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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.
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* 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
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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. |
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