The Supreme Court Rules Impact Fees Can Violate Your Property Rights Too

Happy Tuesday, and welcome to another edition of Rent Free. This week's stories include:

• Minnesota's zoning reform bills stall in the Legislature.
• New York's housing deal does little for new supply and leaves everyone unhappy.
• Colorado bans laws regulating how many unrelated people can live together.

But first, we have this week's lead item about the unanimous U.S. Supreme Court decision that protects property owners and builders from local government impact fees.

Supreme Court Rules Impact Fees Can Violate Your Property Rights

This past Friday, in the case of Sheetz v. County of El Dorado, the U.S. Supreme Court ruled that impact fees charged to property owners can amount to unconstitutional takings of property, regardless of whether those fees are imposed by elected officials or unelected bureaucrats.

"The Constitution's text does not limit the Takings Clause to a particular branch of government," wrote Justice Amy Coney Barret in a unanimous opinion. "There is no basis for affording property rights less protection in the hands of legislators than administrators. The Takings Clause applies equally to both."

The Sheetz case got started back in 2016 when the plaintiff, California retiree George Sheetz, sued his local county government over a $23,000 traffic impact fee he had to pay in order to get permits to build a single-family home on his property.

Impact fees can add tens of thousands of dollars to the costs of building a single unit of housing.

The county had said explicitly the fee it slapped on residential development was intended to pay for the traffic impacts caused by commercial development the county was trying to encourage.

Sheetz argued the impact fee was an unconstitutional taking of his property because it wasn't tied to individual impacts his new home would cause. His lawsuit contended that, under the "unconstitutional conditions" doctrine, he could only be charged fees that had an "essential nexus" with impacts his individual project produced and those fees had to have a "rough proportionality" to those impacts.

A California appeals court had dismissed Sheetz's case on the grounds that the "unconstitutional conditions" doctrine only applied to local bureaucrats imposing ad hoc conditions on building permits. "Legislative exactions" adopted by local elected officials on broad categories of properties were exempt from such challenges, it decided.

The Supreme Court's decision on Friday provides much-needed clarity that impact fees imposed by a local legislature can still be a taking in violation of the "unconstitutional conditions" doctrine, says Brian Hodges, an attorney with the Pacific Legal Foundation that litigated the case.

"It's been going on for over 20 years, courts have been exempting legislative demands from the [required] scrutiny," says Hodges. "This divide has festered in state courts for way too long."

What the Supreme Court did not decide on Friday is whether Sheetz's $23,000 impact fee was in fact an unconstitutional taking, or even if it was a taking period. The narrow decision determined that simply because a fee is established by a legistalure, it does not mean that the fee is not considered a taking.

The court also didn't spell out how individualized local governments' impact fees will have to be.

It left all those questions for state courts to sort out.

In a concurring opinion, Justice Neal Gorsuch argued that all impact fees, whether adopted for a specific development or imposed on whole categories of development, would still need to be specifically tailored to the impacts of an individual project.

"Whether the government owes just compensation for taking your property cannot depend on whether it has taken your neighbors' property too," wrote Gorsuch.

In a contrasting concurring opinion, Justice Brett Kavanaugh wrote that nothing in the Sheetz opinion would prevent local governments from adopting fee schedules for broad classes of property.

Minnesota Zoning Reform Bills Killed, Watered Down

Sweeping zoning reforms introduced in the Minnesota Legislature earlier this year have had a rough time in the state Legislature.

A "middle housing" bill, H.F. 4009, that would have allowed two units of housing on all residential land (and four units in larger cities), in addition to legalizing accessory dwelling units, paring back minimum lot size regulation, and banning aesthetic design requirements is all but officially dead.

The bill was introduced in February but hasn't been scheduled for a necessary hearing and vote in the House's State Local Government Committee. There's little optimism that it will move forward this year.

Another bill, H.F. 4010, which would allow multi-family residential development in commercial zones is still alive. But it was amended considerably in the House Local Government Committee this week. The new version of the bill gives local governments more power to require parking spaces in new developments and allows them to require that residential projects in commercial zones retain commercial space.

A separate bill that would have eliminated parking minimums statewide also appears to be dead.

Opposition to these zoning bills came primarily from Minnesota's local governments and their municipal lobbying associations. Most states have a league of cities that lobbies on behalf of municipal governments. Minnesota has four such leagues, all of which were steadfastly opposed to any state preemption of local zoning laws.

"There was a lot of fearmongering," said Rep. Jim Nash (R–Waconia), a supporter of zoning reform who complained that local government officials and their lobbyists spread misinformation about what the zoning bills would do. "There were a number of mayors that took a fairly aggressive role in creating more fear."

Other local officials, including city planners and school superintendents, came out against the zoning bills as well. Some school superintendents were particularly opposed to H.F. 4010 on the grounds that residential redevelopment of commercial real estate is a net fiscal loss for school districts.

"We would argue that families who seek 'higher density housing' are less prone to support local school levies due to the financial constraint this puts on rents," wrote four school superintendents to lawmakers in a letter urging them to oppose HF 4010.

Nick Erickson, senior director of housing policy for Housing First Minnesota, says that there's some hope that H.F. 4009 might be revived this year as a pared back bill dealing only with accessory dwelling units.

Erickson says that a bill that would exempt local governments' comprehensive plan updates from Minnesota's environmental review law, which has the support of local governments, is likely to pass.

In Minneapolis, anti-density activists successfully sued to stop the city from implementing zoning reforms on the argument that the city hadn't studied the environmental impacts of increased housing production.

New York's Housing Package Leaves Everyone Mad, Does Little for New Supply

Last week, Rent Free covered the congealing shape of a housing package that New York lawmakers are hashing out as part of a state budget agreement. Reporting from late Friday and early Monday gives a little more detail on what this package includes.

City and State reports the package includes a "good cause eviction" (aka rent control) policy that will cap annual rent increases at the lesser of 10 percent or 5 percent plus inflation, and require landlords to renew leases with current tenants. The policy would only apply to New York City, although other communities could "opt-in" to these regulations.

Smaller multifamily buildings would be exempt from these regulations, as would new construction for 30 years and apartments with already-high rents.

The annual rent caps are equivalent to California and Oregon's state-wide rent control laws. The 30-year new construction exemption is more generous than those state's 15-year exemptions for new construction.

Overall, this version of "good cause" is less onerous than a policy pushed by left-wing activists last year that would have presumptively treated rent increases over 3 percent as unreasonable and allowed tenants to challenge any rent increase in court.

Those left-wing activists and lawmakers are consequentially up in arms at this, more modest version of good cause eviction, calling it a "total disaster."

Also disappointed, although for opposite reasons, are the owners of buildings covered by New York's long-standing rent stabilization law. They had been hoping for relief from regulations that limit how much they can increase rents on vacant apartments and to cover the costs of repairs.

The limited additional flexibility they'll get to raise rents isn't nearly enough to bring thousands of vacant rent-stabilized units with serious need of repair and rehabilitation back online, they argue.

"This legislature and this Governor have abandoned the renters and owners of rent-stabilized housing for billionaire developers and massive corporation owners," said Jay Martin, the executive director of the Community Housing Improvement Program (CHIP), which represents rent-stabilized owners, in a statement.

The New York Times reports that developers will get their wish of seeing a tax credit for new affordable housing construction revived. The reported deal would also lift density caps on larger apartment buildings in Manhattan.

In sum, it appears that this housing deal could have been a lot worse for housing construction by including a more robust policy of "good cause" eviction. The pro-supply portions of the deal that have been reported thus far will likely only provide modest incentives for new housing construction.

Colorado Ends Restrictions on Unrelated People Living Together

On Monday, Colorado Gov. Jared Polis signed a bill banning local "occupancy limit" laws that cap the number of unrelated people that can live together.

"I am thrilled to take this bold step today to cut red tape and get the government out of the business of telling people who they can live with," said Polis in a statement.

Occupancy limits are often deployed by local governments to prevent single-family homes from being turned into shared rental housing, and in particular, shared student housing. Critics contend they limit supply, put renters in illegal share houses at the risk of eviction, and are discriminatory toward non-traditional living arrangements.

Activists in places like Boulder, Colorado, have been campaigning to end occupancy limits for years now. The new law does away with them statewide.

Quick Links

• New York Mayor Eric Adams' "City of Yes" package of housing reforms will begin the public review process.
• America's tallest building could be coming soon to Oklahoma City, Oklahoma, of all places.
• Boise, Idaho, is the latest city to see an uptick in accessory dwelling unit construction. The city recently repealed rules that forbid homeowners from renting out their secondary units and required them to come with additional parking spaces.
• Rachel Cohen at Vox has a new article on the promise, and policy challenges, of converting commercial properties to residential developments.
• California considers a bill that would reduce both the risk and reward of "builder's remedy" projects. It would limit how large these projects could be but would clarify when and how local governments have to say yes to them. Read Reason's past coverage on the legal uncertainties surrounding builder's remedy projects.
• Meanwhile, New Jersey's very robust builder's remedy law is getting yet more housing built in the Garden State.