Property and Property Rights

Property and property rights are fundamental social relationships. Broadly defined, property is something that provides benefits over time and need not be limited solely to physical or real objects of value such as houses and land. Under this definition, property may also include intellectual contributions (such as those protected by patents) and benefits derived from natural resources (such as clean air and water). In turn, property rights are socially sanctioned rules and norms that allow individuals or groups to form expectations about their access to this benefit stream. They specify who may benefit and bear the costs of certain activities, and who gets what. Moreover, holders of rights are empowered to call upon the state to protect their property. At the same time, a property right places an obligation or duty upon others to behave in a certain manner with respect to the protected property. All too often, property and property rights are viewed in person-to object terms, as reflected in statements such as “This is my land -- I can do whatever I want with it”. It may be more appropriate to view property as a person-to-person or person-to-society relationship.

This distinction is important for several reasons. In the first place, the person-to-object focus ignores the fact that physical objects may provide several distinct streams of benefits. With farmland, for example, benefits might include returns based on production or speculation as well as privacy, aesthetic components, use, and inheritance. In this manner, physical ownership is often likened to the possession of a bundle of property rights, with different sticks in the bundle corresponding to different uses and benefit streams. The focus on property as an object also diminishes the importance of the physical and social interdependence inherent in society today. It is no longer possible to view a piece of land in isolation from adjacent lands or the larger community.

It is essential to recognize that the social interaction and the incidence of property rights extends in both directions: public rights claims to a clean environment will have an impact on private property, while private property claims will likely have an impact on public interests. As such, actual and perceived property rights frequently come in conflict, and existing property rights arrangements may be questioned. Resolution of these competing claims to property rights often necessitates public decision-making to clarify property rights arrangements. In such instances, the allocation of property rights can be viewed as a social instrument in which society must choose collectively between competing claims so as to encourage socially desirable uses of land. As society’s needs and perceptions change, so do the demands for different property rights arrangements and land use.

Eminent Domain and Police Power

When society chooses to redefine property rights through new public policies, an important issue is whether the losers from the new property rights arrangements should be compensated for the taking away of their previously held rights. This is one of the central claims of the private property rights movement -- that “just compensation” is required for lost property rights when new regulations are implemented.

The need to protect individuals from bearing the burdens imposed by broader public actions is recognized by the takings clause of the Fifth Amendment of the Constitution which states, “nor shall private property be taken for public use, without just compensation”. Legal interpretations of this clause with respect to takings and compensation have distinguished between two categories of public intervention. The first category, termed “eminent domain”, concerns cases in which land is physically appropriated for public use such as for highway construction or land flooded by a new dam. In these cases it is clear that public taking has occurred and that compensation must be provided. A second form of intervention, called “police power”, is more subtle.

Rather than physically taking the land, society often places restrictions on land-use activities that may be “injurious to the health, morals and safety of the community”. Even though this police power is typically applied to obvious cases such as prostitution and fire regulation, it has also been broadly used for zoning restrictions, wetlands protection, taxation of and limitations on agricultural inputs, and other land-use regulations.

Police Power and Regulatory Takings: A Fine and Uncertain Line

Throughout most of United States’ history, regulations and restrictions under the auspices of police power have not been considered takings under the constitution and thus are excluded from the just compensation requirement of the Fifth Amendment. The argument rationalizing this exclusion is two-fold. Focusing on the so-called “nuisance or noxious use” exception to the takings clause, the position has been adopted that limitations should be placed on land uses that will be harmful to neighbors or the general public. Restricting these practices so as to protect public well-being does not constitute a taking regardless of impact upon the regulated party.

The second justification for not compensating under police power has been that all property must be regulated to a certain extent, and that the government could hardly continue to operate if it had to compensate for every action that diminished property values. However. since 1922 the Supreme Court has recognized that it is possible for the government to go “too far” in regulating land use and diminishing real property values. In such cases a “regulatory taking” is said to have occurred and would be deemed unconstitutional if just compensation is not provided.

Historical and contemporary court rulings have offered no clear guidelines of what comprises a regulatory taking.  Recent court decisions have produced mixed results and sent confusing messages with regards to land-use restrictions for environmental purposes. On one hand, the concept of public benefits has been broadened by decisions in recent years. On the other hand, some legal interpreters have suggested that members of the higher courts are elevating the preeminence of private rights, and that regulations designed primarily to protect the natural environment are in for increasingly rough judicial going.