Executive Summary This report analyzes how land use regulations – and government programs generally – have affected the value of private real property in Oregon. Its objective is to inform discussion of the issues surrounding the current debate over Measure 37. Measure 37 was passed in 2004 in response to a claim that Oregon’s land use regulations had substantially reduced the value of rural properties across the state. Measure 37 requires government to either “compensate” land owners for the supposed adverse economic effects of regulatory restrictions or waive enforcement of the regulations. The central premise of Measure 37, that regulatory restrictions on development reduce property values, has not been subjected to rigorous economic and empirical analysis. Economists recognize that regulations can have both positive and negative effects on property values, making it difficult to predict their net effect. If the premise of net negative effects on property values in Oregon is incorrect, Measure 37 is transferring enormous windfalls to owners who may have suffered little or no adverse effect from regulation, or who may have seen their land values rise faster than they would have in the absence of regulation. Other government actions, such as tax policies favoring agricultural landowners and subsidies for agricultural operators, also affect rural property values. In considering whether government has imposed unfair economic burdens on rural landowners, these government tax and subsidy programs also need to be factored into the equation. To test the argument that Oregon’s land use regulations had serious adverse effects on property values, this project collected and analyzed data on trends in Oregon land values since the adoption of the state’s landmark land use program approximately 35 years ago. Our major findings: * An analysis of trends in land values in several Oregon counties indicates that the establishment of an urban growth boundary, and the adoption of relatively stringent restrictions on development in rural areas, did not have a systematically negative influence on the market values of restricted parcels. 1 * A comparison of agricultural land values in several Oregon counties with agricultural land values in several comparable counties in Washington reveals no systematic difference in the rates of property appreciation, despite Oregon’s more stringent regulatory regime during most of the period. * A comparison of statewide agricultural land values in Oregon and neighboring states shows that Oregon experienced a comparable, and generally somewhat higher, rate of appreciation as its neighbors, again despite Oregon’s stricter regulation of rural development. * As much as 14% of current agricultural land values in Oregon represents the capitalized value of the state policy of taxing agricultural lands at a much lower effective rate than other lands. Federal agricultural subsidies also have a positive effect on land values in Oregon, although this effect is difficult to quantify and varies greatly in different parts of the state. These findings are consistent with many other empirical studies conducted elsewhere in the United States. Most relevant studies conclude that regulatory restrictions on development have little if any adverse effect on property values, especially if the owner is permitted to maintain or construct at least one single family home on the property. Other studies, consistent with these results, have documented the positive effects of state agricultural tax programs and federal subsidies on rural land values. Prior to the adoption of Measure 37, courts relied upon the established interpretations of the Takings Clauses of the U.S. and Oregon Constitutions to resolve whether landowners subject to regulatory restrictions were entitled to financial compensation. Under the constitutional standard (in contrast to Measure 37), most regulations restricting property use are not regarded as compensable takings. The timetested constitutional takings standard, as well as the analysis in many leading constitutional takings precedents, better comports with sound economic analysis. In sum, claims that Oregon’s land use program harmed property owners by reducing property values, and that Measure 37 would remedy this alleged unfairness, are 2 3 unsupported by economic and empirical evidence. Oregon’s land use program has not unfairly burdened property owners. Given this conclusion, Measure 37 is itself deeply flawed as public policy because it confers windfalls on owners eligible to file claims without clear evidence of injury. If economic fairness is an important goal for Oregon’s land use program, and we certainly agree that it should be, Measure 37 was a major step backward.