Freedom in the 50 States

The category for land-use and energy freedom includes eminent domain rules, land-use regulations, renewable portfolio standards, and regulations requiring employers to let their employees bring guns onto company -owned parking lots. Most of its weight comes from three variables: local rent control laws and two indexes of residential land-use regulations, also known as zoning. One of the zoning indexes is derived from an index built by researchers at the Wharton School of Business.¹ Their original index is available for only two years, but we impute missing values. The other zoning index derives from two Harvard economists, is based on appellate court rulings, and does vary over time but is a “noisier” (more specifically, the same mean and expectation but a larger variance) measure of zoning.² According to the best evidence, a one-standard-deviation increase in residential zoning restrictions would directly cost victims more than $13 billion a year, if imposed nationwide.³ Rather than impose such costs, states should allow property owners to solve most land-use externalities with various contractual arrangements, such as homeowners associations, or at most what Dartmouth economist William Fischel calls “good housekeeping” zoning.⁴

In this edition, for the first time, we have supplemented those imperfect measures of local zoning regulations with measures of statewide restrictions on land-use development and preemption of the local zoning power. Individually, these variables are minor contributors to the overall index but together they are significant: (a) a statewide urban growth boundary that limits development, (b) mandatory environmental review of major housing developments, (c) accessory dwelling unit law index, (d) a state housing appeals board, (e) state “builder’s remedy” law with enforcement against localities, and (f) a state legal framework for mandatory inclusionary zoning. The first two and the last one contribute negatively to the freedom index, while the other three contribute positively. In general, states with bigger housing problems have enacted more of these state-level coping mechanisms, but we want to give states some credit for trying to deal with the problems their legal regimes have created.

Renewable portfolio standards (RPS), which mandate that power companies buy certain proportions of their energy from (usually) wind and solar sources, are worth 1.2 percent of the overall index. Our variable tracks the stringency of these requirements. The average RPS raises electricity prices by 0.8–0.9 percent, with bigger effects likely for more stringent programs.⁵ To promote cleaner electric generation, states could help limit pollution that creates significant, direct, negative externalities through means other than command-and-control regulations.

The remainder of this category takes into account whether compensation or an economic assessment is required before a regulatory taking, an index of eminent domain reform, whether companies must allow employees’ guns on their property, and whether free speech is mandated on private property. (The federal courts require compensation for regulatory takings only when they destroy the value of the affected land; therefore, states were coded only for having protections stronger than the federal one.) It may surprise readers that eminent domain reform comprises only 0.1 percent of the freedom index, given that it affects a fundamental right, and given how salient the issue was—especially among property rights advocates—following the Supreme Court’s Kelo decision.⁶ However, the estimated victim cost of eminent domain abuse is relatively low, at roughly $1 billion a year ($500 million without the “constitutional weight” boost), though admittedly this may underestimate losses due to insecurity of tenure, attorneys’ fees, opportunity costs of legal challenges, and so on.⁷ It is worth noting that most states that have reformed eminent domain have kept open a wide “blight loophole” that could still allow public takings for private interests. Therefore, the eminent domain index has been coded to take blight reform into account, as well as the incorporation of eminent domain restrictions into the state constitution.

Both of the final two variables have to do with property rights: laws banning employers from banning guns from certain company property, such as parking lots, and laws mandating free speech on private property. We hold that businesses may permissibly require employees to leave guns at home, just as we defend the right of malls and community associations to prohibit any or all political messages. That view might perplex some gun rights advocates. However, the only consistent property rights–respecting position is that gun rights stop at the boundary of someone else’s property; to think otherwise is to impose one’s own view on others without their consent. Although symbolically significant, these policies do not generally cause severe inconvenience to their victims and therefore are not worth much in the index.