No Taking: Why the Abolition of Single-Family Zoning Doesn’t Disturb Your Bundle of Sticks

I’ve written before about housing policy and how laws restricting the number of housing units push up the cost of housing. It’s basic economics that if we build more housing units the average cost of housing units will go down. Thus, reforming these policies can lead to more units, which leads to more affordable housing. The policies come in a variety of forms—including restrictive building codes, byzantine planning approvals, and, especially, zoning laws. Single-family zoning, especially, limits the number of units because it doesn’t allow more than one unit to be built on a parcel of land.

All of these housing laws are limits to what a property owner can do with her property. It may seem obvious to point out, but they are not property rights. They are restrictions on those rights.

But that hasn’t stopped an argument that zoning actually can be a property right. I think this is entirely wrong, and it fails to account for what the courts have said on a similar subject that we at IJ are very familiar with: taxi deregulation. I wanted to briefly (by no means comprehensively) address the argument here and show why eliminating single-family zoning does not implicate the Constitution.

Cato Institute scholar Randal O’Toole argues that single-family zoning is a form of property right, or at least that “most consider the single-family nature of their neighborhood to be a property right itself.” It’s a claim I’ve heard many property owners make as well. The argument is that lots of, perhaps most, people want to live in single-family neighborhoods surrounded by very little, if any, non-single-family properties. That requires, of course, that just about all the property owners in the neighborhood not convert their properties to other uses, such as duplexes or other multifamily structures, or even commercial or industrial uses such as retail stores, auto shops, factories, etc. It’s not just that a homeowner wants her own home to be single-family, but to live in a place where almost all other properties are single-family and remain single-family. This could be done contractually, where all residents of a neighborhood agree to not allow their lots to cease being single-family, forming covenants that run with the land (that is, would be enforceable against subsequent owners). And in the days before zoning, sometimes it was. But that is often unfeasible. Therefore, continues the argument, government must step in and impose single-family zoning.

O’Toole and others think single-family living is a very good thing, and therefore support this restriction on property rights, going so far, again, as to see it itself as a property right.

There are a multitude of reasons why single-family zoning is a bad idea, even if single-family homes are very popular (as O’Toole argues) and even if zoning restrictions provide benefits to those who live in them. To name a few of these reasons: cities subsidize single-family neighborhoods to below their true cost by taking on massive future liabilities; single-family zoning compounds racial segregation and allows cities to enforce segregation by facially color-blind means; as almost always used in practice, single-family zoning doesn’t just mandate single-family homes but metastasizes into imposing rules for those homes (minimum lot and building sizes, setback requirements, architectural mandates, etc.) that raise costs; it forcibly prevents density; it often effectively requires residents to own an automobile; and it prohibits owners from running many kinds of businesses out of their homes.

I’m not going to address all of these here. I just want to touch on the argument that if you tried to alleviate some of these problems by eliminating single-family zoning (like the city of Minneapolis and the state of Oregon (mostly) did recently), and allowing property owners to convert single family properties to multifamily or even commercial uses, you are taking away the existing owners’ property rights. As a constitutional matter that argument simply does not work. And for good reason. If the decision to allow someone down the street from you to rent out their basement (and thus add a housing unit to the neighborhood) constitutes a taking, then it’s hard to think of any deregulation that does not.

The courts have recognized this in the parallel situation of taxicab medallions.

Many of you may be familiar with the outrageously overpriced markets for taxicab licenses that existed in many U.S. cities until just a few years ago, and still exist to some extent. Cities would issue a certain number of licenses, but no more than that. If you wanted to enter the market as a new taxicab owner you couldn’t just walk into city hall and get a new license as you could for just about any other business. Even if your cab passed safety inspections, had licensed drivers, and met all other regulations, you still needed one of the scarce vehicle licenses (often called “medallions”) that competing taxicab owners possessed. This led to sales of licenses (that allow you to operate a single automobile) for over a million dollars.

Over the last twenty years or so cities have recognized that this is a terrible policy, limiting consumer choice and placing insurmountable barriers to entry for entrepreneurs. Many have therefore deregulated their markets, lifting caps on the number of taxicabs. One prominent example was Minneapolis in 2006. Just a few years later transportation deregulation was turbocharged when Uber, Lyft, and similar alternatives to traditional taxicabs came onto the scene. Cities either turned a blind eye or created new (generally uncapped) licenses to accommodate these new competitors. The result of these various changes was that the value of existing taxicab licenses plummeted. People still owned their taxicabs and their licenses—they could still do what they had been doing—but their monopoly on allowing entry into the market had disappeared.

This deregulation led to an onslaught of takings cases by established taxicab companies. They argued that by increasing the rights of others to drive for hire, cities took away the value of the owners’ property. They were absolutely right on the numbers. The artificially created value of licenses often went from tens or hundreds of thousands of dollars to nothing or almost nothing. And many owners hadn’t just seen these values go up over time, but had invested their own money at these exorbitant amounts into these licenses.

And yet, despite a slew of challenges and many genuinely heartrending stories of bankruptcy, not a single court (to my knowledge) has recognized this deregulation to be a taking. The cases (many of which I and other IJ attorneys have litigated, representing entrepreneurs trying to enter new markets) make quite the string cite. To name just a few: Progressive Credit Union v. City of New York, 889 F.3d 40 (2d Cir. 2018); Newark Cab Ass’n v. City of Newark, 901 F.3d 146 (3d 2018); Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262 (5th Circ. 2012); Ill. Transp. Trade Ass’n v. City of Chicago, 839 F.3d 594 (7th Cir. 2016); Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, 839 F.3d 613 (7th Cir. 2016); Minneapolis Taxi Owners Coalition v. City of Minneapolis, 572 F.3d 502 (8th Cir. 2009); Checker Cab Operators, Inc. v. Miami-Dade Cty., 899 F.3d 908 (11th Cir. 2018); Abramyan v. State, 301 Ga. 308 (2017). And the same reasoning has been applied to other government-imposed scarcities, such as agricultural quotas. Members of the Peanut Quota Holders Ass’n v. United States, 421 F.2d 1323 (Fed. Cir. 2005).

Why have all these judges ruled the same way?

Without getting into all the various reasons, my broad summary is that otherwise any deregulation that increases competition and decreases a monopoly would constitute a taking. There are all kinds of regulations that add value to existing businesses by decreasing scarcity. For example, barriers to getting a law license benefit existing lawyers because they limit the number of competitors. If a state suddenly made it much easier to become a lawyer could existing lawyers sue for the loss of business and the decrease in the value of their law practices? No. (They’re lawyers, so I’m sure someone would sue. But should or could they win? Absolutely not.)

The same is true of single-family zoning. If a city “upzones” a neighborhood, making it now legal to have multifamily housing where before there could only be a single-family home, that does not take away anyone’s home. It might take away an expectation of less traffic, less density, or less poor people down the street (this often is an unspoken reason for housing restrictions), and thus lower the value of existing properties (although it might just as easily raise everyone’s values too; I’m assuming the former here). But that expectation is not a right in the ”bundle of sticks” of an owner’s property rights. As Scott Lincicome put it in a recent debate with O’Toole, it is a “rent” not a “right.” If taxicab owners who paid hundreds of thousands of dollars for licenses that become almost worthless do not have takings claims, homeowners who now are faced with the possibility that their neighborhood might change over time (the horror!) surely do not. A challenge to upzoning on takings grounds is thus doomed to failure.

And that is how it should be. O’Toole admits that the coming of single-family zoning raised the value of single-family homes by preventing the change of uses in existing neighborhoods. That sounds just like a lot of other regulation: Raising costs by protecting one group (existing homeowners) and preventing others from moving in (in this case the working class, and those who might want to use a property for other, more productive uses, such as adding a unit or starting a neighborhood business). This does not at all mean, by the way, that we can’t have nuisance laws, or restrictions on uses that directly harm residential living, such as landfills, smokestacks, etc. But it does mean that allowing more people to live close to you is not “taking” anything the law should recognize.

Single-family zoning did not exist until the turn of the twentieth century. There is nothing “natural” about it. There also is no property right attached to it. The time has come for reform of this institution of Progressive era hubris, and in engaging with any claims for “takings” courts should follow what they’ve already done in other areas: recognize that rents do not equal rights.

Just like all kinds of other regulation, single-family zoning is a transfer of special-interest protection from one group to another. Don’t honor it with the word “right.”

Anthony Sanders is the Director of IJ’s the Center for Judicial Engagement.

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