How the Federal Regulation Cycle Affects the Real Estate Industry

By Ordway, Nicholas; Friedman, Jack P. et al. | Real Estate Issues, December 1995 | Go to article overview

How the Federal Regulation Cycle Affects the Real Estate Industry


Ordway, Nicholas, Friedman, Jack P., Harris, Jack C., Real Estate Issues


Many real estate professionals believe real estate is becoming dysfunctional due to the degree of federal regulation. Regulations are not a free good. Costs of regulation are transferred to consumers in higher prices, to labor in lost jobs and to business firms in a decline of competitiveness. Today, Congress is reacting with "Contract with America" designed to reduce government costs, along with the U.S. Supreme Court's new property rights doctrine against exactions in cases such as Dolan v. City of Tigard (1994). The purpose of this article is to present the regulation cycle of federal government agencies and explain why pressure mounts to begin dismantling the system.

In recent years, the federal government's role in real estate regulation has been all-pervasive and allexpansive. At least since the National Environmental Policy Act of 1969, the federal government has intruded into areas involving the real estate industry that previously were left to states and municipal governments. As the federal government becomes involved in various areas, it writes a wide array of regulations. For example, the Environmental Protection Agency has 9,000 pages of environmental rules; the Occupational Safety and Health Administration has over 4,000 regulations.

How Federal Laws And Regulations Impact The Real Estate Industry

Federal regulation of commerce and consumer protection has been widely accepted for decades. Laws implementing such regulation include: the Sherman Antitrust Act (1890), which protects trade and commerce against unlawful restraints and monopolies and establishes a policy in favor of competition; a Supreme Court ruling which establishes that real estate agents who charge identical commissions in the same area may be found guilty of price fixing; the Magnuson-Moss Warranty Act (Federal Trade Commission Improvement Act) of 1975 which affects housing and housing products by establishing mandatory standards for warranties on consumer products to improve consumer information.

There are, however, numerous other federal government agencies that carry out laws and regulations affecting individuals, specific properties, financing terms and societal matters. Many of these agencies go beyond the traditional scope of government regulation on real estate activities contemplated by the original authors of the U.S. Constitution.

A partial list with brief descriptions of some prominent federal government laws that affect real estate is provided in this article. While state and local regulations also exist and are a powerful force, especially with regard to specific proposed developments, they are too varied and numerous to include here The federal acts listed have been classified into the following categories: environment and energy, finance, foreign ownership, health and safety, and housing. These laws represent only the tip of the iceberg. Government is also involved in tax laws, investment regulations, drug enforcement activities and other areas that impact the real estate industry.

Environment And Energy

Environmental laws include the Clean Air Act (1970, amended 1977); the Clean Water Act (1972 and 1977); the Coastal Zone Management Act (1972; amended 1976); the Federal Water Pollution Control Act (Wetlands) and Amendments (1972); the Resource Conservation and Recovery Act (1976); the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, also referred to as Superfund); and the Superfund Amendment and Reauthorization Act of 1986 (SARA). Also under environmental laws is the National Historic Preservation Act (1966). The Energy Conservation Standards for New Buildings Act (1976) requires the Department of Housing and Urban Development to implement building energy standards for new residential and commercial construction. Many of these laws have resulted in halting new developments and increasing costs. While the laws themselves usually are understandable and involve broad policy issues, the regulations to implement them often are incomprehensible and deal with minutiae.

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