PropertyProf Blog

The Mortgage Interest Deduction: Will the Sacred Cow Finally Get Roasted?

Don't count on it.  But the very fact that the enormous government subsidy that is the mortgage interest deduction is being discussed in the 'fiscal cliff' chatter is remarkable.  The Washington Post reports that the most sacred of sacred cows suddenly looks tasty to lawmakers.

The article even contains a nice quote from a law prof:

Edward Kleinbard, a tax expert and law professor at the University of
Southern California, said the mortgage-interest deduction represents the kind of
government “extravagance” that the country no longer can justify, given its
fiscal troubles.

“We simply cannot afford wasteful government subsidy programs anymore, and
this is one of the most important examples of that,” Kleinbard said. “It’s very
much a subsidy to those Americans who need it least.”

Professor Kleinbard is right: the mortgage interest deduction is a strange and regressive tax subsidy.  It benefits most those who need it least.  And, it encourages borrowing and discourages homeowners from putting equity in their homes. 

And yet, it is so deeply embedded in our real estate system that almost every home in America would have to be devalued if it was eliminated, because potential buyers figure the deduction into the amount they can pay for a home.  And it has friends with money and influence: the construction industry, realtors, lenders.

Still, its long term future isn't as rosy as it once seemed.  Logically, it ought to be at least capped if not scrapped.  But a cap would hurt those best able to make sure there is no cap, so I'm guessing we'll still be having this discussion many, many years from now.  What do you think?

Mark A. Edwards

More on the Chinese "Kelo Case"

 

 Ilya Somin has a detailed follow-up on the recent property dispute in China that has drawn some comparisons to Kelo.

Steve Clowney

Bronin on Incorporating Renewable Energy into Building Projects

Sara Bronin (Connecticut) has posted Building-Related Renewable Energy and the Case of 360 State Street (Vanderbilt Law Review) on SSRN.  Here's the abstract:

This Article argues that a well-conceived policy approach to building-related renewable energy (“BRRE”) — that is, renewable energy incorporated into inhabited structures and used by those structures’ occupants — could transform the way we produce and consume energy by maximizing efficiency while simultaneously minimizing energy sprawl.

The vast majority of Americans favor renewable energy, at least in concept. Yet private property owners still face significant obstacles in trying to incorporate renewable energy into their projects. This Article analyzes barriers faced by the project team for 360 State Street, an award-winning, mixed-use LEED® Platinum building in downtown New Haven, Connecticut. Among other features, the project incorporates one of the first fuel cells in a multifamily residential building in the world, uses 55 percent less electricity than a standard code-compliant building, must abide by a development agreement with the municipality requiring certain commitments to sustainability, and has become a poster child for the LEED® for Neighborhood Development program. It is an ideal case study because information about it is readily available; the project team considered multiple types of BRRE and coupled one type of BRRE with significant energy efficiency measures; and its primary funding comes from a single private source, meaning that the impact of renewable energy financing rules on decision-making can be more easily discerned than it might be in other projects that involve primarily public, or multiple private, sources.

A case study can help confirm or rebut assumptions in the legal literature about the impact of BRRE-related law and policy on private decision-making. As this Article shows, the case study suggests that while legal scholars have focused primarily on issues related to the installation of BRRE, issues related to the operation of BRRE may be just as, if not more, significant to prospective BRRE developers. BRRE can be expanded if scholars and policymakers address barriers, particularly at the state level, to fully utilizing BRRE capacity once it is installed.

Steve Clowney

When Your Art Isn't Art

Slate has a weirdly interesting article on what happens when insurance agents decide that a piece of art is no longer art:

To give a brief explanation of art that is no longer art: Sometimes the cost of restoring a work of art exceeds the value of the work, in which case the insurer declares a total loss, and the work is declared no longer art—that is, of no market value. The damage can range from obvious to subtle—from a ripped painting or shattered sculpture to a wrinkle in a photographic print, or mold damage which can’t be seen at all. As it wouldn't do to send the not-artwork to the crematorium—the work might be of scholarly value, or might one day be worth repairing, or might one day be more easily repaired—the work is stored, not dead, but in a state of indefinite coma. The Salvage Art Institute, Elka's curatorial brainchild, collects and exhibits not-art.

Steve Clowney

Land Use in the Nation's Capitol

Over at the Atlantic Cities Blog, David Schleicher (George Mason) takes on D.C.'s height restrictions:

I don’t think the basic look of D.C. would be at risk if the Height Act was repealed. And I think these aesthetic values are odd, at best. But if you do love D.C.’s aesthetic and have a different view of local politics than I do, at what point would the value of keeping the aesthetic become too costly? Ryan Avent estimates that as of 1998, the “shadow tax" of the Height Act and other restrictions in downtown D.C. alone equaled roughly $1.4B in forgone real estate value. (And that was using 1998 numbers, so it’s a very conservative figure.) At what point does imposing a particular aesthetic become too costly? Is there a dollar figure one associates with this kind of thing?  If not, why not?

Steve Clowney

NIMBYism in Cambridge

Matt Yglesias highlights how Cambridge's progressive political orientation dissolves when residents think about local land use issues:

[M]aybe Cambridge residents just don't care about the welfare of their fellow citizen. But if you put it to them squarely, I bet they'd say they do. These are voters who favor, quite sincerely, progressive taxation, and a robust social safety net. They just don't think of these local policy issues in the same terms, as questions that have broad implications for human welfare and aren't just of parochial interest.

Steve Clowney

The Urbanization of the Amazon

The New York Times reports that urban spaces are rapidly encroaching on the heart of the Amazon jungle:

Of the 19 Brazilian cities that the latest census indicates have doubled in population over the past decade, 10 are in the Amazon. Altogether, the region’s population climbed 23 percent from 2000 to 2010, while Brazil as a whole grew just 12 percent.

Various factors are fueling this growth, among them larger family sizes and the Amazon’s high levels of poverty in comparison with other regions that draw people to the cities for work. While Brazil’s birthrate has fallen to 1.86 children per woman, one of the lowest in Latin America, the Amazon has Brazil’s highest rate, at 2.42.

It also appears that Brazilian property law has played a role in the luring migrants to the jungle. The country encourages settlement by granting legal title to squatters who occupy land in the Amazon region.

Steve Clowney

Mettler on Graffiti Ordinances

Margaret Mettler (Michigan - Student) has posted Graffiti Museum: A First Amendment Argument for Protecting Uncommissioned Art on Private Property on SSRN.  Here's the abstract:

Graffiti has long been a target of municipal legislation that aims to preserve property values, public safety, and aesthetic integrity in the community. Not only are graffitists at risk of criminal prosecution but property owners are subject to civil and criminal penalties for harboring graffiti on their land. Since the 1990s, most U.S. cities have promulgated graffiti abatement ordinances that require private property owners to remove graffiti from their land, often at their own expense. These ordinances define graffiti broadly to include essentially any surface marking applied without advance authorization from the property owner.

Meanwhile, graffiti has risen in prominence as a legitimate art form, beginning in the 1960s and most recently with the contributions of street artists such as Banksy and Shepard Fairey. Some property owners may find themselves fortuitous recipients of “graffiti” they deem art and want to preserve in spite of graffiti abatement ordinances and sign regulations requiring the work’s removal. This Note argues that private property owners who wish to preserve uncommissioned art on their land can challenge these laws under the First Amendment, claiming that, as applied, regulations requiring removal are unconstitutional because they leave the property owner insufficient alternative channels for expression.

Steve Clowney

If You Buy the Twinkie Brand What Do You Get?

Slate contemplates what will become of the Twinkie after the Hostess bankruptcy:

Historic brands like Twinkies, Wonder Bread, and Ho Hos will be sold at auction to the highest bidder. Will the buyers get the exclusive right to use the recipes for those products?

Not exactly. Confectioners rarely patent their recipes, because applying with the U.S. Patent and Trademark Office means publishing the ingredients and methods. The legal protection lasts only 20 years, after which time anyone can profit from the creation. Manufacturers instead guard their recipes as trade secrets, a status that isn’t time-limited. The company forces employees to sign nondisclosure agreements and sues rival manufacturers that extract their methods and formulas from workers. The companies that eventually buy Hostess brands will gain access to those trade secrets and the right to enforce the secrecy agreements. If, however, someone cracks the Twinkie recipe and manufactures an identical product under a different name—the brand names are protected by trademark—there’s very little the new owner will be able to do.

Steve Clowney

Rule on Wind Rights

Troy Rule (Missouri) has posted Wind Rights under Property Law: Answers Still Blowing in the Wind (Property & Probate) on SSRN.  Here's the abstract:

The rising economic value of wind resources in recent years has introduced some perplexing new property law questions. For example, what exactly are “wind rights”, and are they legally cognizable real property interests? Should landowners be liable if wind turbines on their parcels disrupt the energy productivity of wind flowing onto downwind property? Can landowners legally sever a “wind estate” from their land and transfer it separately from the surface rights, like a mineral estate? And should a wind energy restriction that effectively appropriates private airspace for a specific government entity’s own use trigger a compensable regulatory taking?

Although a handful of state legislatures have recently enacted laws seeking to clarify the nature and scope of wind rights, significant uncertainty surrounding these rights remains. Such uncertainty can deter investment in wind farms and impede wind energy development. In an era of shrinking state budgets and dwindling government subsidies for alternative energy, laws that provide greater certainty regarding wind rights are a low-cost way for states to promote wind energy development within their jurisdictions. This short magazine article examines a handful of unresolved property law issues involving wind energy and briefly describes some potential policy strategies for addressing these issues.

Steve Clowney

A Chinese Susette Kelo?

 

China takes a slightly different approach to takings:

A new motorway in China has been built around a half-demolished building in the city of Wenling, in Zhejiang province, after a family that lives in the building refused to move. Luo Baogen and his wife, are embroiled in a row over the amount of relocation compensation offered by the government, and are the only remaining residents.

Property owners in China that refuse to move for new developments are known as 'Nail Householders', in a reference to a nail that is difficult to remove from wood. Laws in the People's Republic of China have recently been tightened up and it is now illegal to demolish a property without agreement.

Steve Clowney

(HT: Patrick S. O'Donnell)

Carruthers & Skead on the Torrens System

Penny Carruthers (Wester Australia) and Natalie Skead (Western Australia) have posted 150 Years On: The Torrens Compensation Provisions in the ‘Last Resort’ Jurisdictions (Australian Property Law Journal) on SSRN.  Here's the abstract:

One hundred and fifty years ago, with the introduction of the Torrens system into Australia, it was considered vital to incorporate compensation provisions into the Torrens legislation to enable a person sustaining loss through the operation of the system to obtain compensation from an assurance fund. Currently there are two broad compensation models operating in Australia. The ‘last resort’ model, adopted in the Australian Capital Territory; Western Australia; South Australia; and Tasmania, reflects the scheme of the compensation provisions as they were enacted 150 years ago. Under the last resort model, actions for compensation are, in most cases, to be brought initially against the ‘person liable’ for the deprivation. It is only in limited circumstances that access to the assurance fund may be available. The remaining jurisdictions have, in recent years, rejected the last resort model. In these ‘first resort’ jurisdictions a person deprived of an interest in land is entitled to bring an action, in the first instance, directly against the Registrar. The compensation provisions of the last resort jurisdictions are not uniform. The provisions are archaic, contradictory, confusing and have been described as a ‘tangled skein.’ The purpose of this article is to explore and clarify the operation of the compensation provisions of the last resort jurisdictions.

Steve Clowney