The Fifth Amendment says the government can’t take your property for public use without paying you for it. It doesn’t say the government can’t destroy your property’s value, a very different thing. That distinction has cost property owners billions of dollars they’ll never recover.
James Madison wrote that government is instituted to protect property of every sort. The Founders were precise. The takings clause was a specific protection against a specific abuse: the seizure or destruction of private property without compensation. What they couldn’t fully anticipate was the regulatory state, the apparatus of permits, environmental reviews, coastal commissions, and zoning boards that can accomplish through administrative action what a physical taking would require a check to cover.
The courts have made the constitutional protection nearly impossible to collect.
THE SPEECH AMERICA’S FOUNDERS DIDN’T PROTECT
The standard that protects almost nothing
Justice Oliver Wendell Holmes Jr. drew the first line in Pennsylvania Coal Co. v. Mahon (1922): A regulation can go so far that it constitutes a taking requiring compensation. He didn’t define how far was too far. Penn Central Transportation Co. v. New York City (1978) produced the framework the Supreme Court has applied ever since, a three-factor balancing test weighing the economic impact on the owner, interference with investment-backed expectations, and the character of the government action. The practical effect: a standard so malleable that the government wins almost every time. I’ve spent 30 years pricing assets. A balancing test without a clear threshold isn’t a constitutional protection. It’s a litigation tax.
Lucas v. South Carolina Coastal Council (1992) gave owners one firm rule. Justice Antonin Scalia held that a regulation depriving an owner of all economically beneficial use of his property is a per se taking requiring compensation. The problem: full deprivation is rare. A property worth $2 million before the regulation and $400,000 after doesn’t qualify under Lucas. The owner has lost $1.6 million in real asset value with no constitutional remedy. The government wins because it stopped just short of taking everything.
Kelo and what ‘public use’ became
Then came Kelo v. City of New London (2005). The city wanted to demolish a working-class neighborhood for private economic development. Susette Kelo, a registered nurse who had lived in her home for years, didn’t want to sell. The Supreme Court, 5-4, held that transferring property from one private owner to another constitutes public use if the government believes it will generate economic benefits. Any property owner whose land a developer coveted was constitutionally exposed if a city council agreed the development would produce more tax revenue. An efficient rule for developers. A catastrophic one for everyone else.
The backlash was immediate. More than 40 states passed protective legislation in response. The economic development project for which New London condemned the neighborhood was never built. The land was vacant for years. That outcome wasn’t irony. It was the predictable result of severing public use from any requirement that the public actually benefit.
Cedar Point Nursery v. Hassid (2021) offered a partial correction. The court held 6-3 that a California regulation granting union organizers access to farm property constituted a per se physical taking. Physical access crosses the line. The regulatory destruction of value still does not.
California as exhibit
My practice involves advising ultra-high-net-worth families on multigenerational portfolio construction, which means I spend real time on real estate allocation in California. The regulatory taking problem isn’t theoretical here. It’s a recurring feature of the balance sheet.
I’ve seen client situations in which a parcel purchased with a specific development purpose in mind spent years in California’s environmental review and Coastal Commission permitting process, complied with every requirement, and emerged in a condition where no buyer would pay acquisition cost. The government hadn’t seized the land. It had regulated the development potential out of existence. The Lucas standard, total deprivation of all economically beneficial use, was carefully not met. The loss was real. The constitutional remedy was nonexistent.
The California regulatory framework is calibrated to reach exactly that result. By retaining some theoretical residual value, even a fraction of what the property was worth before the permits were denied, the state avoids the per se taking that Lucas would require it to compensate. The property owner is left with an illiquid asset, a carrying cost, and a constitutional protection that was designed for his situation but doesn’t reach it.
What the clause was written to do
THE DUE PROCESS CLAUSE NOBODY READS
Madison’s view was that government destroying the value of property without compensating the owner is, functionally, taking property. Two centuries of judicial interpretation have made the distinction between physical seizure and regulatory destruction the central dividing line in takings clause jurisprudence, leaving the far more common case entirely outside the amendment’s reach.
The ordinary American who owns a home, a small business, or an investment property believes the Constitution prevents the government from destroying its value without compensation. That belief is wrong. The amendment is still there. The protection it was designed to provide largely isn’t.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He has a BS from Northeastern University and has completed postgraduate studies at UCLA, UPENN, and Harvard. He writes about issues in finance, constitutional law, national security, human nature, and public policy.