Finding the Line: Permitted Regulation or Fifth Amendment Taking Under Residential Rent Controls.

Rent control is becoming more prevalent as a tool of public policy in the United States. One of the many issues that arise with this topic is the line between permitted regulation of business and the unconstitutional taking of property requiring compensation under the Fifth Amendment. Regulatory takings differ from the physical takings of property that appraisers are most familiar with. For physical takings, the taking of the property is not disputed. To establish that a regulatory taking has or will occur, the property owner must establish that the regulation exceeds constitutional authority by a sufficient magnitude in order to establish a taking. For a rent control law to be constitutional, appellate courts have required that the property owner must be able to request a rent adjustment based on the need to obtain a "just and reasonable return" on their investment. Tools used in the application and review process are rooted in the appraisal body of knowledge and include capitalization theory, yield analysis, rental market research and analysis, and concepts of value. In rent control cases, these theories and tools have been employed most often by persons other than appraisers. Real estate appraisers, with understanding and expertise in the twin disciplines of financial and market analysis necessary to properly advise legislative bodies and the courts, have had limited historic input. Readings of position papers and court decisions reveals confusion and contradictions arising from the application of appraisal theory and techniques by nonappraisers. The intent of this article is to examine the various theories used in the determination of just and reasonable or fair return, to note how the appraisal body of knowledge is applied in these theories, and how misapplication of appraisal theory and analytical tools has distorted the analyses made and results achieved, and to suggest a comprehensive process to provide both legislators and jurists with appropriate assistance in the determination of just and reasonable return in the rent control context. [ABSTRACT FROM AUTHOR]