A Major Property Rights Case Idles on Supreme Court Docket
The Court has been punting for months on whether it will take up a legal challenge brought by Los Angeles landlords alleging their city's COVID-era eviction ban was a physical taking.
Happy Tuesday, and welcome to another edition of Rent Free. This week's stories include:
- How a pending challenge to Los Angeles' COVID eviction moratorium at the Supreme Court could pave the way for broader challenges to rent control laws nationwide
- Colorado Gov. Jared Polis deploys some fiscal sticks to get localities into compliance with state housing law.
- Why rent controls are worse than other price controls
Could a Challenge to Los Angeles' Eviction Ban End Rent Control in New York?
Idling on the Supreme Court's docket is a challenge to Los Angeles' COVID-era eviction moratorium that, if heard, could have major implications for legal challenges against tenant protection and rent control laws across the country.
In its upcoming Thursday conference, the Court is scheduled to discuss whether to take up the case of GHP Management Corp. v. City of Los Angeles, in which landlords are demanding $20 million in compensation for what they claim was free housing the city of Los Angeles forced them to provide through its eviction ban.
The Court has been repeatedly "relisting" the case since March, when it first was scheduled to consider taking the case in conference.
A continually relisted case can effectively mean anything. It definitely raises the possibility that either the justices are seriously considering taking the case or, alternatively, that one of the justices is writing a dissent from the Court's decision not to take the case.
You are reading Rent Free from Christian Britschgi and Reason. Get more of Christian's urban regulation, development, and zoning coverage.
"Usually when that happens, it means somebody is interested, but that doesn't mean they're going to take the case," says Jeff Schwab, an attorney with the Liberty Justice Center, which wrote an amicus brief in support of the landlords' Supreme Court petition.
The landlords' petition in the case argues that the city of Los Angeles effected a physical taking of their property by banning their ability to evict tenants for nonpayment of rent, causing nuisances, and/or having unauthorized occupants and pets in their unit. They also couldn't take the property off the market to live in it themselves.
These restrictions were ended in January 2023, although delinquent tenants couldn't be evicted for accrued back rent through 2024.
"The City in effect imposed and transferred to defaulting tenants an exclusive easement in the private property of others without paying for it," reads the petitioners' cert petition to the Court.
To make their case, the petitioners cite the 2021 U.S. Supreme Court decision in Cedar Point Nursery v. Hassid, which held that a California law allowing union organizers access to farm properties was a physical taking.
Twice now, federal appeals courts have accepted the argument that COVID-era eviction moratoriums are a physical taking.
In 2022, the U.S. Court of Appeals for the 8th Circuit ruled that Minnesota Gov. Tim Walz's eviction moratorium was, per Cedar Point, a per se physical taking, and the plaintiff landlords in that cause could pursue a just compensation claim.
(Last year, the same court ruled that Minnesota's sovereign immunity protected it from actually having to pay landlords that just compensation.)
More recently, in August 2024, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit ruled that the federal government needed to pay compensation to landlords for the national eviction moratorium. Plaintiffs in that case are demanding $23 billion in compensation.
Disagreeing is the U.S. Court of Appeals for the 9th Circuit, which in May 2024 rejected landlords' physical takings claim in the GHP Management Corp. case.
"A statute that merely adjusts the existing relationship between landlord and tenant, including adjusting rental amount, terms of eviction, and even the identity of the tenant, does not effect a taking," reads the 9th Circuit's unpublished opinion, citing a 1992 Supreme Court decision upholding a local California rent control law.
The Cedar Point precedent, the 9th Circuit wrote, distinguishes between a commercial lessee protected by eviction moratoriums and "an interloper with a government license" like the union organizers in that case.
Schwab says the 9th Circuit is interpreting the Cedar Point case much too narrowly. The GHP Management Corp. case would give the Supreme Court a "clean vehicle" to give clearer, more sweeping guidance about the property rights protections they laid down in Cedar Point, he says.
"I think that the way that property rights have been enforced by [lower] courts has been more limited than [the Supreme Court justices] want, so that seems like a good reason why they'd take it," Schwab tells Reason.
Last year, the Supreme Court rejected two cert petitions from New York landlords making Cedar Point physical takings claims in their challenge to New York's 2019 rent stabilization law.
At the time, Justice Clarence Thomas wrote a short statement agreeing that the court was right not to take those cases on technical grounds, while adding that the "constitutionality of regimes like New York City's is an important and pressing question."
Should the Supreme Court take up the GHP Management Corp. case and agree with landlords that they've been victims of a physical taking, other rent control laws (like New York's) that include extensive eviction restrictions could become more vulnerable to physical taking challenges.
Colorado Gov. Jared Polis Uses Fiscal Sticks To Enforce New State Housing Reforms
In 2024, the Colorado Legislature passed a suite of housing bills requiring localities to pare back parking requirements, allow accessory dwelling units (ADUs) in single-family neighborhoods, and upzone land near transit stops.
Democratic Gov. Jared Polis is now proposing to cut some state funding to communities that are behind schedule on implementing the reforms.
In a Friday executive order, Polis instructed the state's Department of Local Affairs (DOLA) to create a list of localities that are (and are not) in compliance with these new "state strategic growth laws." The order directs other state departments to prioritize grant awards to compliant communities.
"Housing is a multi-jurisdictional concern and today's action prioritizes the building of new homes in communities that are working to successfully implement more housing now for all budgets," said Polis in a press release.
Colorado Public Radio reports that some $100 million in energy and transportation grants would be affected by the order.
DOLA is given until October to produce its list of compliant and noncompliant jurisdictions. Grant awards given before then won't be affected by Polis' order. Nor will federally funded pass-through grants and grants awarded via state formulas.
Colorado's state-level zoning preemptions are predicated on the idea that local governments have powerful incentives to oppose additional housing construction, to the detriment of statewide housing affordability. Localities therefore need to be told by the state to lift some of their restrictions.
The difficulty in implementing such laws is that the state, even with a mandate, is still practically relying on local elected officials to amend local laws they, and many of their voters, didn't want to change in the first place.
Witness California's local governments constantly finding new and creative ways to flout or undermine state laws prodding them to permit more housing.
The California state government, as well as YIMBY legal nonprofits, has spent a lot of time and effort suing the most obstinate localities to enforce state housing law, as well as sending lots of threatening regulatory compliance letters.
Fiscal incentives, both positive and negative, are a slightly more direct way to motivate compliance on the part of localities.
The power of fiscal incentives is limited by how much state money might be forfeited by noncompliance, the willingness of local governments to go without state funds in the service of preserving their land use powers, and the willingness of state politicians to pick fights with determined NIMBY jurisdictions.
An even more direct method might be to pair state preemption with state entitlements. That is, let developers bypass scofflaw jurisdictions and apply directly to the state for permission to build state-permitted housing.
In her abortive 2023 Housing Compact, New York Gov. Kathy Hochul proposed creating a state body to approve housing projects in jurisdictions that were undershooting state-set housing production targets.
Another option would be giving private property owners more general rights to sue over zoning restrictions.
A bill considered (and rejected) by the Montana Legislature this year would have enabled private property owners to challenge effectively any land use restriction in court. Local governments would have the burden of showing that their restriction was a necessary and narrowly tailored means of protecting health and safety or eliminating nuisances.
Those are more radical proposals, to be sure. That both failed suggests there's little political appetite for them currently.
To the degree most states are considering state-level zoning reforms, they all generally take the form of state-level zoning preemptions of local land use rules.
Such laws will continue to require local implementation and, to some degree, local resistance.
The Other Problem With Rent Control
Economist David Henderson has a smart piece explaining the difference between rent control and other price controls, like controls on gas prices.
Both obviously will produce shortages. But only rent control creates a class of privileged insiders committed to keeping price controls around, even as they wreck the rental market around them.
In the rent control case, current tenants are insiders. They don't have to line up for an apartment. So, as noted above, most of them will favor rent control.
In the gasoline price control case, though, everyone (unless they had a special deal with the service station owner or manager, as sometimes happened) had to line up. The fact that you managed to get gasoline last week gave you no special place in line this week. So, there aren't many "insiders" to lobby for the gasoline price controls.
It's a dynamic that helps explain why rent control laws have persisted (and even gotten stronger) in places like New York City, even as the consequences of financially failing buildings, falling maintenance spending, and a general housing shortage pile up.
Any productive fix to New York's rent stabilization law will result in higher rents for incumbent tenants, who have every incentive to lobby against such a change. Thus, the law remains the same, and the problems get worse.
Quick Links
- A California business owner weaponizes the "Baby Shark" song to keep the homeless away.
- Over at City Journal, Eric Kober offers a grim assessment of the major New York City mayoral candidates.
- Opposition mounts to efforts to eminent domain an Episcopal church's land in Toms River, New Jersey, on which the church was planning to build a homeless shelter.
- In California, Assembly Bill 609, which would exempt urban infill housing from the state's onerous environmental review law, passed the Assembly with unanimous support.
- The New Hampshire Legislature has passed two bills that allow multifamily residential development in commercial zones and permit accessory dwelling units to be built in single-family zones.
