North Carolina Passes Sweeping Surprise Ban on 'Downzoning'

To the bewilderment of many, North Carolina's hurricane relief bill includes the nation's strongest property rights protections against new zoning restrictions.

Happy Tuesday and welcome to another edition of Rent Free.

This week's newsletter takes an extended look at the surprise passage of a "downzoning" ban in North Carolina that effectively prevents local governments from tightening zoning restrictions on your property unless you provide express written consent for them to do so.

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North Carolina's Surprise Ban on Downzoning

Last week, the Republican-controlled North Carolina Legislature overrode Democratic Gov. Roy Cooper's veto of Senate Bill (S.B.) 382—an omnibus bill that paired millions in hurricane relief funding with restrictions on the powers of incoming elected Democratic state officers.

The partisan political controversies surrounding the bill have naturally dominated discussions about it.

What interests this newsletter is a short provision tacked on to the end of S.B. 382 that gives North Carolina property owners perhaps the nation's strongest protections against local governments tightening zoning regulations on their land.

"No amendment to zoning regulations or a zoning map that down-zones property shall be initiated, enacted, or enforced without the written consent of all property owners whose property is the subject of the down-zoning," reads the relevant provision of S.B. 382, found on the last page of the 131-page law.

The law defines downzoning as any decrease in the allowable density of development, any reduction in permitted uses, or any creation of a "nonconforming" use, lot, or structure.

In effect, if you have a right to do something or build something on your land right now—whether that's operate a gas station or build an apartment complex—S.B. 382 says you'll always be allowed to do that unless you give express written consent to the local government to take that right away from you.

Supporters and opponents of the provision are unsure of precisely how something so sweeping ended up in S.B. 382.

"It showed up there without any notice to anybody," says Scott Mooneyham of the North Carolina League of Municipalities. The League wants to see the new downzoning ban repealed.

"We didn't ask for this provision. I'm not really sure where it came from," says Steven Webb of the North Carolina Home Builders Association, which supports the provision.

What everyone does agree on is that this is a far-reaching restriction on local governments' ability to regulate development.

Other States' Less Robust Downzoning Guardrails

Many states have adopted some sort of restriction on downzoning, although the precise forms of these laws and the strengths of their protections for private property vary.

On the weaker end of the spectrum is something like California's S.B. 330. Passed in 2019, it imposes a "no net loss" standard for local government downzonings of residential land.

That means that if a locality reduces the number of homes that can be built on one property, it has to allow the same number of homes to be built elsewhere in the city.

Critics argue this standard is easily gamed. A local government can downzone a parcel where development is likely to happen and upzone another parcel no one is likely to build on. The "no net loss" on paper becomes a net loss in practice.

More robust is Arizona's Prop. 207. Passed by voters in 2006, the law doesn't ban downzoning. But it does require that the government compensate property owners when their regulations reduce property values.

Christina Sandefur, executive vice president of the Goldwater Institute (which helped develop Prop. 207), says the law's compensation requirements have discouraged numerous government efforts to tighten zoning regulations on development.

"If it's too expensive for the government, it's probably too expensive for the property," she tells Reason. "It is one of the strongest protections for property rights in the country."

Nevertheless, because the law doesn't ban downzoning, local governments can often still get away with passing more restrictive zoning regulations without paying compensation by granting exemptions to property owners who do object to additional rules on their property.

S.B. 382's Best-in-the-Nation Property Rights Protections?

North Carolina's flat prohibition on downzonings that don't have the written consent of all affected property owners would seem to go far beyond even Arizona's Prop. 207.

"The way it's drafted, it's a pretty black-and-white, pretty straightforward, potentially pretty powerful law in terms of providing a hard stop against any sort of downzoning," says Charles Gardner, a research fellow at George Mason University's Mercatus Center.

The state's homebuilders are certainly pleased with the new law. They argue it will prevent local governments from getting around existing state prohibitions on development-killing policies.

Webb, of the Home Builders Association, notes that North Carolina law already forbids local governments from imposing aesthetic design requirements, inclusionary zoning policies (which mandate builders include below-market-rate units in their projects), impact fees, and other policies known to drive up the cost of home building.

But local governments can still evade these prohibitions by downzoning a developer's property and then conditioning any upzoning on the developer paying impact fees, building affordable units, or adopting certain design requirements.

By banning downzoning, S.B. 382 would prevent these games, says Webb. He says it will be a powerful protection for homebuilders trying to meet demand in the rapidly growing state.

Local Governments Have Objections, YIMBYs Have Concerns

Mooneyham, of the League of Municipalities, says that S.B. 382's provisions will effectively prevent local governments from doing comprehensive updates to their land use regulations.

The law's exceptionally broad definition of downzoning and its requirement that all affected property owners receive individual notice of code changes and give individual written consent is a huge procedural hurdle.

"That's going to essentially mean that no cities are going to make those changes right now," he says.

Some of the local government concerns can be chalked up to the turf wars that come with any state preemption, says Jennifer Truman, a planner working in private practice who is also involved in local "yes in my backyard" (YIMBY) activism.

"Some of the uncertainty and honestly panic on the part of planning departments that I've heard is 'they're touching our thing, this is supposed to be the thing we're supposed to have control over'," she says.

Nevertheless, Truman says S.B. 382 could prevent zoning code rewrites that on net allow more housing construction.

When cities do comprehensive zoning code rewrites, that will typically involve some mix of downzoning and upzoning.

Truman cites recent changes in Raleigh's zoning code that allowed denser housing near transit stops but also restricted the construction of new gas stations and drive-thrus. S.B. 382 would effectively prohibit adopting such a zoning change unless all the affected property owners explicitly signed off on it.

Will It Stick?

Property rights maximalists might well be unconcerned with these limitations. Raleigh could simply allow denser buildings near transit, not put any additional restrictions on gas stations, and avoid any procedural hurdles created by S.B. 382.

There would seem to be a practical, political concern that if local governments can't tighten any zoning regulations at all, they won't bother with loosening them either. It's rare to find local governments that are interested solely in repealing land use regulations.

Sandefur, while supportive of S.B. 382's changes, also says that flat prohibitions on local government actions can occasionally backfire. Without any flexibility built into the law, localities could be incentivized to just flout the new downzoning restrictions and force the state to try to enforce them.

The breadth of S.B. 382's property rights protections might well be its downfall as well.

Its quick, quiet passage through the Legislature meant there wasn't much time to build a consensus behind the downzoning ban. Mooneyham predicts the Legislature will revisit S.B. 382's downzoning provisions next year.

In a sense, all zoning laws represent a downzoning. In pre-zoned America, property owners generally had a right to develop their land as they saw fit. Zoning codes changed this by dividing up cities into increasingly elaborate and restrictive districts that dictate how large or small buildings can be and what's allowed to happen inside them.

More recently, there's been a nationwide effort to liberalize zoning codes and upzone land so that more homes and businesses can be built in more places and with fewer restrictions.

Bans on downzoning don't make existing zoning codes any better for development or property rights. But they do prevent them from getting worse.

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Quick Links

• One criticism of zoning regimes is that they focus city bureaucrats on micromanaging private property owners at the expense of maintaining public property. See San Francisco, where city staff have demanded a local café remove its sidewalk seating while doing nothing to fix a dangerous sidewalk nearby.
• The Canadian city of Yellowknife is beefing with the federal government over whether it had permission to offer homeless people cigarettes as an incentive for participating in a yearly point-in-time census of the homeless population.
• After years of deliberations, the California Coastal Commission approves a new 120-unit affordable housing development on city land in Los Angeles, California. The commission's approval comes a day after the city government voted not to transfer the land to the project's developer after all. The Los Angeles Times has the full story.
• Next year, the Oregon Legislature will consider expanding the state's rent control law to cover mobile home parks.
• Colorado Springs, Colorado, is advancing an update to its zoning regulations that will allow accessory dwelling units (ADUs) in exclusively single-family areas. The city's planning commission has recommended that new ADUs be allowed to be as large as the primary dwelling while opposing a proposal to allow two ADUs on a property. The changes are mandated by a state law passed earlier this year.