Judge Orders Rhode Island Town To Return Secretly Seized Land to Affordable Housing Developer
Plus: the federal government tries to stiff landlords over eviction moratorium one last time, the Supreme Court declines to take up eminent domain case, and starter home bills advance in Arizona and Texas.
Happy Tuesday and welcome to another edition of Rent Free. This week's stories include:
- The federal government is trying one last time to weasel out of paying landlords for its illegal eviction moratorium.
- The U.S. Supreme Court decides not to take up another eminent domain case out of New York that could have overturned the infamous Kelo v. New London.
- The Arizona and Texas senates pass starter home bills.
But first, our lead item on a Rhode Island town being told to give back land it had stealthily seized from an affordable housing developer.
Rhode Island Town Told To Give Stealthily Seized Land Back
Last Tuesday, a U.S. District Court judge for the District of Rhode Island issued a temporary restraining order requiring the town of Johnston to return the title of a 31-acre property it had quietly seized to its original owners, two LLCs collectively owned by the Santoro family.
The temporary restraining order also blocks the town, its mayor, and the town council from taking any action to take control of the property or prevent the Santoro family from accessing it.
As this newsletter covered last week, the town government has been attempting to seize the Santoro family's property ever since they filed an application to build a 254-unit affordable housing project on the land.
You are reading Rent Free from Christian Britschgi and Reason. Get more of Christian's urban regulation, development, and zoning coverage.
Beginning in January, the town has passed a series of resolutions asserting that it needs the land for a new "municipal campus" that would replace Johnston's existing, dilapidated town hall and police and fire stations.
The Santoro family challenged the seizure in federal court, arguing that the town's "municipal campus" is a sham project invented to stop the family from proceeding with their planned development. The family's unsubsidized project was made possible by a state law that allows developers to override local density restrictions when building low- and moderate-income housing.
Shortly after the family filed their federal lawsuit, the town quietly transferred the property over to themselves—without notifying the owners or their lawyers. The family only learned of the seizure after the mayor tweeted about it and the town's lawyer sent them a letter ordering them to vacate the property or risk a citation for trespassing.
"In 40 years, I've seen some pretty outrageous exercises of eminent domain powers. Never anything like this," Robert Thomas, an attorney with the Pacific Legal Foundation (PLF), who is representing the Santoro family, told Reason last week.
The Tuesday-issued retaining order blocks the attempted seizure of the Santoro family's land until the judge has had time to consider the family's request for a preliminary injunction.
The Federal Government Tries To Stiff Landlords One Last Time
The federal government is making one last-ditch effort to avoid paying out potentially billions of dollars to cover the damage caused by its illegal pandemic-era eviction moratorium.
Earlier this year, the U.S. Department of Justice (DOJ) asked the full U.S. Court of Appeals for the Federal Circuit to consider whether an eviction moratorium first issued by the U.S. Centers for Disease Control and Prevention (CDC) in September 2020 constituted a taking of landlords' property requiring compensation from the federal government.
With that request, the DOJ is hoping to overturn an August 2024 decision made by a three-judge panel of the Federal Circuit, which found that the federal government, by banning landlords from removing tenants for non-payment of rent, had physically taken their property and was liable for the damages.
That decision came in the case of Darby Development Co. v. United States, a class action lawsuit first brought by landlords back in July 2021.
A month after the Darby case was first filed, the U.S. Supreme Court struck down the CDC's moratorium, saying that the agency had acted well outside its authority when issuing the eviction ban.
With its August 2024 ruling, the three-judge panel sent the Darby case back down to the Federal Claims Court to tally up the damages, which will be substantial. The plaintiffs in Darby are asking for $23 billion.
"If you break it, you pay for it. They caused enormous harm," says John McDermott, a lawyer for the plaintiffs in the Darby case.
While the deadline to appeal the case to the U.S. Supreme Court has passed, the DOJ is hoping that the full Federal Circuit might overturn the panel's decision and remove the massive liability facing the federal government.
The DOJ finds itself in an awkward position vis-à-vis the rental housing industry.
Back in January, at the same time it was asking the Federal Circuit to hear the Darby case, it also added six large property management companies as co-defendants in its ongoing antitrust lawsuit against real estate software provider RealPage.
The government alleges that RealPage's rent recommendation software, which uses proprietary data from landlords to recommend profit-maximizing rental rates, was facilitating an illegal price-setting cartel among rental property owners. (Read the economic case against this idea here.)
The DOJ's decision to also sue RealPage's larger customers means that all its customers, and even its competitors' customers, could also be sued for anti-trust violations.
In effect, the government could end up owing the rental property industry billions of dollars in the Darby case while reclaiming a much smaller amount from the industry from its antitrust litigation. (The largest fine the DOJ's Antitrust Division lists having recovered on its website is $925 million.)
McDermott says it would make sense for the federal government to resolve both cases by reaching some sort of grand settlement with the rental property industry. But apparent chaos within the U.S. Department of Justice (DOJ) is preventing the federal government from coming to the table.
He says that his counterpart in the DOJ's Civil Division, which is defending the government in the Darby case, expressed total ignorance of the RealPage case, which is being prosecuted by the DOJ's Antitrust Division.
"Within the Justice Department, no one is talking to each other. They're either scrambling to keep their jobs or they are so overwhelmed by litigation" challenging President Donald Trump's executive orders, he tells Reason.
Plaintiffs in the Darby have until April 11 to file a response to the government's request for the full Federal Circuit to hear the case.
Supreme Court Declines To Take Up Eminent Domain Challenge
On Monday, the U.S. Supreme Court declined to take up a new eminent domain case out of New York.
In Bowers Development, LLC v. Oneida County Industrial Development Agency (OCIDA), two developers in Utica, New York, challenged the county agency's seizure of a property where they'd planned to build a medical office building.
In their lawsuit, the developers argued the county's reason for seizing their land—to give it to an existing medical office next door to use as a parking lot—didn't meet the constitutional requirement that the government only seize land for a "public use."
In their petition to the Supreme Court, the developers were asking the court to reconsider their infamous 2005 decision in Kelo v. New London, in which a narrow 5–4 majority found forcibly transferring property from one private party to another for the purposes of economic development satisfied that public use requirement.
The decision was hugely controversial at the time. It sparked an anti-eminent domain backlash that saw states pass laws and update their constitutions to limit Kelo-like economic development seizures.
Nevertheless, the Kelo decision is still on the books and still leaving property owners exposed in states like New York, which never did put their own limits on economic development seizures.
"The Court declined this opportunity to restore some basic protections for American property rights, but it will have to confront this question eventually," said Robert McNamara, an attorney with the Institute for Justice, which represented the developers in the Bowers case (and which had also challenged the government's seizure in the Kelo case). "Eminent domain abuse continues to run rampant in New York and some other states that have refused to change their laws, and it will not stop until federal courts return to enforcing the Constitution."
Starter Homes Get Halfway To the Finish Line in Texas, Arizona
The Texas and Arizona senates have both passed similar bills aimed at making new small-lot "starter homes" easier to build.
On Wednesday, the Texas Senate voted 29–2 to pass Senate Bill 15, which prevents local governments from requiring homes in new single-family subdivisions of five acres or more to sit on lots larger than 1,400 square feet. Additionally, the bill prevents local governments from requiring more than one parking space per home on "small lots" of 4,000 square feet or less.
The bill would only apply to municipalities with a population of 150,000 or more in counties with a population of 300,000 or more.
Proponents say S.B. 15 will ease Texas' growth pressures by enabling more affordable greenfield townhome development in larger communities.
People are making similar arguments in favor of Arizona's Senate Bill 1229, which passed out of that state's Senate via a narrower 16–13 vote in early March.
Like the Texas bill, S.B. 1229 would cap the minimum lot sizes local governments could require in new five-acre single-family subdivisions.
The original version of Arizona's S.B. 1229 would have preempted local minimum lot sizes of 1,500 square feet. A successful amendment authored by Sen. Shawnna Bolick (R–Phoenix), the bill's primary sponsor, weakened this provision to preempt minimum lot sizes of 3,000 square feet or more.
Unlike the Texas bill, S.B. 1229 also bars local governments from regulating the aesthetic design of new homes or requiring shared amenities that might necessitate a homeowner's association.
Both the Texas and Arizona bills have created unusual bipartisan coalitions.
In Texas, S.B. 15 was labeled a priority bill by conservative Republican Lt. Gov. Dan Patrick, who has called out local regulation for "stifling our housing supply, rendering our communities unable to meet present and future growth." It also received support from almost all of the chamber's 11 Democrats.
While Arizona's S.B. 1229 prime sponsor is Bolick, its co-sponsors include Sen. Analise Ortiz (D–Glendale), a progressive Democrat, who has aggressively championed the bill.
Having passed their respective senates, both the Texas and Arizona bills will now be considered by their Houses of Representatives.
Quick Links
- The New Hampshire Senate passed a less ambitious minimum lot size reform bill that caps single-family minimum lot size requirements at 88,000 square feet, or 22,000 square feet if serviced by community sewer infrastructure.
- The New York Times has a new piece on the bipartisan backlash against the California Coastal Commission's awesome development-stopping powers. The Times story frames this as a class warfare story, writing that "by design, the [Coastal Commission] rejects the desires of some of the world's wealthiest and most influential people." Maybe so, but it also frequently rejects the desires of much less well-off people trying to build basically anything near the seashore.
- City Journal has a new article on Maui's snail-paced rebuilding effort following 2023's deadly wildfires and some of the local political dynamics that make speeding things up exceedingly difficult. Read Reason's coverage of the island's rebuilding efforts from January.
- Los Angeles Mayor Karen Bass has waived city requirements that demolished "protected units" (i.e. rent-controlled units, deed-restricted affordable housing, and homes occupied by low-income tenants within the past five years) be rebuilt as low-income housing for wildfire rebuild projects. Bass' order mirrors Gov. Gavin Newsom's executive order waiving near-identical state-level unit replacement requirements in Los Angeles. Developers had expressed concern that requiring burned-down units to be rebuilt as below-market-rate units would be a huge tax on rebuilding efforts. As Reason reported back in February, Newsom's waiver was toothless so long as the city's near-identical rules remained in effect. Bass has now added the needed teeth by waving the city rules too.
- Speaking of Los Angeles, the city has issued the first home rebuilding permits some three months after January's devastating fires.
