9/1/2017. Government Controls and Real Estate Markets

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1 Government Controls and Real Estate Markets Complete Removal Eminent Domain Restrictions On Use Police Regulatory Power Division of Use or Possession Share in Value Taxation McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Liens Deed Restrictions Easements Leases distribution without the prior written consent of McGraw-Hill Education. Spillover effects from nearby land uses Uniqueness of location (absolute monopoly) Unknown quality or condition of existing structures Instability of land uses around residential neighborhoods Monopoly natural monopoly of water, sewer, etc. Holdouts that prevent development Externalities both positive and negative Incomplete information What s inside the walls? Uncertainty of residential values What might happen around me? Will land use planning solve market failures? At what level should control be imposed? For subdivisions? For streets and utilities? For schools? For water resources and drainage control? For transportation systems? For rivers and wetlands? For ecological and endangered species? 5 distribution without the prior written consent of McGraw-Hill Education. 1

2 Project future population growth Determine requirements for water and waste disposal Project needs for public services (utilities, streets, schools, parks and recreation, safety) Projected demand for various land uses (public, residential, nonresidential) Design compatible arrangement of needed land uses (land use map) Changing notion of best practice Limited actual experience to rely on (little more than 30 years) Inability to foresee the future well

3 9/1/2017 Traditional Separated uses Automobile oriented Priority placed on easy ingress and egress Uniform density Cul-de-sac hierarchy in neighborhoods New Urban Mixed use Public transportation Pedestrian oriented Sidewalks Houses close to street Rear alleys Grid streets with restricted traffic flows Traditional New Urban

4 Older than zoning (circa 1900) Issues of safety Continue to evolve When you build a new house, make a parapet around your roof so that you may not bring the guilt of bloodshed on your house if someone falls from the roof. Deuteronomy 22:8 NIV San Antonio Codes Damage near Wimberly, Tx May 2015 Features of traditional zoning Use classifications: Setback requirements (side, front and back) Bulk or density limits (minimum lot size, height limits, maximum floor area ratios) Special use districts: Service stations, hospitals, churches, private schools, cemeteries San Antonio UDC Features of subdivision regulations Planning and Zoning Commission created in the zoning ordinance Board of Adjustments Features of subdivision regulations Standards for streets, sewers, and water systems Adequate water supply for fire safety Adequate drainage and run-off retention Open spaces Lot layout Easements for utilities Traffic and pedestrian safety distribution without the prior written consent of McGraw-Hill Education. 4

5 May be before the planning and zoning commission or a specialized commission Review subdivisions and most other building site plans Public review (neighbors and others) Public offices (public safety - fire, police, emergency vehicles; utility officials; school officials) Entitlements Walmart Downzoning Pecan Valley Golf Course Legality of zoning established by USSC: Village of Euclid vs. Ambler Realty Nonconforming use: Use conflicting with zoning map, but in place prior to its enactment Variance: Exception to requirements granted due to hardship Common example: wavier of setback requirement Does zoning raise development costs? Does zoning make neighborhood services remote (no mixed use)? Does low density resulting from zoning contribute to urban sprawl? Houston: effective land uses without zoning? Exclusionary zoning Detailed development plan negotiated with authorities Mixed use Mixed density No standard setback requirements Open community spaces Community recreation and other facilities

6 Storm runoff limits water runs downhill Noise and emission limits Traffic impact limits Tree removal restrictions Impact fees Favorite of economists (in principle) Despised by many in the building community Appear to be used more as revenue source than tool to guide land use Growth restrictions Clean Air Act Clean Water Act Comprehensive Environmental Response Compensation and Liability Act (CERCLA) Occupational Safety and Health Act (OSHA) Endangered Species Act Increasing limitations on fracking 4-33 distribution without the prior written consent of McGraw-Hill Education. Asbestos and fiberglass Leaking underground storage tanks (LUSTS) Radon Mold Environmental studies are part of due diligence Pennsylvania Coal Company v Mahon (US Supreme Court, 1922): Courts must balance public safety and welfare against taking of property At some point eminent domain must be used. (Murr v. Wisconsin now before USSC) Minority opinion in the case: We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for it distribution without the prior written consent of McGraw-Hill Education. 6

7 No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. Eminent domain: Right of government to acquire private land, without the owner s consent, for public use, with due process and just compensation Condemnation: Legal procedure for exercising the right of eminent domain Inverse condemnation 4-38 Concept of public use expanded to public purpose US Supreme Court in 1954 allowed condemnation of blighted areas for private redevelopment Michigan Supreme Court in 1981 allowed condemnation to enable GM manufacturing facilities Wide-spread subsequent condemnation of blighted areas for private redevelopment Driven by local government hunger for an increased property tax base Kelo v. New London Ct., 2005 U. S. Supreme Court allowed use of eminent domain to obtain non-blighted property for private redevelopment Left it to states to decide whether to intervene Current Situation? Greatest significance of the USSC Kelo decision?- Shift of authority back to the states The well-laid plans of redevelopers, however, did not pan out. The land where Susette Kelo's little pink house once stood remains undeveloped. The proposed hotel-retail-condo "urban village" has not been built. And earlier this month, Pfizer Inc. announced that it is closing the $350 million research center in New London that was the anchor for the New London redevelopment plan, and will be relocating some 1,500 jobs "They stole our home for economic development," ousted homeowner Michael Cristofaro told the New York Times. "It was all for Pfizer, and now they get up and walk away The final cost to the city and state for the purchase and bulldozing of the formerly privately held property was $78 million. [19] The promised 3,169 new jobs and $1.2 million a year in tax revenues had not materialized. As of 2014 the area remains an empty lot Can property taxes reduce property values and property wealth? Can an efficient property tax enhance property values and property wealth by the services it funds? 41 distribution without the prior written consent of McGraw-Hill Education. 7

8 A primary source of local government revenue Reliable and countercyclical Many taxing authorities From BCAD we see... Some properties are exempt like UTSA How is the property tax rate set? Market value $150,000 Assessed value 135,000 = (0.90 x MV) Less: exemptions 25,000 Taxable value $110,000 Property Tax Calculation Taxing Authority Millage Rate Taxes Levied County 8.58 $ City School district , Water mgt. district Total , Special assessments: Taxes for specific public improvements affecting a property Street, sewer, etc. Usually charged on a per front foot basis Example: Street improvements of $500 per running foot of street For lot with 100 feet of frontage: 100 x.5 x $500 = $25, Regressive? Uneven across geographic areas? Poorly administered? Distorted? (Prop 13 in CA?) Why might high property taxes be good? Texas has property taxes, and we all know Texas is good Land use must be regulated due to market failures The concept of spaceship earth has brought a revolution in land use controls Traditional controls: building codes, zoning, subdivision regulations Post-revolution controls: impact fees, performance standards, PUDs, environmental laws distribution without the prior written consent of McGraw-Hill Education. 8

9 When regulation goes too far: eminent domain The problem of expanding use Property taxes as a double edged sword. Efficient and reliable tax. Can be inequitable and distort land use distribution without the prior written consent of McGraw-Hill Education

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11 By MSA End of Chapter