Academic journal article Journal of Agricultural and Applied Economics

Regulatory Takings and the Diminution of Value: An Empirical Analysis of Takings and Givings

Academic journal article Journal of Agricultural and Applied Economics

Regulatory Takings and the Diminution of Value: An Empirical Analysis of Takings and Givings

Article excerpt

A hedonic model is used to measure the change in value of residential lots in Rockport, Texas, resulting from Section 404 of the U.S. Clean Water Act. Results show that average lot values initially decreased, went through a six-year adjustment period, and then stabilized on a higher price path resulting in a positive net effect on average lot values throughout the Rockport area (with the exception of a particular subdivision). The results indicate that Section 404 generated both regulatory "takings" and "givings," suggesting that both effects should be considered when assessing the benefits and costs of regulatory events and compensation claims.

Key Words: Clean Water Act Section 404, hedonic price method, interrupted time series, regulatory takings and givings, wetlands

JEL Classifications: C51, D61, R11, R21, Q15

Although many zoning and regulatory takings cases have been seen in the courts over the past few years (Runge et al. 2000; Runge et al. 1995), the general public became much more concerned with regulatory takings after the well-publicized case of Lucas v. South Carolina Coastal Council (1992). The United States Supreme Court concluded that when legislation deprives an owner of all economically viable use of the property, compensation is required under the 5th Amendment as long as the restriction was not originally part of the landowner's title. In Pennsylvania Coal Co. v. Mahon (1922), Justice Holmes gave the opinion that if a regulation "goes too far" it will be considered a compensable taking. This has been referred to as the diminution of value test: "How much value has been lost due to the regulation?" Following the Mahon case, the diminution of value test was used in a number of landmark takings cases, including Agins v. City of Tiburon (1980), Deltona Corp. v. United States (1982), Loveladies Harbor, Inc. v. United States (1988), and Florida Rock Industries, Inc. v. United States (1985).

More recently, the diminution of value test under the Lucas case ruling that compensation must be paid if all economically viable use has been denied was invoked in two United States Supreme Court cases: Palazzolo vs. Rhode Island (2001) and Tahoe-Sierra Preservation Council, Inc. vs. Tahoe Regional Planning Agency (2002). In the Palazzolo case, the Court ruled that a Lucas taking had not occurred because the plaintiff's (Anthony Palazzolo) property still retained substantial economic value even though the plaintiff could not develop the property as intensively as desired because of state wetland regulations. In the Tahoe-Sierra case, the Court ruled that a Lucas taking had not occurred because as soon as a housing development moratorium imposed by the Tahoe Regional Planning Agency was lifted, full economic value to affected land would be restored.1

In response to the number of takings cases entering the court system and to make the courts decisions easier, the United States House of Representatives and United States Senate put forth takings bills in the mid-1990s that would determine a preset level for the diminution of value that would constitute a taking. Though different in their respective levels, the bills were similar in their meaning: if an individual's property decreased in value by a certain percentage due to a government action, then a compensable taking had occurred. Although neither of these bills passed, they are likely to resurface in the future (The Bureau of National Affairs).

Other takings studies have focused on theoretical efficiency arguments to identify takings and potential compensation payments. Some of the more prominent research has been done by Michelman; Fischel and Shapiro; Blume and Rubinfeld; and Miceli and Segerson. These papers discuss efficiency and fairness of regulatory takings as well as moral hazard issues associated with regulatory takings, but do not include empirical data analysis.

There have been a number of other studies that show that regulations and zoning can have positive effects on property values. …

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