Property and Constitutional Principles

On Monday, the Supreme Court will hear what may be one of the most important cases to come before it this century, Lucas v. South Carolina Coastal Council. Pitting clearly the regulatory powers of the state against the rights of private property owners, the case has implications for environmental protection, urban planning, rent control, landmark preservation and much else. After more than 70 years of rudderless jurisprudence in this area, the court may be willing at last to come to grips with the notorious “takings” question: whether “regulatory takings” are compensable under the Fifth Amendment’s Takings Clause.

America has reached a crisis in the law of property as planners at all levels of government pile restriction upon restriction, leaving owners all but unable to move without official permission. The costs hit the poor especially — 54% of their income now goes to shelter — but they hit others too. In 1986, David Lucas, a real estate broker living near Charleston, South Carolina, purchased two undeveloped oceanfront lots for $955,000, intending to build a home for his family on one and a house to sell on the other. At the time the lots were zoned for single-family houses, and houses already existed on similar lots along the beach, including on the lot that stood between Mr. Lucas’s two lots.

Regulatory Wipeout
Eighteen months later, Mr. Lucas’s plans were shelved when South Carolina passed its Beachfront Management Act. Aimed at preserving the beach and dune system, providing a wildlife habitat, and promoting tourism, the act prohibited all new construction along the beach beyond certain setback lines. In a story with countless repetitions across the country, Mr. Lucas testified that the act rendered his property all but useless. He could pitch a tent and picnic on it. But apart from that, he now held a $900,000 mortgage on property that, due to taxes and insurance, had a negative value.

The trial court found that the legislature had taken Mr. Lucas’s property. Under the Fifth Amendment’s requirement that private property not be taken for public use without just compensation, it awarded him $1.2 million. On appeal, a sharply divided South Carolina Supreme Court reversed. The majority found that because Mr. Lucas had not contested the validity of the act at trial but had merely prayed for damages, he was not entitled to relief. Mr. Lucas then appealed to the Supreme Court of the United States, which agreed to hear his case this term, along with two others that raise a question posed in 1922 by Justice Oliver Wendell Holmes:

When does the regulation of property go “too far,” requiring government to compensate the owner for the loss imposed?

Unfortunately, that was the wrong question, but it has driven the court ever since to a series of decisions that Justice John Paul Stevens recently called “open-ended and standardless.” One need only sample the briefs in Lucas, including a host of amicus briefs, to discover how tortured the reasoning becomes when it tries to argue from this body of law. Indeed, Monday’s court would be better advised to start with a clean sheet than to build upon this law. One is reminded of the dilemma Copernicus faced when confronting the Ptolemaic universe. Rather than add yet another epicycle to the geocentric model, he had the good sense to grasp the nettle: He moved the sun to the center.

That is what the Supreme Court must do by returning to first principles, or natural law. And in no area are those principles more illuminating than here. For the takings question involves more than the Takings Clause. More deeply, it involves relating the eminent domain power, which is what the clause is about, with the police power, which is at the core of sovereignty yet is nowhere in the Constitution. To do that, however, one must begin at the beginning, with our political origins.

Unfortunately, that is not what modern lawyers do well, as witness the consternation that arose last fall when it became known that the Supreme Court’s newest member believed in natural law. Yet the amicus briefs of the U.S. and the Institute for Justice, the latter prepared by the University of Chicago’s Richard Epstein, make just such a plea.

How then does a consideration of first principles help resolve the takings question? It does so by noting first that the police power is nothing more than what John Locke called the “executive power” in the state of nature — the power of every individual to secure his rights while respecting the rights of others. Thus the source of the power is in the right of self-preservation. And its bounds are set by the rights of others. On both counts, no better model can be found than the classic common law.

The police power is constrained, then, by the power each of us has in the beginning, for we could hardly have yielded up to the state more power than we had to yield. But when we created the state — as is evidenced by the Takings Clause — we also created the “despotic power” of eminent domain, as it was called, a power that none of us had in the state of nature. In recognition of its despotic nature, however, we made sure that if the state took what rightly belonged to another it would have to pay. Thus the individual would not be made worse off. Nor would he be made to shoulder the costs of our public appetite.

Starting from first principles, then, we see that the relation between the police power and the power of eminent domain is clear and simple. When the police power is confined to securing rights, no compensation is required. The law of nuisance affords the classic example. The individual whose nuisance is enjoined gets no compensation, however large his loss, because he had no right to that activity to begin with. It is not a question, then, of whether the regulation goes “too far,” as Holmes suggested. Rather, it is whether the activity prohibited is itself legitimate.

But when the public wants to secure some good by condemning an otherwise innocent activity, there is only one power legitimately available to it — the power of eminent domain. And for that, the public must pay. Public goods of the kind that today are routinely secured through an overbroad conception of the police power — from green spaces to subsidized rents — are “free” only because we leave the costs on the backs of the individuals from whom we take them.

Returning then to Mr. Lucas, we ask first whether the act was passed pursuant to a legitimate police power — to secure rights. Plainly, the promotion of tourism and the preservation of wildlife may be worthy goals, but there are no rights in those things that Mr. Lucas’s houses would in any way implicate. Nor is it plausible that his houses would pose any real danger to landward neighbors — as the amicus brief of a number of environmental groups contends. If they did, then adjacent houses should probably come down too. No, in the end, the state has exercised here the most despotic power of all — condemnation of a legitimate activity, but without compensation. As the Epstein brief concludes, the reason Mr. Lucas is entitled to compensation is because “the state did not remotely offer any anti-nuisance justification.” It simply took what it wanted.

If the court so rules, either by itself or by sending the case back so that Mr. Lucas can lay out a proper argument, South Carolina will then be put to a choice. Either it abandons its plan, or it proceeds — but under the power of eminent domain, not the police power. And it pays for what it wants. Only then will it know how much tourism it wants to promote or how many species it wants to preserve. But when the costs for such goods go “off budget,” to be borne by lone individuals, demand grows and the appetites of planners become all but insatiable.

Planning Without Prices
Some 70 years ago, when planning was in its infancy in revolutionary Russia, economists like Ludwig von Mises and Friedrich Hayek showed how planning, absent real prices, was doomed to fail. Some 70 years later, after immeasurable costs, they have been proven right. Today, America too is awash with planners, armed with the good, yet without any sense of the price of that good. How could it be otherwise, when our jurisprudence has sheltered us from those prices? As long as that continues, our own planning also is doomed to fail — taking countless individuals along with it.

The goals of the South Carolina act may indeed be worthy. But let the citizens of South Carolina make that decision with a true sense of their cost, not impose those costs on individuals like Mr. Lucas. The court should not address the policy question. But it can and should articulate and enforce the law — both higher and written — that will enable citizens to know the true costs of their undertaking and, if they decide it is worth it, to proceed by respecting the rights of their fellow citizens.

Will the court return to those first principles? Your honors, move the sun to the center. That’s where it belongs.

Roger Pilon, an official in the departments of State and Justice during the Reagan administration, directs the Cato Institute Center for Constitutional Studies.