will be a gold rush and shovels will be in high demand and you make a killing for a time, but if shovel production is very profitable, that means that more people will enter the market until that is no longer true.
This is why being a rentier is so much more comfortable. If you buy the best plot of land for one million, then the next 99 guys can not do the same, because nobody is producing new land in the middle of the city. This puts you in a very comfortable position.
On the other hand, while I would argue with a pitchfork-wielding mob that the shovel producer is actually important for the long-term health of the economy, I find it much harder to make a similar argument for the land-owner. There is no elasticity of supply for unimproved land. Where we might suffer a shovel to cost 100$ in the middle of a gold rush because it will result in the creation of more shovels, there is no benefit for society in the unimproved land being worth anything. If anything, it would better serve society if the gains from the fact that land is in limited supply were socialized. It might not directly lower rents too much though, rents need to be at a level where the supply and demand curve meet, after all.
Sure, the rentiers would find such an arrangement unfair, but to me that sounds like someone who bought stolen credit card numbers whining that they were revoked before he could recoup his investment.
Framing deliberate government action as a "business risk" is ridiculous. If a mobster shows up at your door expressing his sincere concern about the flammability of your property, you wouldn't call your protection money payment a "business risk," that would be absurd! If the government decides to deliberately reduce your ability to commercially exploit your property, destroying the value of your investment, calling this a "business risk" is insane. The 5th amendment requires the government to compensate you if public policy requires the use of your property. I don't see where the 5th amendment says "unless it's a business risk."
Let me give you an alternate example. Massachusetts mostly prohibits grocery stores from hard liquor. As a result, a substantial fraction of shopping plazas that have a grocery store also have a liquor store.
It is a deliberate government action to repeal those prohibitions and allow the grocery stores to sell liquor. It is also a business risk to those liquor stores as they would likely lose significant business to the larger grocery store that can offer better prices (due to amortizing fixed costs over a larger sales base).
It is, however, insane, to think that MA cannot repeal those laws without running afoul of the 5A.
So where does this land? I think a mobster or government specifically targeting individual properties for regulation is likely illegal (as under Penn) but that the uniform application of general laws is fine.
This is why so many small towns will have laws on the books along the lines of 'x establishment cannot be located less than y distance from z place', and you look at the history and the town's fleabag bar was across the street from a church in the 70's.
Yeah, but it's also why not every deliberate legislative action that materially impacts a business, even if it causes real harm, can be a taking. That would imply that once those laws are passed, they can never be repealed.
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First off, a mobster showing up at your doorstep is totally a business risk. So are commies taking over and nationalizing your enterprise, or an asteroid wiping out your business.
Taxing the heck out of your earnings, rent controls or prohibiting from running a brothel are all unlikely to fall under the 5th, as far as I am aware.
If you do not like that, I would recommend finding a nation with stronger property rights to buy real estate in.
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The court in Penn Central basically asked about investment backed expectations. The basic idea is if you bought property knowing the regulation is likely presumably the purchase price reflected that ambiguity so providing compensation is giving a windfall to the regulated entity.
Now whether this is reasonable is a different matter but that’s the theory.
By that reasoning people should have been able to sue the government on fifth amendment grounds before the regulation was passed on the grounds that even making the regulation likely reduced the value of their property. Otherwise this becomes a sleight of hand where it doesn't count before because the regulation doesn't exist yet and it doesn't count after because it happened before, leading to lack of remedy.
Government decisions affecting the value of your asset is literally a Tuesday. When the prohibition was enacted, I do not think that the breweries were compensated for lost earnings. When Trump's Iranian adventure changes the price of oil futures (which is once a day or so), the USG is under no obligation compensate the people who bet on a different outcome.
The government can make decisions which will affect the prices of real estate property has been true for as long as there have been governments. All of these risks are priced in. If the people of some city would vote for getting rid of cops, or cars, or public transportation, or laws against arson, that would very likely affect property prices. So would, to a lesser degree, a myriad other municipal decisions.
At the end of the day, citizens get to vote, properties don't. This is well known to any property owner. If you do not like that, invest in some other country.
By this reasoning, the government affecting the value of your asset can't ever be considered a taking even under the most extreme circumstances, because since it's always possible for the government to do that, it would always be priced in in advance.
For that matter, the same could be said of a conventional physical taking. If the government is known to take things, the chance that the government takes it would be priced in in its sale price, and the government doesn't have to compensate you for the physical taking either since you already (on the average) received the compensation through buying it at a lower price that takes into account the chance of government greed.
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Yeah there is an original mover problem to SCOTUS’ logic.
It's not an original mover problem to SCOTUS logic, it's a baseline definition problem in the 5A. Defining a "taking" requires comparing against some counterfactual to compare against.
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That’s not entirely true. There can be regulatory takings where your use of the property is wholly frustrated. See Lucas v South Carolina Coastal Commission
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SCOTUS does not want to go down the path of acknowledging regulatory takings.
SCOTUS has acknowledged regulatory takings on numerous occasions. It's fairly common in the land use permitting context under the so-called unconstitutional conditions doctrine (Nollan/Dolan, Koontz, Sheetz). Then there's Palazzolo, Cedar Point (technically a per se physical taking under Loretto, but invalidating government-imposed private trespass as a taking even though nothing was actually seized and the total loss in value was negligible), etc. And of course Lucas and the granddaddy of them all Pennsylvania Coal.
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They did somewhat in Lucas v South Carolina Coastal Commission
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It seems to me that rent control is not as extreme because the landlord still gets to collect rent on his property and can apply to some pink board somewhere for rent increases. Of course I agree that rent control (and other price controls) are, generally speaking, bad public policy, but it's debatable whether they rise to the level of being a taking.
I think that the government is constantly interfering with property rights and that interference runs the spectrum from what is generally thought to be reasonable (e.g. you aren't allowed to build a factory in a residential neighborhood) all the way up to something that's clearly a taking (e.g. the government simply seizes your land). It's very difficult to draw the line, and that's what judges do -- exercise judgment.
Depends on what you mean by property rights. You bring up nuisance but that really involves a situation of conflicting property rights. A wants to use its property for X which conflicts with how B wants to use its property. How do you solve that? Well the law of nuisance. Or if you like law and Econ read The Problem of Social Costs by Coase.
That is fundamentally a different kind of regulation compared to rent control. In the first, there is a conflict in property rights. In the second, there is no conflict.
I'm not sure I understand your point here. If you tried to build a factory in a residential neighborhood, what would stop you is zoning laws. Are you saying that society could or should get rid of zoning laws and just stick to the concept of common law nuisance? (I agree that would let you stop a cement factory, but I'm not sure it would help if someone built a two-family house in an area which was zoned for single family houses.) Not trying to trap you, I genuinely don't understand your point.
Zoning law is kind of a shitty version of common law nuisance. You won’t find defending zoning qua zoning. But it is an out growth of common law nuisance and is getting at something inherently different than rent control (ie what do you when rights are incompatible). Thus comparing the two is a category error.
FWIW, I would get rid of zoning and permit restrictive deeds including racial.
Towns never handled conflicting land uses with common law nuisance - explicit regulation of land use inside the city walls is as old as self-governing towns. And the most problematic rural nuisance in the US (straying livestock) was regulated by explicit statutory codes which varied by state (open range vs closed range) because applying common law nuisance led to unsatisfactory results.
Common law nuisance works better than nothing as a default where there is no codified solution in place, but people replace it with governmental codified solutions (environmental regulations, zoning etc.) or privatised codified solutions (condo/co-op/HOA rules, restrictive covenants, long leases instead of freeholds) at the first opportunity.
Coase's theorem tells us that something like the common law rule allows market participants to cut deals and achieve efficient outcomes (and, in particular, may do better and will not do worse than a Pigouvian tax on the nuisance) if:
The second condition almost never holds in the context of urban land use, and both courts and legislatures can see this, so you end up either with command-and-control regulation or Pigouvian taxes. In the urban context you can model a municipally-imposed and collected Pigouvian tax as a Coaseian bargain between the polluter and the community as a whole.
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This is incoherent. There's no philosophical difference between "I am buying this land and subdividing it with a restrictive covenant that it may only have single family homes" and "I am founding a town and passing a zoning ordinance that only allows SFH".
Nah — the point is zoning is top down with one body deciding everything. Restrictive deeds would be more de centralized so you end up with a lot more actual diversity in land use while maintaining the ability to minimize conflicts.
It's not one body, it's every locality!
If your argument here is "the optimal size of a town is somewhat smaller than the current size", I can see that.
Note that the Supreme Court has ruled that it is unconstitutional for a large municipality to delegate its zoning authority to smaller "neighborhood zoning districts".
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I think you have that backwards. I'll never understand why libertarians and others persist in the belief that the civil court system is a kind of frictionless plane. Granted, if you have an actual dispute to resolve, it's indispensable and better than a lot of alternatives I've heard proposed, but if you can pass regulations to cut lawsuits off at the pass, you should. Imagine you want to build a cement plant. You have two options:
Build it and hope that nobody complains. You have nothing to go by ahead of time. If someone doesn't like what you're doing, or thinks it's too noisy, or complains about dust, you can pay your attorneys to spend several years litigating the definition of "reasonable" to a jury that is probably going to have more people sympathetic to noise and dust complaints than it does people who own industrial plants. Repeat this situation for every use that anyone could find remotely objectionable, which is any use you can think of. Be prepared to suspend your operations throughout the duration of the suit. Be prepared for the court to rule you have to shut down permanently, or pay ongoing damages in an amount that makes it economically unfeasible to continue.
Look at the municipalities ordinances for zoning and noise and dust abatement. Make sure you comply with the ordinances and obtain formal exemptions if you can't. If nearby homeowners want to litigate, they can do so before you've spent any serious money, and they won't be suing you so much as they will the municipality that granted the exemption. If the use is allowed by right and you are complying with the regulations, it's going to be a tough row to hoe for the plaintiffs.
These days, almost every private nuisance action I've seen has been based on independent studies showing that the defendants violated a municipal regulation that the governing body has failed to enforce; the arguments boil down to whether or not a standard was violated. The system you'd prefer is a system where both parties have to argue their version of what the standards should be. Maybe ya jury is convinced that 90 dB at the property line is an unreasonable amount of noise. We know nothing about whether 85 is okay or not. Actually, we know nothing about whether 90 is okay in another case because a different jury might see things differently, or maybe the guy suing is a huge asshole and they all agree that he deserves to live next to a hog rendering facility.
Which brings me to my second point, which is that zoning regulations were not an outgrowth of common law nuisance, at least not as we'd recognize nuisance today. Traditional common law nuisance laws, i.e. things actionable under an Assize of Nuisance, almost exclusively related to water runoff and land support. The idea was that nuisance was a counterpart to trespass; where in trespass I damage your land by entering onto it, in nuisance I do something on my own land that causes your land to be damaged. The distinction between the two was always fuzzy and by the 19th century they were all trespasses and nuisance was practically a dead letter. The doctrine as we know it today to apply to noises, smells, and the like was part of a 20th century revival that went hand in hand with the development of zoning regulations. Courts and municipal governments were looking for way to mitigate the negative effects of development, and these were two of the things they came up with.
This is why I'm not sure what you're talking about when you act like nuisance has something to do with "rights" while rent control doesn't. All rent control legislation—which coincidentally arose around the same time as zoning legislation and the modern conception of nuisance—does is create a right of a tenant to not be charged rents in excess of a specified maximum. It's no different than any other right a tenant has, whether derived from statute or common law. And if you think that there's something about common law rights that make them superior to statutory rights, keep in mind that the right to sell your property was created by statute.
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Thank you for clarifying that. I think the line is blurrier than you are making it out to be.
For example, it's very common for zoning laws to mandate minimum lot sizes and maximum numbers of units per lot.. Even though the developer (and eventual landlord) would prefer to have a larger number of units so as to maximize revenue, the municipality limits what he can charge, albeit in a roundabout way. The unstated purpose of these types of requirements is to keep out the riff raff, so to speak.
To be sure, you could argue that the neighbors of this developer have a property interest in limiting the intensity of use of neighboring lots, you could just as easily say that rent-control tenants have a property interest in being able to stay in their apartments while paying a reasonable rent.
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And just what is a 'pink board' when it's at home?
Most of the search results were about insulation.
In my day, the word "pink" was slang for "somewhat communist." It meant someone who had communist leanings but who wasn't a full on Soviet.
So a board unlikely to be sympathetic to arguments of the form "$LANDLORD1 and $POTENTIAL-TENANT2 are richer than $CURRENT-TENANT3, therefore $LANDLORD1's desire for a fancy car to compensate for his anatomical shortcomings and $POTENTIAL-TENANT2's desire to move into the district that two decades ago he treated as more dangerous than Fallujah are more important than $CURRENT-TENANT3's desire to stay in the home where she has lived through the entire Elizabethan era while still being able to afford to taste something other than shame."
Agreed. A more interesting question is whether that board would be sympathetic to the landlord's argument where (1) the current tenant has been retired for many years; his children have moved out; and not only does he have a lot more space than he needs, he has a location which is much nearer to the financial district than he needs; (2) the potential tenant could make much better use of the apartment since he has a wife, small children, and a job nearby; and (3) the landlord is a real estate investment trust with many investors who are themselves retirees who are struggling to make ends meet.
That being said, I think your hypothetical exposes a basic question of economics: Should scarce and valuable resources be distributed (1) based on a committee's opinion about who is most deserving; or (2) based on peoples' willingness to pay some private owner for those resources. I think it's fair to identify the first approach with Communism and the second approach with Capitalism.
You can certainly argue things both ways (and it doesn't have to be all one or the other) but my observations of history strongly suggest to me that option (1) tends to be counterproductive -- to put it politely.
I think it's also worth keeping in mind that other than the landlord, the first potential tenant, and the second potential tenant, there is another party to your hypothetical: Another potential landlord. Because as a society we want and need capital to be invested in building new housing stock. If the rent control mechanism sides too strongly with incumbent tenants, it will chase away investors and ultimately harm the class of people which the system is, in theory, trying to help.
One last point:
This is a big part of my issue with Communism or Marxism or whatever you want to call it. In practice it is typically infused with a kind of mean-spiritedness to the point where it can be seen as a kind of hate ideology. If the goal is to punish and humiliate rich people, well, even if a case could can be made for Communism in the abstract, it's probably not worth pursuing.
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A board that treats competence and contributing to society in ways that people actually desire enough to pay for, pale skin, and indeed the ability to spell your own name as being spiritual defects and anatomical defects per your charming descriptor, decided that being able to use the fruits of your labour to improve your life and to make a new prosperous district mattered far less than the right to contribute nothing while defecting on your debts and shoving the costs onto other people.
Isn't bulverism fun?
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I assume it's a derogatory use of "pink" to mean "left-wing" (an older meaning of the word, but it checks out).
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This line of thinking is dangerous. Eventually you will start questioning ADA and Civil Rights Act
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