Chapter 4
Government Controls and Real Estate Markets
Test Problems
Answer the following multiple choice questions.
1. Zoning is an exercise of which type of general limitation on property rights?
2. A comprehensive plan usually deals with which of the following elements?
3. Property taxes are a main source of revenue for:
4. The authority for approving site plans for large projects ultimately rests with the:
5. The most accurate conclusion about the regessivity of the property tax is that it is:
6. Traditional land use controls (pre-1970) include:
7. A new form of land use control that replaces zoning by land uses with separation of
building/development types is:
8. “New urbanism” is a term used to describe:
d. The theory that residential and commercial uses should be integrated, streets and
9. Elements of traditional zoning include all except:
10. Externalities in land use include all except:
Study Questions
1. Assume that you own a small apartment building close to a major commercial street and
a service station. You learn that there has been a major leak of underground storage tanks
from the service station, and the gasoline has spread onto and below the surface of your
property. Discuss sources of value loss to your property from the contamination.
Solution: Most importantly, as the owner, you might be responsible for the cleanup on the
property despite not causing the contamination. Second, the potential resale value is
2. A local businessman has applied for a permit to construct a bar that will feature “adult
dancing” in a commercially zoned area across the street from your residential
subdivision. As an owner of a $350,000 house within the subdivision, would you favor or
oppose this development? What effect do you think it could have on the value of your
property? If you were opposed, how could you fight approval of the permit?
Solution: Constructing an adult establishment near a residential area creates a negative
externality to the surrounding neighborhood. The development probably will adversely
affect home values in the residential subdivision. Opponents to the approval of the
3. A medium-size city has proposed to build a “greenway” along a creek that flows through
the center of the city. The city wants to clear a strip about 50 feet wide and construct a
paved path for bicycles and foot traffic (walkers and joggers). Proponents claim that it
would be a highly desirable recreational facility for the community, while a very vocal
and insistent group of opponents claims that it would degrade the environment and open
properties along the creek to undesirable users and influences.
Identify some specific positive and negative aspects of the proposal. Would you be in
favor of the proposal, if you lived in the city? Would it make a difference if you lived
along the creek?
Solution: Positive aspects of the greenway include economic growth of an area and a
recreational facility for the community. Negative aspects include increased pollution,
noise, traffic and possibly crime. In addition, it is unclear what would happen to property
4. The main argument traditionally advanced in favor of zoning is that it protects property
values. Do you believe this contention? If so, how does zoning protect property values? If
you do not believe the contention, why not?
Solution: Zoning protects property values by ensuring that an undesirable land use will
not exist in a residential or other non-compatible area. Zoning is intended to add
5. Do you believe that the owners of properties contaminated by events that occur on
another property (gasoline leakage or spills, for example) should be responsible for
cleaning up their properties? Why or why not? If not, who should pay for the cleanup?
Solution: The Federal Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”) holds the owner or operator of a site as one of the types of
“responsible parties” for contamination. Under the current law, innocent parties may be
6. The property tax has been criticized as an unfair base for financing public schools. Areas
that have high property values are able to pay for better schools than areas having lower
property values. Thus, there is an inequality of education opportunities that tends to
perpetuate educational and social disadvantages for those who live in low-income areas.
a. Do you agree or disagree?
b. How could school financing be modified to provide more equal funding among all
regions of a state?
Solution: Utilizing property tax revenue to finance public schooling may create an
inequality of education opportunities, assuming that the difference in tax revenue
between wealthy and lower-income communities is not offset by other sources of
7. A property tax owner who owes 8 mills in school taxes, 10 mills in city taxes, and 5 mills
in county taxes and who qualifies for a $25,000 homestead exemption would owe how
much tax on a property assessed at $80,000?
Solution:
Assessed Value $80,000
Less: Taxing Authority Levies Millage Rate Taxes Levied
City 10.0 $550