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Public, Health and Welfare Economics

KDI FOCUS

Regulatory Takings and Evasion of Compensation Requirement through Overlapping Regulations

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  • Author Hojun Lee
  • Date 2016/08/29
  • Series No. KDI FOCUS No. 70, eng.
  • Language English
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SUMMARY □ The public’s awareness of property rights has improved significantly, and judicial authorities, including the Constitutional Court, more frequently rule in favor of property rights protection than ever before. Accordingly, it has become vital that a shift be made with regards to conventional perceptions of property rights protection and compensation, and existing systems are reformed in the process of adopting or upgrading regulations.

- Korea lacks definitive criteria that define justifiable state limitations on property rights and compensation and instead, relies on the discretion of those who hold administrative authority.

- The two representative criterions to determine whether to compensate for loss are (1) wellrecognized right before infringement and (2) disproportionality.

- Representative regulatory takings that call for proper compensation include regulations on development restriction zones and development activity in areas designated for urban planning facilities.

- Despite the Constitutional Court’s decision in favor of compensation for the loss incurred via the regulations on development restriction zones and longprotracted projects for urban planning facilities, local authorities have sought to adopt additional regulations in order to evade paying compensation.

- Potentially overlapping regulations need to be overhauled, and regulations that may inflict severe damage to property rights must be based on the law, not on local ordinance. Also, sincere consideration should be given to adopting rules to provide just compensation for the loss incurred.
KDI VOD Report
[Interview]There have been no clear guidelines for state limitations on private property rights and related compensation in Korea.
For this reason, the decisions also have been made primarily based on administrative discretion.

This study examines the infringement of property rights as a result of restrictions and the criteria for compensation.
Additionally, overlapping regulations aimed at evading the responsibility of providing compensation are identified and suggestions to improve the existing system are presented.

An analysis was conducted on the impact of the designation and revocation of development restriction zones on land prices,
focusing on regions that have had the restriction lifted in the early 2000s.

The results show that designation and revocation considerably affect land prices.
The price of designation-revoked land surged by more than 360-660% compared to that of neighboring designated land while rising by a mere 46-94% compared to that of neighboring non-designated land.

This also confirms that the designation of development restriction zones significantly infringes upon the property rights of land owners.

In cases of property rights infringement, two main criterions can determine whether compensation is required:
First is the issue of “Is the right thoroughly recognized to be worthy of protection before the infringement?“
And second, “How large is the disproportionality between the loss and benefit for a specific party due to the regulations?“

Based on these questions, case studies were conducted for development restriction zones.

The stricter regulations for development restriction zones imply that the rights of the land owners are considerably more restricted compared to general land owners.

Additionally, because the regulations on development restriction zones are aimed at ensuring a healthy living environment for citizens, the general public benefits while the burden is shouldered by the land owners alone.
This creates a huge disproportionality.

In all, the decision of compensation can be made based on these two criterions.
And as it has been cleary shown that in the case of development restriction zones, compensation is an absolute requirement.

On similar grounds, the Consitutional Court of the Republic of Korea decided in 1998 that the lack of compensation rules within the existing regulations on development restriction zones was unconformable to Constitution.

However, despite the court’s ruling, local authorities have since
implemented new regulations to evade providing compensation.

Take for example, Seoul Metropolitan City.

As of 2010, the areas for Grade 1 biotope zones and development restriction zones in Seoul considerably overlap.

According to the Urban Planning Act, any and all development activities
are prohibited in areas that have been designated as Grade 1 biotope zones.
This rules out the possibility of acquiring a development permit. This
also means that the nature of biotope zones are extremely similar to
that of development restriction zones.

In fact, rather than making efforts to respond to the outpour of
complaints from land owners following the ruling, and to protect their
rights, the local government implemented similar, overlapping regulations, which in turn, exacerbated the infringement of rights.

Another example is the case of urban natural parks.
It can be seen from the graph, that the land designated for urban natural parks has rapidly receded following a ruling similar to that for development restriction zones.

This may seem as though the infringement issue has been resolved.
But, in reality, a new designation term, ‘urban natural park zones’ was established,
which again worsened the infringement of land owners’ property rights.

[Interview]
Compared to the past, the Korean public’s awareness of property rights is rapidly growing and the courts are holding these rights in higher regard. Therefore, a fundamental shift in perspective is required when considering the implementation or renewal of regulations, protection of property rights and compensation.
Moreover, a general overhaul of overlapping regulations, those for land use in particular, is essential.
For regulations that severely infringe upon property rights, measures must be taken to allow these regulations to be enforced lawfully and not just based on urban plans and local ordinances.
And in the mid- to long-term, a reexamination of the harsher regulations must be conducted to supplement the compensation rules or even alleviate or abolish them.
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