# Santa Monica Beach, Ltd. v. Superior Court

> California Supreme Court · January 4, 1999 · 81 Cal. Rptr. 2d 93

URL: https://www.frixlaw.com/law-library/cases/1444411

## Case

- **Full name:** SANTA MONICA BEACH, LTD., Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; SANTA MONICA RENT CONTROL BOARD, Real Party in Interest
- **Court:** California Supreme Court
- **Decided:** January 4, 1999
- **Citations:** 81 Cal. Rptr. 2d 93; 19 Cal. 4th 952; 99 Daily Journal DAR 131; 968 P.2d 993; 99 Cal. Daily Op. Serv. 95; 1999 Cal. LEXIS 2
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Mosk, Kennard, Baxter, Chin, Brown
- **Cited by:** 63 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1444411

## Opinion text

81 Cal.Rptr.2d 93 (1999)
19 Cal.4th 952
968 P.2d 993
SANTA MONICA BEACH, LTD., Petitioner,
v.
The SUPERIOR COURT of Los Angeles County, Respondent;
Santa Monica Rent Control Board, Real Party in Interest.
No. S052824.
Supreme Court of California.
January 4, 1999.
Certiorari Denied May 24, 1999.
*95 James S. Burling, R.S. Radford, Victor J. Wolski and Eric Grant, Sacramento, for Petitioner.
No appearance for Respondent.
Anthony A. Trendacosta, Los Angeles, Ralph H. Goldsen, Santa Barbara, Doris M. Ganga, Los Angeles, Joel M. Levy, Santa Monica, and Karl M. Manheim, Los Angeles, for Real Party In Interest.
Goldfarb & Lipman and Richard A. Judd, San Francisco, for California State Association of Counties and 65 California Cities as Amici Curiae on behalf of Real Party in Interest.
Certiorari Denied May 24, 1999. See 119 S.Ct. 1804 .
MOSK, J.
In this case we consider whether a trial court properly sustained a demurrer to a complaint alleging that a city's rent control law violates the takings clause of the Fifth Amendment to the United States Constitution and the equivalent provision under the California Constitution because of that law's alleged failure to fulfill its stated objectives. We conclude that the trial court was correct to sustain the Santa Monica Rent Control Board's demurrer to petitioner's cause of action for inverse condemnation, and we accordingly reverse the Court of Appeal's judgment.
I. STATEMENT OF FACTS
Petitioner Santa Monica Beach, Ltd. (SMB), alleged the following in its complaint for inverse condemnation and petition for writ of mandate, which we accept as true for purposes of assessing the complaint's sufficiency to withstand a demurrer. ( Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 34, fn. 3 , 77 Cal.Rptr.2d 709 , 960 P.2d 513 .)
In April 1979, the City of Santa Monica (the City) adopted a rent control charter amendment (hereinafter sometimes the Rent Control Law) and created an elected rent control board (Board) to regulate rentals. Among other things, the Rent Control Law requires that owners register each rental unit and pay annual registration fees to the Board, establishes maximum allowable rents, provides for annual general adjustments and individual adjustments of allowable rents, prohibits evictions except for specified reasons, and prescribes remedies for violations of its provisions.
The stated purpose of the Rent Control Law, as expressed in the preamble to the charter amendment, was as follows: "A growing shortage of housing units resulting in a low vacancy rate and rapidly rising rents exploiting this shortage constitute a serious housing problem affecting the lives of a substantial portion of those Santa Monica residents who reside in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger *96 the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return."
SMB alleges that in practice, however, rent control has been an agent of "gentrification" in Santa Monica. During the rent-controlled decade of the 1980's, Santa Monica experienced a loss of 775 low-income-renter households, a decrease of nearly 12 percent. The number of low-income-renter households increased over this period in every comparable city in Southern California without rent control. Santa Monica also lost 285 very-low-income-renter households. This was the largest decrease in the number of very-low-income renters of any comparable Southern California city.
Concurrent with this exodus of economically disadvantaged renters under rent control, Santa Monica experienced a 37 percent increase in the proportion of households with very high incomes between 1980 and 1990. This population shift toward upper-income households occurred during a decade when the proportion of very-high-income households dropped by more than 8 percent in Los Angeles County as a whole.
Under rent control, housing in Santa Monica has become increasingly unavailable to young families. Between 1980 and 1990, the number of family households with children in Santa Monica fell by 1,299, a decline of more than 6 percent. No comparable city in Southern California without rent control lost family households over the decade of the 1980's.
The impact of rent control has been especially harsh on young families headed by a mother with no spouse. The number of female-headed households with children under the age of 18 in Santa Monica fell by 593 between 1980 and 1990, a decrease of more than 27 percent, despite an increase in such households in Los Angeles County as a whole.
Under rent control, Santa Monica's elderly population (age 65 or over) declined by 1.7 percent between 1980 and 1990, whereas the elderly population of Los Angeles County rose by more than 15 percent over the same decade. The elderly population increased over this period in every comparable city without rent control in Southern California.
In March 1992 SMB, the owner of a 12-unit residential rental property in the City filed a petition asking the Board for permission to increase its rents. To obtain permission, SMB had to prove that its property was producing less than a "fair return" under "a comparative Net Operating Income (NOI) analysis that compares the NOI of calendar year 1978 to that of calendar year 1991, the most recent year prior to the filing of SMB's 1992 petition. In May, after an administrative hearing, the Board's hearing examiner found that SMB's operating expenses for the base year of 1978 were $14,879, but that SMB was not entitled to a rent increase. SMB appealed to the Board, without success.
After various modifications to the Rent Control Law not relevant here, SMB filed on March 30, 1993, a second petition with the Board, this time asking for permission to increase its rents based upon its income and expenses for 1992. A hearing examiner found that SMB was entitled "to a permanent rent increase of $3 per unit per month and temporary rent increases averaging $58 per unit per month." SMB appealed to the Board, contending, inter alia, that the hearing examiner improperly applied the law and regulations to reduce SMB's rent increase entitlement based on SMB's 1992 net operating income and to permanently deny SMB three-fourths of the general rent adjustment to be implemented in 1993 and 1994. The Board affirmed the hearing examiner's determinations.
SMB filed a combined complaint for inverse condemnation and petition for a writ of administrative mandate, naming the Board as defendant and respondent and contending that, as applied to SMB, the Rent Control Law constitutes a compensable regulatory taking of its property. In its inverse condemnation claim, SMB claims the Board has, *97 by application of the Rent Control Law, violated SMB's rights under the Fifth Amendment rights to the United States Constitution and its rights under article I, section 19 of the California Constitution.
Specifically, SMB claims the Rent Control Law does not meet the "substantial advancement" test articulated by the United States Supreme Court in takings cases, as discussed below, because the Rent Control Law fails "to substantially mitigate some social harm that would otherwise result from the [property] owner's unregulated use of [its] property" and by "fail[ing] in practice to advance the specific purpose stated in the regulation.... Because [the Board's] application of the [Rent Control Law] has reduced the availability of private rental housing in Santa Monica and has made it more difficult for low-income renters, young families, and the elderly to find affordable rental housing, the [Rent Control Law] is not substantially advancing its stated purpose of implementing the housing policies of the [C]ity with regard to these population groups. [para;] The ... Board's final determination regarding [SMB's 1993 petition] does not substantially advance a legitimate governmental interest, nor is there any close nexus between the denial of [SMB's] application for a fair rate of return on capital investments and any public harm that might result from [SMB's] unregulated operation of [its] property, because unregulated use of [its] property by [SMB] would not have resulted in the problems allegedly addressed by the [Rent Control Law], i.e., a shortage of available housing for low-income renters, young families, and the elderly."
Additional allegations within the inverse condemnation complaint charge the Board generally with depriving SMB of "essential attributes of ownership of its property, including the right to exclude others and the right to determine the terms upon which leasehold interests in [SMB's] property will be alienated." SMB "has received no compensation for the damages inflicted by [the City's] application of the [Rent Control Law] to [SMB's] property, and the [Rent Control Law] contains no provision for seeking or obtaining compensation."
For each and all of these reasons, SMB alleges, the Board's application of the Rent Control Law to SMB's property "comprises a regulatory taking of [SMB's] property for public use without just compensation.... [¶] A trial de novo is necessary to examine the constitutional issues in this case. The administrative record compiled by the Rent Board is inadequate for this purpose because the Rent Board does not conduct the kind of judicial proceedings needed to safeguard [SMB's] fundamental right to due process of law or its right not to be deprived of its property without just compensation...."
SMB's petition for a writ of administrative mandate alleges that the Board acted without or in excess of its jurisdiction under the Rent Control Law and that the Board's actions frustrated its ability to obtain a fair return from its rental property.
The Board demurred to the claim for inverse condemnation, contending that, as a matter of law, SMB could not prevail because there was a "rational basis" for the Rent Control Law. The trial court agreed and sustained the demurrer without leave to amend, leaving the administrative mandate petition to be heard at a later date. SMB filed a petition for a writ of mandate with the Court of Appeal, claiming the inverse condemnation action was inextricably related to its administrative mandate, and that the demurrer had been wrongly sustained.
The Court of Appeal issued an order to show cause and subsequently set aside the trial court's judgment. It agreed with SMB that a heightened standard of scrutiny applied to Rent Control Law under Nollan v. California Coastal Commission (1987) 483 U.S. 825 , 107 S.Ct. 3141 , 97 L.Ed.2d 677 ( Nollan) , and, if the allegations were true, that the Rent Control Law's failure to meet its stated purposes meant that it failed to substantially advance a legitimate government purpose, and was therefore a taking of property. The court made clear, however, that in its view even under a more deferential "rational basis" test, the rent control ordinance would fail. "If, in fact, [the Rent Control Law] has reduced rather than increased the number of rental units available to those intended to be benefited by that law, *98 then the regulation has no relationship (nexus) at all to its stated purpose. Deference to legislative authority cannot salvage a regulation that defeats rather than accomplishes its stated purpose."
We granted review and initially deferred briefing pending resolution of another case involving the Rent Control Law, Kavanau v. Santa Monica Rent Control Bd (1997) 16 Cal.4th 761 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 . That case, however, did not directly address the novel constitutional theory advanced by SMB and accepted by the Court of Appeal. We ordered further briefing to determine the merits of SMB's constitutional claim.
II. DISCUSSION
A. Statute of Limitations
We begin by addressing the Board's contention that SMB's challenge to the imposition of the Rent Control Law is actually a facial challenge, and therefore barred by the statute of limitations. (See Sandpiper Mobile Village v. City of Carpinteria (1992) 10 Cal.App.4th 542, 549 , 12 Cal.Rptr.2d 623 [holding there is a five-year statute of limitation for real property takings challenges].) SMB contends, on the other hand, that its inverse condemnation action is an "as applied" challenge, and is timely brought. Generally, "[a] facial challenge to the constitutional validity of a statute or ordinance considers only the text of the measure itself, not its application to the particular circumstances of an individual." ( Tobe v. City of Santa Ana (1995) 9 Cal.4th 1069, 1084 , 40 Cal.Rptr.2d 402 , 892 P.2d 1145 .) On the other hand, "[a]n as applied challenge may seek ... relief from a specific application of a facially valid statute or ordinance to an individual or class of individuals who are under allegedly impermissible present restraint or disability as a result of the manner or circumstances in which the statute or ordinance has been applied...." ( Ibid ) In the case of rent control laws, facial challenges have been used to invalidate structural features of the law that are inherently confiscatory, i.e., that fail to permit a landlord a fair rate of return. (See, e.g., Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 169 , 130 Cal.Rptr. 465 , 550 P.2d 1001 ( Birkenfeld ) [inadequate mechanism for adjusting base rents renders rent control charter amendment partially facially unconstitutional].) An "as applied" challenge is typically based on a showing that the application of the ordinance has left a particular landlord without the ability to earn a fair return. (See, e.g., Kavanau v. Santa Monica Rent Control Bd, supra, 16 Cal.4th at pp. 777-779 ( Kavanau). )
We recognize that SMB's unusual claim bears resemblance in a number of respects to a facial challenge — it seeks to invalidate the Rent Control Law, not merely its application against one landlord. Nonetheless, for present purposes, our concern is not to label SMB's claim but to determine whether it is barred by the statute of limitations. Because SMB contends that its claim is derived from events occurring after the passage of the Rent Control Law we will proceed to the merits of its claim. In so doing, we leave aside for the moment the problem of determining precisely when SMB's inverse condemnation claim accrued. [1]
B. The Inverse Condemnation Claim
We begin by recognizing the well-established case law of the United States Supreme Court and of this court holding that ordinary rent control statutes are generally constitutionally permissible exercises of governmental authority. In Pennell v. City of San Jose (1988) 485 U.S. 1 , 108 S.Ct. 849 , 99 L.Ed.2d 1 ( Pennell) , the court stated: "[W]e have `consistently affirmed that States have broad power to regulate housing conditions in general and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.' [Citations.] ... `[S]tatutes regulating the economic relations of landlords and tenants are not per se takings.' [Citation.] Despite amici's urging, we see no need to reconsider the constitutionality of *99 rent control per se." (Id. at p. 12, fn. 6, 108 S.Ct. 849 ; see also Birkenfeld, supra, 17 Cal.3d at p. 165 , 130 Cal.Rptr. 465 , 550 P.2d 1001 .)
Many have questioned the wisdom of rent control, and no consensus exists as to whether it is good public policy. (See, e.g., Epstein, Rent Control and the Theory of Efficient Regulation (1989) 54 Brook.L.Rev. 741, and various responses on pp. 1215-1304 of the same journal.) We emphasize that a decision affirming the constitutionality of a particular rent control law is not in any sense an endorsement of its soundness. (See Birkenfeld, supra, 17 Cal.3d at p. 159 , 130 Cal. Rptr. 465 , 550 P.2d 1001 .) "Courts have nothing to do with the wisdom of laws or regulations, and the legislative power must be upheld unless manifestly abused so as to infringe on constitutional guaranties. The duty to uphold the legislative power is as much the duty of appellate courts as it is of trial courts, and under the doctrine of separation of powers neither the trial nor appellate courts are authorized to `review' legislative determinations. The only function of the court is to determine whether the exercise of legislative power has exceeded constitutional limitations." ( Lockard v. City of Los Angeles (1949) 33 Cal.2d 453, 461-62 , 202 P.2d 38 .)
We also emphasize that both the enactment and administration of rent control laws are subject to a number of constitutional constraints. Particular decisions of public agencies charged with administering rent control may be deemed to be unconstitutional if as a result landlords are deprived of a fair rate of return. ( Kavanau, supra, 16 Cal.4th at p. 778 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 .) Moreover, we have recognized that rent control laws must possess certain structural features that safeguard against confiscatory results: "For example, due to the effects of inflation, the law `may not indefinitely freeze the dollar amount of ... profits without eventually causing confiscatory results.' [Citation.] In addition, when a rent control law establishes a `base rent' by reference to rents on a specified date, the law should permit adjustments of that base rent for those rental units that had artificially low rents at that time. [Citation.] Similarly, the law should permit individualized rent adjustments in appropriate cases even if base rent was not artificially low [citation], and the procedural mechanism by which landlords may obtain any of these adjustments must not be prohibitively burdensome [citations]. Among other things, this process may not entail `a substantially greater incidence and degree of delay than is practically necessary.' [Citations.] In this regard, we recommended that the law permit `general rental adjustments for all or any class of rental units based on generally applicable factors.' [Citations.]" ( Kavanau, supra, 16 Cal.4th at p. 772 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 .) We accordingly have invalidated part of a rent control law for failing to provide adequate mechanisms for expeditious adjustments of base rents. ( Birkenfeld, supra, 17 Cal.3d at p. 169 , 130 Cal.Rptr. 465 , 550 P.2d 1001 .) We note that in its administrative mandamus action, SMB contends that the Rent Control Law has deprived it of a fair return on its property, and it remains free to pursue that claim.
SMB's inverse condemnation claim, however, is not based on the ground that the Rent Control Law is confiscatory, either structurally or as administratively applied. Rather, SMB alleges that it can show, through the use of census data, that the demographic groups that the Rent Control Law was allegedly supposed to favor have not in fact benefited from it. [2] The notion *100 that a court may invalidate legislation that it finds, after a trial, to have failed to live up to expectations, is indeed novel. In our constitutional system, it is generally assumed that only the legislative body that enacted the statute may exercise a power of repeal if that statute fails to meet legislative expectations. (See, e.g., Ryan v. Johnson (3d Cir.1997) 115 F.3d 193, 200 [despite court's personal views on shortcoming of statute, it is "the singular role of Congress to amend or repeal [a] ... statute"].)
SMB's claim is based on its reading of relatively recent United States Supreme Court case law in the area of takings jurisprudence. Before examining its claim in more detail, we first state the basic principles to emerge from this body of law. In determining whether a government regulation of property works a taking of property under the Fifth Amendment to the United States Constitution, the United States Supreme Court has generally eschewed any "set formula" for determining whether a taking has occurred, preferring to engage in "`essentially ad hoc, factual inquiries'" ( Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, 1015 , 112 S.Ct. 2886 , 120 L.Ed.2d 798 ), which focus in large part on the economic impact of the regulation (see Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 124 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 ; Keystone Bituminous Coal Assoc. v. DeBenedictis (1987) 480 U.S. 470, 493-501 , 107 S.Ct. 1232 , 94 L.Ed.2d 472 ). In the context of rent control and other price controls, this impact analysis takes the form of analyzing whether the regulation impairs "investors' ability to earn a fair return." ( Kavanau, supra, 16 Cal.4th at p. 776 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 .) Other than this ad hoc inquiry, the court has held categorically that property is taken when a government regulation "compel[s] [a] property owner to suffer a physical `invasion' of his property" or "denies all economically beneficial or productive use of land." ( Lucas, supra, 505 U. S. at pp. 1015-1016, 112 S.Ct. 2886 .) The court has also stated that "the Fifth Amendment is violated when a land-use regulation `does not substantially advance legitimate state interests'" ( Lucas, supra, 505 U.S. at p. 1016 , 112 S.Ct. 2886 .) It is this last prong of the United States Supreme Court's "taking" standard that SMB claims has been violated.
In Nollan, supra, . 483 U.S. 825, 834 , 107 S.Ct. 3141 the court discussed this "substantially advance" test in the context of a governmental requirement that a property owner dedicate a portion of its property to the public as a condition for obtaining a development permit: "Our cases have not elaborated on the standards for determining what constitutes a `legitimate state interest' or what type of connection between the regulation and the state interest satisfies the requirement that the former substantially advance the latter. They have made clear, however, that a broad range of governmental purposes and regulations satisfies these requirements." (Fn.omitted.) The court further noted that the "substantially advance" standard is different from the rational basis standard employed in the fields of equal protection and due process. ( Id. at p. 834, fn. 3, 107 S.Ct. 3141 .) The court also declared toward the end of its opinion: "As indicated earlier, our cases describe the condition for abridgment of property rights through the police power as a 'substantial advanc[ing]' of a legitimate state interest. We are inclined to be particularly careful about the adjective where the actual conveyance of property is made a condition to the lifting of a land-use restriction, since in that context there is heightened risk that the purpose is avoidance of the compensation requirement, rather than the stated police-power objective." ( Id. at p. 841, 107 S.Ct. 3141 .)
This standard was further elucidated in Dolan v. City of Tigard (1994) 512 U.S. 374 , 114 S.Ct. 2309 , 129 L.Ed.2d 304 ( Dolan) , a case that also concerned required dedications of property as a condition for granting a development permit. The court concluded that a "rough proportionality" standard "best encapsulates what we hold to be the requirement of the Fifth Amendment. No precise mathematical calculation is required, but the *101 city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development." ( Id. at p. 391, 114 S.Ct. 2309 , fn. omitted.)
The Dolan court once again emphasized that conveyances such as were considered in that case were deserving of a greater scrutiny than other land use restrictions. Typical land use regulations such as zoning ordinances "differ in two relevant particulars from the present case. First, they involve essentially legislative determinations classifying entire areas of the city, whereas here the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel. Second, the conditions imposed were not simply a limitation on the use petitioner might make of her own parcel, but a requirement that she deed portions of the property to the city.... Under the well-settled doctrine of `unconstitutional conditions,' the government may not require a person to give up a constitutional right — here the right to receive just compensation when property is taken for public use — in exchange for a discretionary benefit conferred by the government where the benefit sought has little or no relationship to the property." ( 512 U.S. at p. 385 , 114 S.Ct. 2309 .) The court further stated in the course of responding to the dissent: "Justice Stevens' dissent takes us to task for placing the burden on the city to justify the required dedication. He is correct in arguing that in evaluating most generally applicable zoning regulations, the burden properly rests on the party challenging the regulation to prove that it constitutes an arbitrary regulation of property rights. [Citation.] Here, by contrast, the city made an adjudicative decision to condition petitioner's application for a building permit on an individual parcel. In this situation, the burden properly rests on the city." ( Id. at p. 391, fn. 8, 114 S.Ct. 2309 , italics added.)
From the above, it can be inferred that the "substantially advance" standard in the takings context is applied differently depending on the type of government action under consideration. As Nollan and Dolan both attest, government requirements that property owners dedicate land as a condition of receiving a development permit will receive the highest scrutiny — a type of intermediate scrutiny in which a government's dedication requirements will pass constitutional muster as long as the government "make[s] some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development." ( Dolan, supra, 512 U.S. at p. 391 , 114 S.Ct. 2309 , fn. omitted.) Moreover, although the above formulation in Dolan cannot be readily transplanted outside the context of exactions, we have long held that adjudicative land use decisions in general must be justified by factual findings supported by substantial evidence in an administrative record. ( Topanga Assn. for a Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 514-516 , 113 Cal.Rptr. 836 , 522 P.2d 12 .) The most deferential review of land use decisions appears to be for those that pertain to "essentially legislative determinations" that do not require any physical conveyance of property. A challenger to the validity of a legislative determination, such as a zoning regulation, bears the burden of proving that the regulation "constitutes an arbitrary regulation of property rights." ( Dolan, supra, 512 U.S. at p. 391, fn. 8 , 114 S.Ct. 2309 ; see also Corona-Norco Unified School Dist. v. City of Corona (1993) 17 Cal.App.4th 985, 992 , 21 Cal.Rptr.2d 803 [judicial review of quasi-legislative acts of local agencies by ordinary mandamus is limited to "whether the action was arbitrary, capricious or entirely lacking in evidentiary support"].)
We recognized these different levels of takings scrutiny in Ehrlich v. City of Culver City (1996) 12 Cal.4th 854 , 50 Cal. Rptr.2d 242 , 911 P.2d 429 ( Ehrlich ). We rejected the claim that the Nollan and Dolan standards do not apply to development fees imposed on an individualized basis as a condition for development. "In our view, the intermediate standard of judicial scrutiny formulated by the high court in Nollan and Dolan is intended to address just such... land use `bargains' between property owners and regulatory bodies — those in which the local government conditions permit approval for a given use on the owner's surrender of benefits which purportedly offset *102 the impact of the proposed development." ( 12 Cal.4th at p. 868 , 50 Cal. Rptr.2d 242 , 911 P.2d 429 .) But a different standard of scrutiny would apply to development fees that are generally applicable through legislative action "because the heightened risk of the `extortionate' use of the police power to exact unconstitutional conditions is not present." ( Id. at p. 876, 50 Cal.Rptr.2d 242 , 911 P.2d 429 ; see also id. at p. 897, 50 Cal.Rptr.2d 242 , 911 P.2d 429 (conc. opn. of Mosk, J.); id. at p. 903, 50 Cal.Rptr.2d 242 , 911 P.2d 429 (conc, and dis. opn. of Kennard, J.).) Thus, individualized development fees warrant a type of review akin to the conditional conveyances at issue in Nollan and Dolan , whereas generally applicable development fees warrant the more deferential review that the Dolan court recognized is generally accorded to legislative determinations. ( Dolan, supra, 512 U.S. at p. 391, fn. 8 , 114 S.Ct. 2309 .)
Where does rent control fit within this scheme? It could be argued that rent control is essentially a species of price control rather than a land use regulation, and that the constitutional jurisprudence of price control governs ordinary rent control ordinances. (See Hutton Park Gardens v. Town Council of West Orange (N.J.1975) 68 N.J. 543 , 350 A.2d 1, 7-8 ; see also Birkenfeld, supra, 17 Cal.3d at p. 157 , 130 Cal.Rptr. 465 , 550 P.2d 1001 .) Those challenging the constitutionality of a legislative scheme of price control must show that "`no reasonably conceivable set of facts could establish a rational relationship between the regulation and the government's legitimate ends.'" ( 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 292 , 32 Cal.Rptr.2d 807 , 878 P.2d 566 .) A price control regulation is generally constitutionally challenged with the contention that a particular price or rate regulation is confiscatory, i.e., does not allow a just and reasonable rate to investors. (See, e.g., 20th Century Ins. Co., supra, 8 Cal.4th at p. 293 , 32 Cal.Rptr.2d 807 , 878 P.2d 566 ; Duquesne Light Co. v. Barasch (1989) 488 U.S. 299, 307-308 , 109 S.Ct. 609 , 102 L.Ed.2d 646 .) Thus, we recently stated that, "[i]n the context of price control, which includes rent control, courts generally find that a regulation bears `a reasonable relation to a proper legislative purpose' so long as the law does not deprive investors of a `fair return' and thereby become `confiscatory.' [Citations.]" ( Kavanau, supra, 16 Cal.4th at p. 771 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 .) As we also noted in Kavanau and 20th Century Ins. Co., courts have employed this fair return analysis in price regulation cases whether the contested regulation is denominated as a taking or a deprivation of property without due process. ( Kavanau, supra, 16 Cal.4th at pp. 776-777, 66 Cal.Rptr.2d 672 , 941 P.2d 851 ; 20th Century Ins. Co., supra, 8 Cal.4th at p. 292 , 32 Cal.Rptr.2d 807 , 878 P.2d 566 ; see also Duquesne Light Co., supra, 488 U.S. at pp. 307-308, 109 S.Ct. 609 .)
We need not decide whether the standard of review for rent control legislation is identical to the rational relationship test employed in other price control schemes. In light of the analysis reviewed above, we believe it is clear at least that the heightened intermediate scrutiny standard articulated in Nollan and Dolan does not apply in this case. Rather, the standard of review for generally applicable rent control laws must be at least as deferential as for generally applicable zoning laws and other legislative land use controls. Thus, the party challenging rent control must show "that it constitutes an arbitrary regulation of property rights." ( Dolan, supra, 512 U.S. at p. 391, fn. 8 , 114 S.Ct. 2309 .) Moreover, as explained below, even if, as SMB contends, the heightened standard in Nollan and Dolan were applicable here, the trial court acted properly in sustaining the demurrer to SMB's complaint.
The two United States Supreme Court cases to address rent control in the "post Nollan" era are consistent with the above analysis. In Pennell, supra, 485 U.S. 1 , 108 S.Ct. 849 , 99 L.Ed.2d 1 , the court rejected a facial challenge to a city's rent control ordinance that contained "hardship to a tenant" as one factor to consider in determining whether to grant rent increases. ( Id. at p. 4, 108 S.Ct. 849 .) The court stated, in rejecting a due process challenge to the law, that a "`[p]rice control [law] is "unconstitutional... if arbitrary, discriminatory, or demonstrably *103 irrelevant to the policy the legislature is free to adopt.( Id. at p. 11, 108 S.Ct. 849 .)
The court also held that any takings challenge would be premature, because there was no showing of the actual impact of the "tenant hardship" provision of the San Jose ordinance. ( Pennell, supra, 485 U. S. at pp. 10-11, 108 S.Ct. 849 .) Justice Scalia's dissent, like the majority, took for granted the basic constitutionality of ordinary rent control laws, and would have found the ordinance in question constitutional but for the tenant hardship factor which, in the dissent's view, unfairly imposed on landlords the solution to the "social problem" of having "some renters who are too poor to afford even reasonably priced housing." ( Id. at p. 21, 108 S.Ct. 849 (dis. opn. of Scalia, J.).) Neither the majority nor dissent suggested that some heightened standard was appropriate for reviewing ordinary rent control law.
In Yee v. City of Escondido (1992) 503 U.S. 519 , 112 S.Ct. 1522 , 118 L.Ed.2d 153 , the court considered the constitutionality of a mobilehome rent control ordinance. As the court made clear at the outset, the case did not raise the issue of whether ordinary rent control laws violate the takings clause. ( Id. at p. 526, 112 S.Ct. 1522 .) The mobilehome ordinance in question had several features that distinguished it from ordinary rent control — a restriction on the ability of the landlord to exit from the mobilehome rental business, and a provision that a mobilehome park tenant had the right to sell his rental to others, without the landlord's consent. The effect of such a regulatory scheme was allegedly to permit existing tenants to appropriate all the savings that result from rent control, rather than, as in the case of ordinary rent control, having those savings be distributed among both present and future tenants. ( Id. at p. 530, 112 S.Ct. 1522
.) The issue before the Yee court was whether such a regulatory scheme constituted a physical taking of property, and the court determined that it did not. ( Id. at p. 532, 112 S.Ct. 1522 .) The court stated in dictum that the peculiar features of this type of rent control law might "have some bearing on whether the ordinance causes a regulatory taking, as it may shed some light on whether there is a sufficient nexus between the effect of the ordinance and the objectives it is supposed to advance." ( Id. at p. 530, 112 S.Ct. 1522 .) Thus, the court's dictum suggested that the mobilehome rent control scheme of regulation would be scrutinized to determine whether those restrictive regulations advanced a legitimate government interest. The opinion did not suggest that such restrictions were unconstitutional, nor did it elaborate upon the "substantially advance" standard in this context. Still less did it hold or imply that in the case of ordinary rent control, there was a new, heightened standard of review.
With this background in mind we turn to the present case. SMB's complaint focuses on certain of the stated goals of rent control found in the preamble to the charter amendment — providing affordable housing for the poor, the elderly, and young families — and has alleged that rent control has failed to achieve these goals. As will appear below, these allegations, even if true, do not adequately state an inverse condemnation claim.
As the United States Supreme Court affirmed in Nollan , "a broad range of governmental purposes and regulations" are constitutionally valid under the takings clause. ( Nollan, supra, 483 U. S. at pp. 834-835, 107 S.Ct. 3141 .) One of the purposes that the court has explicitly recognized as valid after Nollan is that of "`prevent[ing] excessive and unreasonable rent increases' caused by the `growing shortage of and increasing demand for housing" within a municipality. ( Pennell, supra, 485 U.S. at p. 12 , 108 S.Ct. 849 .) SMB does not allege that the Santa Monica Rent Control Law fails to advance the purpose of "preventing excessive and unreasonable rent increases caused by the ... shortage of and increased demand for housing" in the City or that existing tenants have not obtained protection from excessive or unreasonable rent increases. Therefore, even if we assume that some sort of intermediate judicial scrutiny, patterned after the Nollan and Dolan cases, were applicable to judicial review of rent control, SMB's complaint does not adequately allege *104 that the Rent Control Law fails to substantially advance some legitimate state purpose.
SMB contends essentially that in considering the legitimate purposes of the Rent Control Law, we must confine ourselves to the stated purposes of that law. But even if that were true, there is no justification for SMB's truncated reading of the law's purposes. The charter amendment spoke of a housing shortage "resulting in a low vacancy rate and rapidly rising rents ... affecting the lives of a substantial portion of those Santa Monica residents residing in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return." (Italics added.) We agree with the Ninth Circuit Court of Appeals, which, in rejecting an almost identical challenge to Santa Monica's Rent Control Law, stated: "[Plaintiff] contends that the Rent Control Law does not `substantially advance' its purpose, which she misperceives as only to help the poor, elderly, minorities, and families with children. The Rent Control Law's stated purpose is to help all Santa Monica tenants, not just those within the mentioned groups, and not those who wish to become tenants there. [Citation.] Controlling rents to a reasonable level and limiting evictions substantially alleviate hardships to Santa Monica tenants. That rent control may unduly disadvantage others, or that it may exert adverse long-term effects on the housing market, are matters for political argument and resolution; they do not affect the constitutionality of the Rent Control Law." ( Schnuck v. City of Santa Monica (9th Cir. 1991) 935 F.2d 171, 175 , italics in original, fns. omitted.)
Moreover, there is no constitutional requirement that the inquiry into whether the legislation substantially serves legitimate goals must be limited to stated goals, much less to only some of the stated goals. "Legislative bodies have broad scope to experiment with economic problems...." ( Ferguson v. Skrupa (1963) 372 U.S. 726, 730 , 83 S.Ct. 1028 , 10 L.Ed.2d 93 .) It appears elementary that any complex piece of social or economic legislation will often have unanticipated consequences that can be both beneficial and detrimental, and that the legislative body or the electorate that enacted the legislation must be entrusted to weigh whatever harms and benefits result from the legislation in determining whether that legislation should be amended or abrogated. There is simply no authority for the proposition that a piece of legislation that advances legitimate goals, but not precisely those goals specified in its preamble, may be struck down by a court as unconstitutional.
Accordingly, the prevention of "`excessive and unreasonable rent increases' caused by the `growing shortage of and increasing demand for housing"' in the City ( Pennell, supra, 485 U.S. at p. 12 , 108 S.Ct. 849 ) is a legitimate government interest whether or not that goal is precisely identified in the text of the law's preamble and whether the primary beneficiaries of such protection are tenants with low or merely moderate income. The assistance of moderate-income households with their housing needs is recognized in this state as a legitimate governmental purpose. (See, e.g., Gov.Code, § 65583, subd. (c)(2) [local communities must set forth in housing elements of their general plan a program that will "assist in the development of adequate housing to meet the needs of low- and moderate-income households" (italics added)].) Nor does SMB allege that no poor, minority or elderly tenants have benefited from rent control, only that they did not benefit as much as a class in the City as they did in other locales that did not have rent control. Thus, the complaint does not allege that even the limited goals identified by SMB have been completely frustrated.
Moreover, a rent control law, even if imperfect, may protect existing tenants, including the poor and elderly, from being displaced due to rising rents in a tight rental market. As the Supreme Court stated in *105 upholding article XIII A of the California Constitution (Proposition 13) against an equal protection challenge brought by property owners who objected to the greatly disparate property tax burdens that provision had created: "[T]he State has a legitimate interest in local neighborhood preservation, continuity, and stability. [Citation.] The State therefore legitimately can decide to structure its tax system to discourage rapid turnover in ownership of homes and businesses, for example, in order to inhibit displacement of lower income families by the forces of gentrification...." ( Nordlinger v. Hahn (1992) 505 U.S. 1, 12 , 112 S.Ct. 2326 , 120 L.Ed.2d 1 .) So too, a legitimate goal of rent control may be to stabilize communities in much the same way, by preventing sharply escalating rents from forcing tenants to move (see Berger, Home Is Where the Heart Is: A Brief Reply to Professor Epstein (1989) 54 Brook.L.Rev. 1239), even if its benefits are not limited to targeted demographic groups.
SMB purports to find support for its position that the legislation must be measured against stated purposes from the statement in Nollan, supra, 483 U.S. at page 834 , footnote 3, 107 S.Ct. 3141 : "Contrary to [the dissent's] claim, ... our opinions do not establish that these [takings] standards are the same as those applied to due process or equal protection claims. To the contrary, our verbal formulations in the takings field have generally been quite different. We have required that the regulation `substantially advance' the `legitimate state interest' sought to be achieved [citation], not that `the State "could rationally have decided" that the measure adopted might achieve the State's objective.'" The Nollan court also noted that in the development permit/dedication context, there is the "heightened risk that the purpose is avoidance of the compensation requirement, rather than the stated police-power objective." ( Id. at p. 841, 107 S.Ct. 3141 , italics added.) But these statements do not aid SMB. As discussed, the Rent Control Law has the broad stated purpose of "alleviat[ing] the hardship caused by th[e] serious housing shortage" in the City for the general benefit of tenants, and SMB does not allege that it has failed to do so.
Furthermore, Nollan implies, and Dolan more explicitly states, that the standard of review for land use legislation is different from the standard of review when the court considers a property dedication in exchange for a development permit — a particular type of adjudicative determination. It is one thing for courts to make a government agency adhere to its own justification for requiring the dedication of a particular portion of property as a condition of development; such adherence safeguards against the possibility that the justification is merely a pretext for taking the property without paying compensation. (See Nollan, supra, 483 U.S. at p. 841 , 107 S.Ct. 3141 ; Ehrlich, supra, 12 Cal.4th at p. 868 , 50 Cal.Rptr.2d 242 , 911 P.2d 429 .) Holding agencies to their stated goals in these instances is also consistent with our state law requirement that adjudicative or administrative decisions be based on findings supported by substantial evidence in the record. ( Topanga Assn. for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at pp. 515-516, 113 Cal.Rptr. 836 , 522 P.2d 12 .) But it is another thing for courts to require that a complex, generally applicable piece of economic legislation that will have many effects on many different persons and entities accomplish precisely the goals stated in a legislative preamble in order to preserve its constitutionality. Rather, as discussed, such legislation may not be invalidated under the "substantially advance" prong of takings analysis unless it "constitutes an arbitrary regulation of property rights." ( Dolan, supra, 512 U.S. at p. 391, fn. 8 , 114 S.Ct. 2309 .) Thus, although we believe that SMB's complaint fails to state an inverse condemnation cause of action even under a heightened Nollan/Dolan type of standard, the complaint unquestionably fails under the more deferential takings standard appropriate for general legislation.
SMB cites Chastleton Corporation v. Sinclair (1924) 264 U.S. 543, 548 , 44 S.Ct. 405 , 68 L.Ed. 841 , for the proposition that government dissatisfaction with high rents "is not in itself a justification" for rent control. In that case, the court considered whether an emergency wartime rent control statute should be extended beyond the emergency *106 period, and concluded that a factual question had been presented that required further adjudication. But as one court has stated, "Chastleton is a Lochner -era[ [3] ] case the validity of which is questionable at best." ( Traweek v. City and County of San Francisco (N.D.Cal.1984) 659 F.Supp. 1012, 1028, fn. 30 .) As we explained at considerable length in Birkenfeld, supra, 17 Cal.3d at pages 153-160, 130 Cal.Rptr. 465 , 550 P.2d 1001 , an emergency housing shortage, such as may exist during wartime, is not a constitutional requisite for rent control. The modern view is "that a legitimate and rational goal of price or rate regulation is the protection of consumer welfare" ( Pennell, supra, 485 U.S. at p. 13 , 108 S.Ct. 849 ), irrespective of the existence of an emergency.
Our adoption of SMB's position would not only be inconsistent with constitutional precedent, but would create formidable practical problems as well. How long would a court, or a litigant, have to wait to give the law a "fair chance" to work before declaring that it is a failure and therefore unconstitutional? There is no answer to this question that would not be arbitrary and would not put courts in a distinctively legislative role.
That is not to say that a change in conditions may never justify the constitutional invalidation of a once valid law. But the circumstances for such invalidation are quite narrow. A quintessential example is presented by Skalko v. City of Sunnyvale (1939) 14 Cal.2d 213 , 93 P.2d 93 . In that case the plaintiffs property was zoned for residential use. Since the time of the zoning ordinance's enactment, a large cannery had been built about 100 feet from the property. The cannery greatly increased automobile and truck traffic adjacent to the property and caused an infestation of the prune trees on the property by insects drawn to the cannery. After the city denied the plaintiffs proposal that his lot be rezoned so that he could operate a cafeteria and refreshment stand, he sued for declaratory relief, claiming the zoning ordinance was invalid as applied to him. In upholding his position, this court stated: "Where conditions have changed since the legislative action was taken, `statutes and ordinances which, after giving due weight to the new conditions, are found clearly not to conform to the Constitution, of course, must fall'." ( Id. at p. 216, 93 P.2d 93 .) As the court concluded: "Certainly no one wants to live next door to a large factory, and the question whether any consideration of public health, peace, safety or general welfare justifies the continued restriction upon the appellant's property which prohibits its use for commercial purposes is not fairly debatable." ( Ibid. )
Thus, in Skalko , the court found changing conditions rendered the application of a zoning ordinance to a particular piece of property arbitrary and irrational. There is no comparable allegation in SMB's complaint. Rather, SMB seeks to engage courts in the task of evaluating whether a piece of complex legislation has sufficiently measured up to its objectives to preserve its constitutional validity. Nothing in the United States Supreme Court's recent jurisprudence indicates that it envisions such an activist role for the courts. [4]
*107 In reversing the Court of Appeal, we again emphasize that we are not considering the question whether rent control is good policy but rather affirming the constitutional propriety of having the political process, through state and local legislative bodies, determine that policy. We note that the Legislature has already placed some limitation on rent control, enacting a statute restricting the capacity of localities to prevent landlords from charging the full market rent when a rental unit becomes vacant, and also preventing the imposition of rent control on certain types of units. (Civ.Code, §§ 1954.50-1954.53.) Thus, the legislative process has worked in a way that the blunt instrument of constitutional law generally cannot, crafting a political compromise that eliminates some of the perceived evils of rent control while preserving some of its benefits, i.e., to existing tenants.
In sum, with rent control, as with most other such social and economic legislation, we leave to legislative bodies rather than the courts to evaluate whether the legislation has fallen so far short of its goals as to warrant repeal or amendment. Courts, on the other hand, retain the constitutional role of invalidating certain features and applications of rent control law that have or will produce confiscatory results. (See Kavanau, supra, 16 Cal.4th 761 , 66 Cal.Rptr.2d 672 , 941 P.2d 851 ; Birkenfeld, supra, 17 Cal.3d at p. 169 , 130 Cal.Rptr. 465 , 550 P.2d 1001 .) In the present case, SMB remains free to proceed with its administrative mandamus action alleging that the Board exceeded its legal authority under the charter amendment and that the Board's rulings deprived SMB of a fair return.
III. DISPOSITION
For all of the foregoing, we reverse the judgment of the Court of Appeal and remand with directions to reinstate the judgment of the trial court.
GEORGE, C.J., and KENNARD and WERDEGAR, JJ., concur.
Concurring Opinion by KENNARD, J.
The United States Constitution requires the government to pay just compensation when private property is taken for public use. (U.S. Const, 5th Amend.) One test for determining whether a property regulation effects a taking, which the United States Supreme Court first articulated about twenty years ago, is the following: Government action affecting the use of private property is a taking requiring just compensation if the action does not "substantially advance" a legitimate government purpose. ( Agins v. City of Tiburon (1980) 447 U.S. 255, 260 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 .)
*108 The "substantially advance" test is a means-end test: It requires that the property regulation in question—the means by which the government is acting—advance the end or purpose the government is seeking to achieve through the regulation. The question here is: How "substantially" must rent control, the regulation at issue here, "advance" the governmental purpose that justifies it? To answer this question, the majority opinion, in which I concur, uses what might be termed a "functional" approach, looking for guidance to cases judging the constitutionality of two functionally similar categories of regulation: price controls and general land use regulations. It concludes that rent control is valid unless it is an arbitrary regulation of property rights. (Maj. opn., ante, 81 Cal.Rptr.2d at pp. 102-103, 968 P.2d at pp. 1002-1003.) I write separately to explain an additional basis for reaching this conclusion. An examination of the historical origins and development of the high court's "substantially advance" test shows that it originated outside of just compensation law in the realm of substantive due process and that, outside the narrow circumstances in which government exacts property as a condition of a development permit, the test is best understood as a rational relationship test.
I
As I have noted elsewhere, courts have long struggled with the difficult question of how to determine whether a particular government action is a taking requiring compensation under the just compensation clause. ( Customer Co. v. City of Sacramento (1995) 10 Cal.4th 368 , 394 & fn. 1, 41 Cal.Rptr.2d 658 , 895 P.2d 900 (conc. opn. of Kennard, J.).) And as I mentioned at the outset here, in the past 20 years the United States Supreme Court has adopted the rule that government regulation of property is a taking if it fails to substantially advance a legitimate state interest.
The "substantially advance" test first entered just compensation law in 1980 in Agins v. City of Tiburon, supra, 447 U.S. 255, 260 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 (hereafter Agins ). In that case, the United States Supreme Court stated: "The application of a general zoning law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests, see Nectow v. Cambridge, 277 U.S. 183, 188 , 48 S.Ct. 447 , 72 L.Ed. 842 (1928), or denies an owner economically viable use of his land, see Penn Central Transp. Co. v. New York City, 438 U.S. 104, 138, n. 36 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 (1978)." ( Ibid., italics added.) Two years earlier, the high court had foreshadowed this test by stating that "a use restriction on real property may constitute a `taking" if not reasonably necessary to the effectuation of a substantial public purpose, see Nectow v. Cambridge, supra ," ( Penn Central Transp. Co. v. Neiv York City (1978) 438 U.S. 104, 127 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 , italics added (hereafter Penn Central ).)
More recently, in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825 , 107 S.Ct. 3141 , 97 L.Ed.2d 677 (hereafter Nollan ) and Dolan v. City of Tigard (1994) 512 U.S. 374 , 114 S.Ct. 2309 , 129 L.Ed.2d 304 (hereafter Dolan ), the United States Supreme Court used the "substantially advance" language of Agins as the textual basis for developing unique requirements to be used in deciding whether an adjudicatively determined "exaction" of property as a condition of a property development permit was a taking. (Regulations affecting property can generally be classified as either legislative, if the restriction they impose applies to all property falling within a given class, or adjudicative, if the government through case-by-case decisionmaking makes an individualized determination of what restriction to impose on each particular piece of property.)
Nollan and Dolan were cases in which property owners seeking development permits were adjudicatively required by the permitting authority to dedicate property easements to the government as a condition of a development permit. ( Dolan, supra, 512 U. S. at pp. 379-380, 114 S.Ct. 2309 ; Nollan, supra, 483 U.S. at p. 828 , 107 S.Ct. 3141 .) The analysis in those cases began with the proposition that the development condition in question, if it had been imposed compulsorily by the government, would have been a taking *109 requiring compensation. ( Dolan, supra, 512 U.S. at p. 384 , 114 S.Ct. 2309 ["Without question, had the city simply required petitioner to dedicate a strip of land along Fanno Creek for public use, rather than conditioning the grant of her permit to redevelop her property on such a dedication, a taking would have occurred."]; Nollan, supra, 483 U.S. at p. 831 , 107 S.Ct. 3141 ["Had California simply required the Nollans to make an easement across their beachfront available to the public on a permanent basis in order to increase public access to the beach, rather than conditioning their permit to rebuild their house on their agreeing to do so, we have no doubt there would have been a taking."].)
The exchange of development permission for exaction avoids being a per se taking only because technically it is voluntary. Some limit, however, is needed to ensure that the exchange is a fair one; otherwise, these exchanges would become a mechanism for the government to obtain property without paying for it— "`an out-and-out plan of extortion.'" ( Nollan, supra, 483 U.S. at p. 837 , 107 S.Ct. 3141 .) The Nollan and Dolan decisions attempted to ensure the fairness of the exchange by creating a special form of means-end testing. The Nollan/Dolan test authorizes exactions without compensation only if the exaction has a nexus to the harm the development will cause and is roughly proportional to the harm. ( Dolan, supra, 512 U. S. at pp. 386, 391, 114 S.Ct. 2309 .)
Outside the Nollan/Dolan context, the United States Supreme Court has not yet had occasion to define how closely ends and means must be related for a government action to avoid being a taking. The rent control at issue here is outside the Nollan/Dolan context because it is a restriction on property use that is not imposed adjudicatively on only certain rental housing but instead is imposed legislatively on all rental housing in the municipality. Plaintiff landlord nonetheless seeks to have us extend the Nollan/Dolan test to rent control. In their dissents, Justices Chin and Baxter criticize the majority for rejecting that view, and they assert that the majority has inappropriately conflated due process analysis with takings analysis by adopting instead a "rational relationship" means-end test, a test commonly used in substantive due process analysis. Although the dissents' position is a plausible one if the words "substantially advance" are viewed in isolation, it collapses once the history of the "substantially advance" test is examined, for that test originated as a due process rational relationship test
Before the United States Supreme Court's decisions in Agins and Penn Central, there had been no means-end test in just compensation law. As authority for applying a means-end test to determine whether there has been a taking, both cases cited Nectow v. Cambridge (1928) 277 U.S. 183 , 48 S.Ct. 447 , 72 L.Ed. 842 (hereafter Nectow). Nectow, however, was not a takings case in which the property owner sought just compensation, but a substantive due process case in which the property owner challenged a zoning ordinance as lacking any rational relationship to the public welfare and sought invalidation of the ordinance. To understand the connection between the substantive due process means-end test used in Nectow and the United States Supreme Court's recent application of that test in just compensation law, it is necessary to examine the history of the high court's development of substantive due process means-end review.
II
The United States Supreme Court in the late 19th and early 20th century was developing as one aspect of substantive due process its view—applicable to all exercises of state power depriving someone of life, liberty, or property—that due process required some reasonable relationship between the means chosen by government and the ends it seeks to achieve. As I noted earlier, the high court's 1928 decision in Nectow, supra, 277 U.S. 183 , 48 S.Ct. 447 , 72 L.Ed. 842 , sets forth a substantive due process means-end test. That test has its origins in Mugler v. Kansas (1887) 123 U.S. 623, 661 , 8 S.Ct. 273 , 31 L.Ed. 205 , a case upholding a state's prohibition statute that rendered a brewery valueless. Mugler formulated the general substantive due process test of state action as follows: "If, therefore, a statute purporting *110 to have been enacted to protect the public health, the public morals, or the public safety, has no real or substantial relation to those objects, or is a palpable invasion of rights secured by the fundamental law, it is the duty of the courts to so adjudge, and thereby give effect to the Constitution." ( Ibid., italics added.) The high court repeated the "substantial relation" requirement in later substantive due process decisions in which the plaintiff challenged the validity of various forms of state regulation. (See, e.g., German Alliance Ins. Co. v. Hale (1911) 219 U.S. 307, 316 , 31 S.Ct. 246 , 55 L.Ed. 229 [regulation of fire insurance]; Jacobson v. Commonwealth of Massachusetts (1905) 197 U.S. 11, 31 , 25 S.Ct. 358 , 49 L.Ed. 643 [mandatory vaccination legislation]; Booth v. Illinois (1902) 184 U.S. 425, 429 , 22 S.Ct. 425 , 46 L.Ed. 623 [prohibition of grain option contracts]; Powell v. Pennsylvania (1888) 127 U.S. 678, 684 , 8 S.Ct. 992 , 32 L.Ed. 253 [regulation of oleomargarine].)
The United States Supreme Court used this substantive due process means-ends test, and the "substantial relation" language, to determine the validity of zoning regulations in due process cases, including Nectow , in which a property owner contended that the regulations were unreasonable and therefore invalid but made no claim that the regulations were a taking requiring just compensation. ( Cusack Co. v. Chicago (1917) 242 U.S. 526, 531 , 37 S.Ct. 190 , 61 L.Ed. 472 ; Euclid v. Ambler Co. (1926) 272 U.S. 365, 395 , 47 S.Ct. 114 , 71 L.Ed. 303 ; Gorieb v. Fox (1927) 274 U.S. 603, 610 , 47 S.Ct. 675 , 71 L.Ed. 1228 ; Nectow, supra, 277 U.S. 183, 188 , 48 S.Ct. 447 .) In perhaps the most famous of these early zoning cases, Euclid v. Ambler Co . (hereafter Euclid ), the court stated: "[B]efore the ordinance can be declared unconstitutional [under the due process clause], [it must be found] that such provisions are clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare." ( Euclid, supra, 272 U.S. at p. 395 , 47 S.Ct. 114 .) Euclid thus equates a regulation that has "no substantial relation" to its ends with one that is "arbitrary and unreasonable" and therefore fails to satisfy the requirements of substantive due process. The portion of Nectow that Agins came to rely on many years later was a restatement of Euclid's substantive due process means-end test: "The governmental power to interfere by zoning regulations with the general rights of the land owner by restricting the character of his use, is not unlimited, and other questions aside, such restriction cannot be imposed if it does not bear a substantial relation to the public health, safety, morals, or general welfare. Euclid v. Ambler Co., supra, p. 395 [ 47 S.Ct. 114 ]." ( Nectow, supra, 277 U.S. at p. 188 , 48 S.Ct. 447 .)
III
Means-end testing has remained a cornerstone of substantive due process since the high court's 1928 decision in Nectow . In cases after Nectow , the court continued to use Nectow's formulation as a general test of substantive due process review. In Nebbia v. New York (1934) 291 U.S. 502, 525 , 54 S.Ct. 505 , 78 L.Ed. 940 , a price control case upholding price controls on milk, the court observed: "And the guaranty of due process, as has often been held, demands only that the law shall not be unreasonable, arbitrary or capricious, and that the means selected shall have a real and substantial relation to the object sought to be attained." [1]
*111 Nectow , and its predecessor Euclid, have continued to be understood as due process means-end relationship cases; more specifically, they have been consistently viewed as cases applying a rational relationship standard of due process review. ( Nashville, C. & St. L. Ry. v. Walters (1935) 294 U.S. 405, 415 , 55 S.Ct. 486 , 79 L.Ed. 949 [describing Nectow as holding that "[t]he police power is subject to the constitutional limitation that it may not be exerted arbitrarily or unreasonably" (fn.omitted)]; Arlington Heights v. Metropolitan Housing Corp. (1977) 429 U.S. 252, 263 , 97 S.Ct. 555 , 50 L.Ed.2d 450 [describing Nectow as recognizing a "right to be free of arbitrary or irrational zoning actions"]; Moore v. East Cleveland (1977) 431 U.S. 494, 498, fn. 6 , 97 S.Ct. 1932 , 52 L.Ed.2d 531 (plur.opn.) ["Euclid held that land-use regulations violate the Due Process Clause if they are `clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare.' 272 U.S., at 395 [ 47 S.Ct. 114 ]. See Nectow v. Cambridge, 277 U.S. 183, 188 , 48 S.Ct. 447 , 72 L.Ed. 842 (1928).... [O]ur cases have not departed from the requirement that the government's chosen means must rationally further some legitimate state purpose."].)
In 1980, the high court in Agins imported the substantive due process means-end test of Nectow into just compensation law. Citing Nectow , the Agins court stated that a zoning law that did not "substantially advance legitimate state interests" was a `taking' requiring just compensation. ( Agins, supra, 447 U.S. at p. 260 , 100 S.Ct. 2138 ; see also Penn Central, supra, 438 U.S. at p. 127 , 98 S.Ct. 2646 ["[A] use restriction on real property may constitute a `taking' if not reasonably necessary to the effectuation of a substantial public purpose, see Nectow v. Cambridge, supra , ..." (Italics added.)].)
Agins applied as a rational relationship test the "substantially advance" test it derived from Nectow . In Agins , the State of California had a policy requiring cities to develop open space plans; in response, a city enacted an ordinance limiting use of the five-acre property in question to residential housing at a density of one house per acre. Agins concluded with little difficulty and without a searching examination that the ordinance substantially advanced the legitimate government goal of reducing the "ill effects of urbanization" ( Agins, supra, 447 U.S. 255, 261 , 100 S.Ct. 2138 ); to demonstrate that the advancement would be substantial the court relied on the following: "The State of California has determined that the development of local open-space plans will discourage the `premature and unnecessary conversion of open-space land to urban uses.'" ( Ibid. ) A legislative conclusion made at the state level that as a statewide matter open space planning will in general discourage urbanization may show that there is a rational relationship between the particular zoning restrictions imposed on the parcel at issue and the goal of "protect[ing] the residents of [the city] from the ill effects of urbanization" ( ibid. ), but does not establish any stronger connection than that between those ends and means.
In Schad v. Borough of Mount Ephraim (1981) 452 U.S. 61, 68 , 101 S.Ct. 2176 , 68 L.Ed.2d 671 , the high court made clear that the Agins "substantially advance" requirement is a rational relationship test: "Where property interests are adversely affected by zoning, the courts generally have emphasized the breadth of municipal power to control land use and have sustained the regulation if it is rationally related to legitimate state concerns and does not deprive the owner of economically viable use of his property. Agins v. City of Tiburon, 447 U.S. 255, 260 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 (1980); Village of Belle Terre v. Boraas, 416 U.S. 1 , 94 S.Ct. 1536 , 39 L.Ed.2d 797 (1974); Euclid v. Ambler Realty Co., 272 U.S. 365, 395 , 47 S.Ct. 114 , 71 L.Ed. 303 (1926). But an ordinance may fail even under that limited standard of review. Moore v. East Cleveland, supra, at 520, 97 S.Ct. 1932 (Stevens, J., concurring in judgment); Nectow v. Cambridge, 277 U.S. 183 , 48 S.Ct. 447 , 72 L.Ed. 842 (1928)." (Italics added.)
Even apart from this historical understanding of the "substantially advance" test as a rational relationship test, plaintiff here has failed to give persuasive reasons for extending the heightened scrutiny of Nollan and Dolan to other forms of land use regulation, *112 like the rent control at issue here, in which the government does not make an adjudicative decision to exact property as a condition of a development permit. There is good reason for using heightened means-end scrutiny in the Nollan/Dolan context because of the danger of government engaging in extortion by permit. But outside of that context, there is no clear justification for it as a general requirement of just compensation law. (See Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 903, 906-907 , 50 Cal. Rptr.2d 242 , 911 P.2d 429 (conc, and dis. opn. of Kennard, J.) [noting that Nollan and Dolan were limited to exactions of property adjudicatively imposed as a condition of development].)
IV
As I have explained, outside the Nollan/Dolan context, I would adhere to the historical understanding of the "substantially advance" test as a rational relationship test. Nonetheless, as the differing positions held by members of this court in this case show, there are grounds for reasonable debate as to the meaning of that test in just compensation law outside the Nollan/Dolan context. Does it require only a rational relationship between the regulation and its purpose? Or a closer connection between means and ends, adapted from the Nollan/Dolan test? Or some other degree of connection between means and ends? I urge the high court to resolve this uncertainty.
This also raises a more fundamental question: Outside the Nollan/Dolan context, is a means-end test an appropriate measure of whether a regulatory taking has occurred? Means-end tests measure the degree to which the property regulation in question advances the purpose the government is seeking to achieve through the regulation. It may be questioned whether the existence of a taking should depend on how well it advances the government's purpose for invading the property owner's interests. To the property owner, the loss is the same whatever the degree to which it advances the government's purpose. And although means-end testing can be used as an argument for expanding the right to compensation, as plaintiff does here, it could also restrict the right to compensation, for it suggests that if the regulation greatly advances the government's purpose, then no taking has occurred even if the invasion of the property owner's interest is also very great.
I note that recently Justice Kennedy of the United States Supreme Court has questioned the appropriateness of using a means-end test as the measure of whether a taking has occurred. ( Eastern Enterprises v. Apfel (1998) 524 U.S. 498 , 118 S.Ct. 2131, 2157 , 141 L.Ed.2d 451 (conc, and dis. opn. of Kennedy, J.) ["The imprecision of our regulatory takings doctrine does open the door to normative considerations about the wisdom of government decisions. See, e.g., Agins v. City of Tiburon, 447 U.S., at 260 [ 100 S.Ct. 2138 ] ... (zoning constitutes a taking if it does not `substantially advance legitimate state interests'). This sort of analysis is in uneasy tension with our basic understanding of the Takings Clause, which has not been understood to be a substantive or absolute limit on Government's power to act. The Clause operates as a conditional limitation, permitting the Government to do what it wants so long as it pays the charge.... [¶] ... [T]he more appropriate constitutional analysis [of the legitimacy of a legislative judgment that the means chosen will advance the government's purpose] arises under general due process principles rather than under the Takings Clause."]; see also id. at p. 2161 (dis. opn. of Breyer, J., joined by Stevens, Souter, and Ginsburg, JJ.) ["at the heart of the Clause lies a concern, not with preventing arbitrary or unfair government action, but with providing compensation for legitimate government action that takes `private property'" (italics original)]; First Lutheran Church v. Los Angeles County (1987) 482 U.S. 304, 315 , 107 S.Ct. 2378 , 96 L.Ed.2d 250 [purpose of just compensation clause is "not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking" (italics original)].)
Commentators have likewise questioned the high court's incorporation of due process *113 means-end testing in just compensation law. (Echeverria & Dennis, The Takings Issue and the Due Process Clause: A Way Out of a Doctrinal Confusion (1993) 17 Vt. L.Rev. 695.) Outside the Nollan/Dolan context, should a means-end test be used to determine whether a taking has occurred, or instead should means-end testing remain within due process jurisprudence? Only the high court can resolve this question and, given the importance of this area of the law, I respectfully suggest that it do so when the opportunity next arises.
Dissenting Opinion by BAXTER, J.
I respectfully dissent.
The majority err in holding that the complaint in this case does not state a cause of action for inverse condemnation. The error results in part from the mistaken notion that the separation of powers doctrine somehow precludes the plaintiff from introducing evidence in support of its takings clause claim that the stated purpose of the Santa Monica rent control ordinance [1] has not been substantially advanced over time. In the end, the majority refuse to direct the court below to carry out its constitutionally mandated judicial obligation to determine, on the basis of evidence to be presented, whether application of the Santa Monica ordinance has taken property from plaintiff without just compensation.
In so doing, the majority address the wrong question, arrive at the wrong answer, and fail to differentiate between the distinct judicial roles of assessing the validity of the ordinance against a claim that it violates substantive due process and in determining whether the impact of the ordinance constitutes a taking of private property for which just compensation must be paid. In short, I agree wholeheartedly with Justice Chin's conclusion that the majority "inappropriately conflates takings jurisprudence with due process jurisprudence." (Dis. opn. of Chin, J., post, at p. 136, 968 P.2d at p. 1035 .) As a result they not only deny plaintiff the opportunity to present evidence necessary to support its inverse condemnation claim, but also leave California takings jurisprudence in a state of confusion.
A statute may be a proper exercise of the police power and yet create a taking for which just compensation must be paid under the takings clause of the Fifth Amendment to the United States Constitution. [2] Although deference is accorded legislative judgment when a statute is challenged as exceeding the permissible scope of the police power, no question of deference or, as stated otherwise by the majority, level of judicial scrutiny arises when just compensation is sought under the takings clause, because a takings claim presents "'essentially ad hoc, factual inquiries.'" ( Hodel v. Virginia Surface Mining & Reel. Assn. (1981) 452 U.S. 264, 295-296 , 101 S.Ct. 2352 , 69 L.Ed.2d 1 ; Kaiser Aetna v. United States (1979) 444 U.S. 164, 175 , 100 S.Ct. 383 , 62 L.Ed.2d 332 .)
The Supreme Court has consistently recognized the distinct nature of the due process and takings clause inquiries. "[H]owever `rational' the exercise of the [police] power may be, that inquiry is quite separate from the question [of] whether the enactment takes property within the prohibition of the Fifth Amendment." ( United States v. Security Industrial Bank (1982) 459 U.S. 70, 75 , 103 S.Ct. 407 , 74 L.Ed.2d 235 ; see also Eastern Enterprises v. Apfel (1998) 524 U.S. 498 , 118 S.Ct. 2131, 2161 , 141 L.Ed.2d 451 (dis. opn. of Breyer, J.) [The takings clause "refers to the taking of `private property ... for public use without just compensation.' U.S. Const., Amdt. 5. As this language suggests, at the heart of the Clause lies a concern, not with preventing arbitrary or unfair government action, but with providing compensation for legitimate government action that takes `private property' to serve the `public good.'"].)
Failure to recognize this distinction fuels the majority's effort to ascertain what deference *114 to accord to, or the level of judicial scrutiny to apply to, the Santa Monica rent control ordinance. That effort is misguided, for, as I explain below, the question of deference and/or level of judicial scrutiny simply does not arise in this takings clause claim.
As also will be discussed at greater length below, the majority's reasoning rests on a series of faulty premises:
(1) That plaintiff seeks to invalidate the Santa Monica rent control ordinance. It does not. The complaint seeks a declaration that the ordinance effects an uncompensated taking of plaintiffs property rights and seeks monetary compensation for the taking. If a taking is found, compensation is due even if the ordinance is valid.
(2) That recognizing a right to just compensation because the ordinance does not substantially advance its stated purpose would constitute a judicial repeal of the ordinance. Recognition that the imposition of rent controls on plaintiffs property is a taking and awarding compensation therefor would not repeal the ordinance. It would instead constitute a proper exercise of a judicial power recognized since the decision of Marbury v. Madison (1803) 5 U.S. (1 Cranch) 137 , 2 L.Ed. 60—the power to construe, apply, and enforce rights guaranteed to all citizens by the United States Constitution.
(3) That a takings clause claim for inverse condemnation may be rejected because the rent control ordinance has a rational basis and is not arbitrary and discriminatory. As Justice Chin observes, a takings clause claim for just compensation may not be rejected on that ground, which is an aspect of due process, not takings, analysis. Here, too, the majority address the wrong question and give the wrong answer. The takings clause has different and more stringent criteria than those applied under the majority's attempt to morph the deferential due process rational basis test into a takings clause test.
Moreover, whether at the time the Santa Monica rent control ordinance was enacted in April 1979 it was reasonable for the enacting body to believe that the ordinance would substantially advance the legislative purpose is not the question posed by this 1995 complaint. The question is whether at the time the complaint was filed in 1995, after 16 years of implementation, the ordinance had, in fact, substantially advanced its stated purpose.
(4) That the "substantially advance" test enunciated by the United States Supreme Court need not be applied to the stated legislative purpose underlying the ordinance if the ordinance may advance some other, unstated, purpose. Again, the majority err in suggesting that the court may sanction the uncompensated taking brought about by the imposition of rent control if the Santa Monica ordinance substantially advances any government purpose the court imagines may have justified the regulation if the legislative body had thought of that purpose.
Once the faulty assumptions underlying the majority's reasoning are eliminated and the issues actually raised in this case identified, it is apparent that the holding of the majority lacks a foundation in takings clause jurisprudence. The complaint does state a cause of action for inverse condemnation on plaintiffs theory that the ordinance has not substantially advanced and does not presently substantially advance the purpose offered in justification for abridgment of the rights of the owners of rental properties.
The complaint also states facts sufficient to demonstrate plaintiffs entitlement to compensation on a second theory — the ordinance goes "too far" both on its face and as applied to plaintiffs property. In order to provide a stock of rental housing affordable to persons with low incomes, young families, minorities, and the elderly, as well as other Santa Monica renters, plaintiff and all owners of Santa Monica rental property are compelled to bear a burden—subsidizing rentals—that in fairness and justice should be borne by the general public. That being so, just compensation must be paid to the owners of rental properties to which the ordinance is applied.
The Court of Appeal recognized that the tests enunciated in Agins v. Tiburon (1980) 447 U.S. 255, 260 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 ( Agins ) and Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 125-127 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 ( Penn Central ) *115 are still the measure by which a court determines if a property restriction goes too far and thus constitutes a compensable taking. The court then held that the complaint in this action states facts which, if proven, would show that the Santa Monica ordinance does go too far and thus constitutes a compensable taking. Under article VI, section 12, subdivision (b), of the California Constitution this court reviews decisions of the Court of Appeal, but nowhere in the majority opinion do we find a review of this holding or the analysis which supports it. [3]
No one can reasonably dispute that ensuring the availability of affordable housing for persons unable to pay market rate rents for clean, safe, and suitable housing is not only a proper, but also a laudable governmental purpose. However, the means by which a governmental entity achieves that purpose is circumscribed by not only the due process clause of the Fifth and Fourteenth Amendments to the United States Constitution, but also the takings clause of the Fifth Amendment which mandates that just compensation be paid when the government takes a private property right. My reasons for concluding that the complaint states a cause of action and that the judgment of the Court of Appeal should be affirmed follow in greater detail below.
I
The Inverse Condemnation Complaint
This mandamus action arises out of a ruling by the Los Angeles County Superior Court sustaining the demurrer of the Santa Monica Rent Control Board to a complaint in inverse condemnation seeking to recover "just compensation" from the board for a "taking" of plaintiffs property through application of the city's rent control ordinance.
In ruling on the sufficiency of a complaint to withstand a demurrer, i.e., to state a cause of action, the court assumes the truth of all well-pleaded allegations. ( Lazar v. Superior Court (1996) 12 Cal.4th 631, 635 , 49 Cal. Rptr.2d 377 , 909 P.2d 981 .) The ability of the plaintiff to prove the allegations is irrelevant at this stage of the proceedings. We must, therefore, accept as true plaintiffs allegations. Briefly restated, the complaint alleges the following:
Santa Monica Beach, Ltd., owns a 12-unit apartment building on Sixth Street in Santa Monica. Rental of those units is subject to the provisions of a rent control ordinance that has been in effect since 1979 when it was adopted as part of article XVIII, in an amendment to the Santa Monica City Charter. Pursuant to the rent control ordinance a rent board establishes maximum allowable rents, provides for annual general adjustments, and may permit individual adjustments of allowable rents. Leave of the board, which may only be granted if a property subject to the ordinance does not produce a fair rate of return, is necessary before a controlled property may be removed from the rental market by demolition, conversion, or any other means. Eviction of a tenant is *116 permissible only if the tenant fails to pay rent, violates a covenant of tenancy other than one requiring surrender of the property, causes a nuisance or substantial damage, uses or permits use of the unit for unlawful purposes, has refused at the termination of a tenancy to execute a written extension, denies reasonable access to the landlord, at the end of a tenancy the person in possession is a subtenant not approved by the landlord, or the unit is to be occupied by a close relative of the landlord.
Article XVIII, section 1800, constitutes the "Statement of Purpose" of the rent control ordinance, stating in pertinent part, and as amended in 1984:
"A growing shortage of housing units resulting in a low vacancy rate and rapidly rising rents exploiting this shortage constitute a serious housing problem affecting the lives of a substantial portion of those Santa Monica residents who reside in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return.
"....
"Through this Article, the city exercises its police power in order to address the serious housing problem recognized in the original enactment of this Rent Control Law in 1979 and still existing in 1984. The 1984 Amendment to the Rent Control Law is ... intended to enable the Board to provide relief to persons facing particular hardship and to protect and increase the supply of affordable housing in the city. Termination or erosion of the protections of this Article would have serious disruptive consequences for persons in need of protection and the supply of affordable housing in the city."
The rent board denied plaintiffs March 27, 1992, application for a rent adjustment and on a subsequent March 30, 1993, application granted an increase of $3 per unit and temporary rent increases averaging $58 per month. [4]
A fair reading of those allegations of the complaint and the rent control ordinance is that, but for the limits imposed under the rent control ordinance, plaintiff could receive higher, market rate, rents for its apartments.
The complaint next contends that the rent control ordinance violates plaintiffs rights under the takings clause of the Fifth and Fourteenth Amendments to the United States Constitution and article I, section 19 of the California Constitution [5] because it fails to substantially advance a legitimate governmental interest. It fails because application of the ordinance has reduced the availability of private rental housing in Santa Monica and has made it more difficult for low-income renters, young families, and the elderly to find affordable rental housing.
From 1980 to the end of the decade, under rent control, the number of low-income-renter households decreased by 775, or 12 percent, while the number increased in every *117 comparable city in Southern California that did not have rent control. The number of very-low-income households decreased by 285 during the decade. At the same time very-high-income households increased by 37 percent, although their number dropped in Los Angeles County as a whole.
During the decade of the 1980's, the number of family households with children in Santa Monica fell by 1,299, a 6 percent decline, while there was no loss in comparable cities in Southern California without rent control. Female-headed households with children under 18 fell by 593, a 27 percent decrease, while the number increased in Los Angeles County as a whole.
The population of elderly in Santa Monica declined by 1.7 percent during the decade, while during the same period it increased in Los Angeles County by more than 15 percent, and it increased in comparable cities without rent control in Southern California.
Plaintiff asserted, on this basis, that denial of its application for a rent adjustment did not substantially advance a legitimate governmental interest and there was not a close nexus between the denial of the application for a fair rate of return on its capital investment and any public harm that might result from unregulated operation of the property. Unregulated use of the property would not have resulted in the problems Santa Monica sought to address through adoption of the rent control ordinance.
Plaintiff also alleged that even if the ordinance does substantially advance a proper governmental purpose, denial of its application seeking a fair rate of return had the effect of making application of the ordinance to its property "confiscatory." Moreover, the ordinance has denied petitioner essential attributes of ownership of the property, including the right to exclude others and the right to determine the terms on which leasehold interests in plaintiffs property will be alienated.
Arguing that for all of the above reasons the rent control board's application of the ordinance to its property comprises a regulatory taking for public use without just compensation, plaintiff sought a trial at which it could offer evidence in support of its claims.
Plaintiffs inverse condemnation claim thus rested on three different theories under any of which it was entitled to just compensation for the regulatory taking of its right to unregulated use of its rental units:
1. After a decade of implementation the Santa Monica rent control ordinance not only failed to substantially advance the stated governmental purpose, it made the problem it sought to address worse. Under this theory, application of the ordinance to any property for which higher rent could be obtained absent regulation would constitute a taking for a public purpose for which just compensation must be paid.
2. Application of the ordinance to plaintiffs property did not substantially advance the stated governmental purpose because there was no basis for concluding that unregulated rental of plaintiffs apartments would contribute to the shortage of affordable rental units in Santa Monica. Therefore, plaintiffs property has been taken for a public purpose and plaintiff is entitled to just compensation for the taking.
3. Because the rent adjustments allowed plaintiff by the board did not ensure a fair rate of return on investment, application of the ordinance to plaintiffs property was confiscatory. This claim is not presently before the court. It should be resolved in the pending administrative mandamus action.
The superior court did not consider whether the ordinance on its face created a constitutionally impermissible taking without just compensation, but ruled that the complaint failed to state a cause of action for inverse condemnation on plaintiffs theories. The superior court rejected plaintiffs argument that Nollan v. California Coastal Comm'n (1987) 483 U.S. 825 , 107 S.Ct. 3141 , 97 L.Ed.2d 677 ( Nollan ), in which the court applied the "substantially advance" test in finding a regulatory taking, mandated a heightened standard of review, and ruled that the appropriate standard of review was the "rational basis" standard. Thus, it impliedly concluded that plaintiff could not prevail because the city had a rational basis for *118 finding that the public health and welfare, and particularly that of the identified groups, was endangered by unregulated rents and that the ordinance would prevent or minimize the threatened harm.
The Court of Appeal, reviewing the superior court order on petition for writ of mandate, disagreed with that reasoning and ordered that a peremptory writ of mandate issue commanding the superior court to set aside its order and overrule the board's demurrer. The Court of Appeal reasoned that the question raised by the complaint was whether continued application of the ordinance to plaintiffs property constituted a compensable taking for a public purpose because absent just compensation, in the words of the United States Supreme Court, "it went too far" to be a constitutionally permissible interference with plaintiffs rights as an owner of property. That question could not be resolved on demurrer. The Court of Appeal also recognized that Nollan, supra, 483 U.S. at page 834 , footnote 3, 107 S.Ct. 3141 , had expressly rejected application of the rational basis test in takings cases, stating: "To the contrary, our verbal formulations in the takings field have generally been quite different. We have required that the regulation `substantially advance' the `legitimate state interest' sought to be achieved, Agins v. Tiburon, 447 U.S. 255, 260 , 100 S.Ct. 2138 , 65 L.Ed.2d 106 (1980), not that `the State "could rationally have decided" that the measure adopted might achieve the State's objective.'" (Original italics.)
Although whether on its face this ordinance exceeds the permissible scope of the police power could be resolved by the court without taking evidence, the question posed by plaintiff in the complaint is whether over time the ordinance has substantially advanced the legislative purpose. This question cannot be decided on demurrer. If plaintiff can prove that the rent control ordinance has not substantially advanced its purpose, or that application of the ordinance to its property does not substantially advance the purpose, the "compensable taking" element of a cause of action for inverse condemnation would be established. This is true notwithstanding that the city may be able to show that there was a rational basis for the law when it was adopted.
II
Price Control and Zoning
In their misguided attempt to identify a level of judicial scrutiny that will satisfy the takings clause, the majority suggest that price controls and zoning legislation are sufficiently analogous to rent control to warrant placement of these types of government action in a continuum of levels of judicial scrutiny. Again, they err. The price control and zoning standards to which they look are those developed in due process challenges to the validity of legislation, not takings clause claims for just compensation because property has been subjected to those laws. The level of judicial scrutiny accorded legislation subjected to due process challenges is irrelevant in a takings clause claim.
That regulation of prices other than rents is a proper exercise of the police power is well established. This was recognized by the Supreme Court more than a century ago in Munn v. Illinois (1876) 94 U.S. 113, 124 , 24 L.Ed. 77 . The validity of an Illinois statute fixing the maximum charge for storage of grain in private warehouses was in issue. It was argued that the restrictions took property without due process of law. There, speaking for the court, Chief Justice Waite explained the due process source of authority for the statute:
"When one becomes a member of society, he necessarily parts with some rights or privileges which, as an individual not affected by his relations to others, he might retain. `A body politic,' as aptly defined in the preamble of the Constitution of Massachusetts, `is a social compact by which the whole people covenants with each citizen, and each citizen with the whole people, that all shall be governed by certain laws for the common good.' This does not confer power on the whole people to control rights which are purely and exclusively private, [citation]; but it does authorize the establishment of laws requiring each citizen to so conduct himself, and so use his own property, as not unnecessarily to injure another. This is the very essence of *119 government, and has found expression in the maxim sic utere tuo ut alienum non laedas. From this source comes the police powers, which, as was said by Mr. Chief Justice Taney in the License Cases, 5 How. [504] 583 [ 12 L.Ed. 256 (1847)], `are nothing more or less than the powers of government inherent in every sovereignty, ... that is to say, ... the power to govern men and things.' Under these powers the government regulates the conduct of its citizens one towards another, and the manner in which each shall use his own property, when such regulation becomes necessary for the public good. In their exercise it has been customary in England from time immemorial, and in this country from its first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, innkeepers, &c, and in so doing to fix a maximum of charge to be made for services rendered, accommodations furnished, and articles sold. To this day, statutes are to be found in many of the States upon some or all of these subjects; and we think it has never yet been successfully contended that such legislation came within any of the constitutional prohibitions against interference with private property. With the Fifth Amendment in force, Congress, in 1820 conferred power upon the city of Washington `to regulate... the rates of wharfage at private wharves, ... the sweeping of chimneys, and to fix the rates of fees therefor, ... and the weight and quality of bread,' [citation]; and, in 1848, `to make all necessary regulations respecting hackney carriages and the rates of fare of the same, and the rates of hauling by cartmen, wagoners, carmen, and draymen, and the rates of commission of auctioneers,' [citation].
"From this it is apparent that, down to the time of the adoption of the Fourteenth Amendment, it was not supposed that statutes regulating the use, or even the price of the use, of private property necessarily deprived an owner of his property without due process of law. Under some circumstances they may, but not under all. The amendment does not change the law in this particular: it simply prevents the States from doing that which will operate as such a deprivation." (94 U.S. at pp. 124-125.)
The court recognized in Munn v. Illinois, supra, 94 U.S. 113 , that it is necessary to understand the principles underlying exercise of the police power in order to determine when the power is exercised in a constitutionally permissible manner, and explained that when property is affected with a public interest the property is no longer wholly private. "When, therefore, one devotes his property to a use in which the public has an interest, he in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use; but, so long as he maintains the use, he must submit to the control." ( Id. at p. 126.)
The court addressed exercise of the police power to regulate prices again in Nebbia v. New York (1934) 291 U.S. 502, 525 , 54 S.Ct. 505 , 78 L.Ed. 940 : "The Fifth Amendment, in the field of federal activity, and the Fourteenth, as respects state action, do not prohibit governmental regulation for the public welfare. They merely condition the exertion of the admitted power, by securing that the end shall be accomplished by methods consistent with due process. And the guaranty of due process, as has often been held, demands only that the law shall not be unreasonable, arbitrary or capricious, and that the means selected shall have a real and substantial relation to the object sought to be attained.... [¶] ... [¶] The court has repeatedly sustained curtailment of enjoyment of private property, in the public interest. The owner's rights may be subordinated to the needs of other private owners whose pursuits are vital to the paramount interest of the community." (Fns.omitted.)
After an exhaustive survey of the areas of private rights theretofore held to be subject to regulation under the police power, the court turned to the New York statute before it, a law which fixed minimum prices for milk. The court found a proper governmental purpose—preventing demoralizing competitive conditions and unfair trade practices which reduced the income of producers below the cost of production. It then rejected an argument that price control was per se unreasonable *120 and unconstitutional except as to business affected with a public interest, i.e., one in which the property is devoted to a purpose which the public as such might undertake, or one dependent on a public grant or franchise, or is bound to serve all comers—public utilities and/or monopolies. "The due process clause makes no mention of sales or of prices any more than it speaks of business or contracts or buildings or other incidents of property. The thought seems nevertheless to have persisted that there is something peculiarly sacrosanct about the price one may charge for what he makes or sells, and that, however able to regulate other elements of manufacture or trade, with incidental effect upon price, the state is incapable of directly controlling the price itself. This view was negatived many years ago. Munn v. Illinois, 94 U.S. 113 ." ( 291 U.S. at p. 532 , 54 S.Ct. 505 .)
Retreating from the language in Munn which suggested that regulation of prices was justified only when the property had been devoted to a public use, the court held: "The statement that one has dedicated his property to a public use is ... merely another way of saying that if one embarks in a business which public interest demands shall be regulated, he must know regulation will ensue." ( Nebbia v. New York, supra, 291 U.S. at p. 534 , 54 S.Ct. 505 .) "[T]here can be no doubt that upon proper occasion and by appropriate measures the state may regulate a business in any of its aspects, including the prices to be charged for the products or commodities it sells, [¶] So far as the requirement of due process is concerned, and in the absence of other constitutional restriction, a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose. The courts are without authority either to declare such policy, or, when it is declared by the legislature, to override it. If the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied, and judicial determination to that effect renders a court functus officio. `Whether the free operation of the normal laws of competition is a wise and wholesome rule for trade and commerce is an economic question which this court need not consider or determine.'" ( Nebbia v. New York, supra, 291 U.S. at p. 537 , 54 S.Ct. 505 , italics added.) "The Constitution does not secure to anyone liberty to conduct his business in such fashion as to inflict injury upon the public at large, or upon any substantial group of the people. Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty." ( Id. at pp. 538-539, 54 S.Ct. 505 .)
This continues to be the rule insofar as price controls in general are concerned. As the court acknowledged in Nebbia v. New York, supra, 291 U.S. 502, 537 , 54 S.Ct. 505 , however, it is so only "in the absence of other constitutional restriction." The takings clause is another constitutional restriction. A law restricting property rights may be valid as a proper exercise of the police power, but nonetheless violate the takings clause unless just compensation is paid by the government for the diminution of those rights.
Zoning laws, too, have long been upheld under the deferential, rational basis, level of judicial scrutiny applied in due process based challenges to economic and social legislation. Before a general zoning ordinance will be declared unconstitutional the court must conclude that the law is "`clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare.'" ( Eastlake v. Forest City Enterprises, Inc. (1976) 426 U.S. 668, 676 , 96 S.Ct. 2358 , 49 L.Ed.2d 132 ; Euclid v. Ambler Co. (1926) 272 U.S. 365, 394 , 47 S.Ct. 114 , 71 L.Ed. 303 ; see also Consolidated Rock Products Co. v. City of Los Angeles (1962) 57 Cal.2d 515, 522-523 , 20 Cal.Rptr. 638 , 370 P.2d 342 .)
There is no comparable level of judicial scrutiny when it is claimed that a zoning law takes property for which compensation must be paid, however. This is so because determining whether a zoning law brings about a compensable taking can be determined only *121 after considering a variety of evidentiary factors. ( Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, 1030-1031 , 112 S.Ct. 2886 , 120 L.Ed.2d 798 ; Hansen Brothers Enterprises, Inc. v. Board of Supervisors (1996) 12 Cal.4th 533, 551 , 48 Cal.Rptr.2d 778 , 907 P.2d 1324 .) As this court recognized in Landgate, Inc. v. California Coastal Com. (1998) 17 Cal.4th 1006, 1016-1017 , 73 Cal.Rptr.2d 841 , 953 P.2d 1188 , unless a takings claim is based on denial of all beneficial use or physical invasion of the property, whether a compensable taking exists requires a "case-specific inquiry."
III
Rent Control and the Takings Clause
The majority proceed on an assumption that it has also been settled that rent control does not bring about a compensable taking. Again they err. Neither the United States Supreme Court nor this court has held in a takings clause challenge that a rent control law like the Santa Monica ordinance is constitutionally permissible absent payment of just compensation. The United States Supreme Court has upheld rent control as an exercise of Congress's war powers or to confront an emergency arising during or out of a world war. Neither the Supreme Court nor this court has ever applied contemporary takings clause jurisprudence to a peacetime rent control law of indefinite duration enacted simply to address a problem created by rising rents.
The analytical focus in assessing whether rent control constitutes a taking for which the takings clause mandates just compensation must be directed to the means by which rent control accomplishes its purpose. Rent control differs from and cannot be equated to other forms of price control because it encroaches on property rights in ways that price control does not. The Santa Monica rent control ordinance takes from the property owner the right to charge market rent for the owner's property and by so doing compels the owner to subsidize the tenant. Price control creates no comparable direct transfer of a property interest to a third person. The ordinance in question depresses the value of the rent-controlled property. Unlike property used to manufacture pricecontrolled items, rental housing cannot easily be used for other purposes and the Santa Monica ordinance severely limits the ability of the owner to go out of the rental housing business. Finally, the ordinance transfers to the tenant the right to occupy the property for an indefinite period. Again, none of this is true of other forms of price control. Thus we cannot assume that decisions upholding other forms of price control are authority for rejecting a takings clause challenge to a rent control ordinance.
The Supreme Court first addressed takings clause challenges to the validity of rent control laws enacted as federal wartime emergency legislation. (See Block v. Hirsh (1921) 256 U.S. 135 , 41 S.Ct. 458 , 65 L.Ed. 865 ( Block) ; Woods v. Cloyd W. Miller. Co. (1948) 333 U.S. 138 , 68 S.Ct. 421 , 92 L.Ed. 596 ( Woods ); Bowles v. Willingham (1944) 321 U.S. 503 , 64 S.Ct. 641 , 88 L.Ed. 892 ( Bowles ).) None of those decisions upheld application of rent control without payment of just compensation in a challenge such as that made here.
Block, the first of the decisions which are sometimes relied on in support of the proposition that rent control is constitutionally permissible, addressed the claim of a Washington, D.C., property owner that the Act of October 22, 1919 ( 41 Stat. 297 , 301) was a constitutionally invalid attempt to authorize the taking of property not for public use and without due process of law insofar as it permitted a lessee to refuse to surrender the premises on expiration of the lease. The law, which was to expire in two years unless sooner repealed, gave the owner the right to retake the property for his own occupancy on thirty days' notice, but the owner had not given that notice before seeking to recover possession. The statute included a declaration that the restrictions were made necessary "by emergencies growing out of the war, resulting in rental conditions in the District dangerous to the public health and burdensome to public officers, employees and accessories, and thereby embarrassing the Federal Government in the transaction of the public business." ( 256 U.S. at p. 154 , 41 S.Ct. 458 .) The court noted that "Congress *122 stated a publicly notorious and almost worldwide fact. That the emergency declared by the statute did exist must be assumed...." ( Id. at pp. 154-155, 41 S.Ct. 458 .)
The Supreme Court concluded that the circumstances were such as to clothe the rental of buildings in the District of Columbia with a public interest great enough to justify regulation, noting, however, that what may create that interest at one time may at others be purely a matter of private concern. At the time of this legislation, a "public exigency" justified "restricting property rights... to a certain extent without compensation." ( Block, supra, 256 U.S. at p. 156 , 41 S.Ct. 458 .)
The court then considered whether the statute went "too far," recognizing that "just as there comes a point at which the police power ceases and leaves only that of eminent domain, it may be conceded that regulations of the present sort pressed to a certain height might amount to a taking without due process of law. Martin v. District of Columbia, 205 U.S. 135 , 27 S.Ct. 440 , 51 L.Ed. 743 ." ( Block, supra, 256 U.S. at p. 156 , 41 S.Ct. 458 .) The court did not have to draw that line, however, as "[t]he regulation is put and justified only as a temporary measure. [Citations.] A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld as a permanent change." ( Id. at p. 157, 41 S.Ct. 458 .)
The high court next considered a challenge to rent control in the District of Columbia in Chastleton Corp. v. Sinclair (1924) 264 U.S. 543 , 44 S.Ct. 405 , 68 L.Ed. 841 . The plaintiff sought to restrain enforcement of a rent commission order reducing rents under the authority of a 1921 law declaring that the emergency still existed and purporting to continue the law upheld in Block . The court, impliedly accepting the plaintiffs theory that if the emergency had ended the restriction would violate the takings clause, remanded the case to the District of Columbia courts for an evidentiary hearing to determine whether conditions had changed, stating that "If about all that remains of war conditions is the increased cost of living, that is not in itself a justification of the act." ( 264 U.S. at p. 548 , 44 S.Ct. 405 , italics added.)
Subsequently, in New State Ice Co. v. Liebmann (1932) 285 U.S. 262, 277 , 52 S.Ct. 371 , 76 L.Ed. 747 , the court again emphasized that rents may not be subjected to legislative regulation "except as to temporary measures to tide over grave emergencies." (See also Tyson & Brother v. Banton (1927) 273 U.S. 418, 437-438 , 47 S.Ct. 426 , 71 L.Ed. 718 ["[T]he business of renting houses and apartments is not so affected with a public interest as to justify legislative fixing of prices unless some great emergency exists. Block v. Hirsh, supra, p. 157 [ 41 S.Ct. 458 ]; Chastleton Corp. v. Sinclair, 264 U.S. 543, 548 [ 44 S.Ct. 405 , 68 L.Ed. 841 ]. And even with the emergency, the statutes Vent to the verge of the law.'"].)
During the Second World War, in Bowles , the Emergency Price Control Act of 1942 ( 56 Stat. 23 , 50 U.S.C.Appen. (Former Supp. II) § 901) was challenged as a constitutionally impermissible delegation of legislative authority and as a deprivation of property without due process. Congress had expressly invoked its war powers as authority for the legislation and that power was not challenged. The court concluded that the standards for fixing rents were sufficiently definite and accorded property owners due process, relying in part on Block . The court also stated: "Moreover, there would be no constitutional objection if Congress as a war emergency measure had itself fixed the maximum rents in these areas. We are not dealing here with a situation which involves a `taking" of property. Wilson v. Brown, supra . [ [6] ] By § 4(d) of the Act it is provided *123 that `nothing in this Act shall be construed to require any person to sell any commodity or to offer any accommodations for rent.' There is no requirement that the apartments in question be used for purposes which bring them under the Act. Of course, price control, the same as other forms of regulation, may reduce the value of the property regulated. But as we have pointed out in the Hope Natural Gas Co. case ([(1944)] 320 U.S. [591] [591,] 601 [ 64 S.Ct. 281 ] [(1944)]), that does not mean that the regulation is unconstitutional. Mr. Justice Holmes, speaking for the Court, stated in Block v. Hirsh, supra, p. 155 [ 41 S.Ct. 458 ]: `The fact that tangible property is also visible tends to give a rigidity to our conception of our rights in it that we do not attach to others less concretely clothed. But the notion that the former are exempt from the legislative modification required from time to time in civilized life is contradicted not only by the doctrine of eminent domain, under which what is taken is paid for, but by that of the police power in its proper sense, under which property rights may be cut down, and to that extent taken, without pay.' A member of the class which is regulated may suffer economic losses not shared by others. His property may lose utility and depreciate in value as a consequence of regulation. But that has never been a barrier to the exercise of the police power. [Citations.] And the restraints imposed on the national government in this regard by the Fifth Amendment are no greater than those imposed on the States by the Fourteenth." ( Bowles, supra, 321 U. S. at pp. 517-518, 64 S.Ct. 641 .)
This broad language in Bowles was immediately qualified, however, by the court's further observation: "We need not determine what constitutional limits there are to pricefixing legislation. Congress was dealing here with conditions created by activities resulting from a great war effort. [Citation.] A nation which can demand the lives of its men and women in the waging of that war is under no constitutional necessity of providing a system of price control on the domestic front which will assure each landlord a `fair return' on his property." ( Bowles, supra, 321 U.S. at p. 519 , 64 S.Ct. 641 , italics added.)
In Woods the district court had enjoined enforcement of title II of the Housing and Rent Act of 1947 ( 61 Stat. 193 , 196) on the ground that Congress's power to regulate rent ended with a presidential proclamation terminating hostilities. The high court reversed, holding that the 1947 legislation was a valid exercise of the war power of Congress and rejected a claim that exemption of some classes of housing violated the Fifth Amendment.
Although the Supreme Court subsequently stated in Pennell v. San Jose (1988) 485 U.S. 1, 12 , footnote 6, 108 S.Ct. 849 , 99 L.Ed.2d 1 , that it saw "no need to reconsider the constitutionality of rent control per se," and such reexamination may not have been necessary in that case, in fact the court has not upheld rent control against a takings clause challenge other than in wartime emergency circumstances. Those decisions do not uphold peacetime, nonemergency, rent control legislation of indefinite duration against a takings clause challenge either as to the denial of the property owner's right to receive whatever rent the free, competitive market will produce, or as to the restriction on the rights of *124 the owner to use the property for any purpose, withdraw it from the rental market, or terminate tenancies. Bowles made it clear that whether a permanent rent control scheme constitutes a compensable taking under the Fifth Amendment is still an open question. [7]
More recently the Supreme Court has abandoned the concept of property clothed with a public interest the use of which could be restricted through exercise of the police power without compensation, turning instead in Fifth Amendment cases to an ad hoc determination of whether, because a particular regulation goes too far, a compensable taking has occurred. Penn Central, supra, 438 U.S. 104 , 98 S.Ct. 2646 , 57 L.Ed.2d 631 , and Hodel v. Irving (1987) 481 U.S. 704 , 107 S.Ct. 2076 , 95 L.Ed.2d 668 ( Hodel ) exemplify this approach. The "taking" for which just compensation must be paid is not a taking of the entire property but of any of the interests in property, the "sticks" which make up the "bundle of rights" which an owner may claim. (See, e.g., Hodel, supra, 481 U.S. at p. 716 , 107 S.Ct. 2076 [right to devise property]; Kaiser Aetna v. United States, supra, 444 U.S. at p. 176 , 100 S.Ct. 383 [right to exclude others].)
The concept of compensable regulatory taking, hinted at in the early rent control cases, had been expressly recognized earlier in Penna. Coal v. Mahon (1922) 260 U.S. 393 , 43 S.Ct. 158 , 67 L.Ed. 322 ( Pennsylvania Coal ), which confirmed that Block and its wartime rent control progeny were not a Supreme Court imprimatur for rent control legislation. There, owners of surface rights to property under which the coal company had reserved the right to remove all coal, with the surface owners waiving all claims for resulting damages, sought to prevent mining that would cause subsidence. They claimed that the company's rights had been abrogated by a state statute which forbade mining in a manner that would cause subsidence of a home. The company argued that if applied retroactively the statute would be unconstitutional. The state court upheld the statute as a legitimate exercise of the police power. The Supreme Court, in an opinion by Justice Holmes, reversed, stating as a general rule "that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking. It may be doubted how far exceptional cases, like the blowing up of a house to stop a conflagration, go—and if they go beyond the general rule, whether they do not stand as much upon tradition as upon principle. [Citation.] In general it is not plain that a man's misfortunes or necessities will justify shifting the damages to his neighbor's shoulders. [Citations.] We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change. As we already have said this is a question of degree—and therefore cannot be disposed of by general propositions. But we regard this as going beyond any of the cases decided by this Court. The late decisions upon laws dealing with the congestion of Washington and New York, caused by the war, dealt with laws intended to meet a temporary emergency and providing for compensation determined to be reasonable

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1444411. Public record. Not legal advice.