“Speculative Future Use” Is Not Enough:
DM Arbor Court v. City of Houston and the Revitalisation of Lucas-Style Categorical Takings

1. Introduction

Hurricane Harvey’s devastation of the Arbor Court apartment complex precipitated an equally powerful legal storm. When the City of Houston, invoking a seldom-used flood-control provision (§ 19-19), refused to issue repair permits unless eight of the fifteen apartment buildings were elevated above flood level, the owners (DM Arbor Court, Ltd.) sued, alleging an uncompensated taking under the Fifth Amendment. After losing in the district court, they secured a sweeping victory in the Fifth Circuit. The appellate court held that the permit denial categorically destroyed every economically viable use of the property and therefore effected a “total” taking under Lucas v. South Carolina Coastal Council. The decision rewrites the regional (and perhaps national) playbook for regulatory-takings litigation involving flood ordinances, emphasising that mere “hope” of future profitable use—or the bare ability to hold property as a long-term investment—will not save a regulation from Lucas’s per se rule.

2. Summary of the Judgment

• Holding: By denying repair permits under Chapter 19 and thereby eliminating any present, economically feasible redevelopment, the City of Houston effected a categorical taking of Arbor Court.
• Disposition: District-court judgment reversed; case remanded for determination of just compensation and related proceedings.
• Key Rationale:
  • Both sides’ experts agreed that compliance costs ($40–46 million) made redevelopment economically impossible.
  • Leaving property “idle” while waiting for hypothetical future opportunities is not an “economically beneficial use.”
  • The ability to sell the land at a steep discount, or to retain a paper residual value, does not defeat a Lucas claim.
  • Flood-control pedigree (§ 19-19’s NFIP roots) does not immunise the regulation from an as-applied takings challenge.
• Dissent (Judge Dennis): Lucas should not apply because (i) some economic value remained, (ii) other hypothetical uses might exist, and (iii) Penn Central factors favour the City.

3. Analysis

3.1 Precedents Cited and Their Influence

• Lucas v. South Carolina Coastal Council (1992) – The cornerstone: a regulation that deprives an owner of all economically beneficial use is a per se taking unless background principles of state law already prohibit the use. The Fifth Circuit amplified Lucas by clarifying that “speculative future development” is not a use at all.
• Penn Central Transportation Co. v. New York City (1978) – The usual ad-hoc balancing test. The panel, finding a Lucas taking, expressly declined to conduct Penn Central analysis.
• Lingle v. Chevron U.S.A. (2005); Cedar Point Nursery v. Hassid (2021) – Modern physical- vs-regulatory-taking taxonomy cited to frame Lucas’s place in per se doctrine.
• Tahoe-Sierra Preservation Council (2002) – Distinguished as addressing temporary moratoria; here the deprivation was indefinite and absolute.
• Vulcan Materials Co. v. City of Tehuacana (5th Cir. 2004) – Fifth Circuit precedent for recognising “economic infeasibility” as equivalent to prohibition.
• Nekrilov v. Jersey City (3d Cir. 2022); Lost Tree Village (Fed. Cir. 2015); MacLeod (9th Cir. 1984) – Cited by both sides on the “residual value” question; the panel used them to show that sale value or investment holding cannot defeat a Lucas claim when present use is wiped out.
• Adolph v. FEMA (5th Cir. 1988) – City’s fallback that NFIP-based ordinances are immune; the court limited Adolph to facial challenges.

3.2 Court’s Legal Reasoning

1. Define the Denominator: The property interest was the entire 15-building complex, not merely the eight damaged buildings, and not merely the land unencumbered by Chapter 19.
2. Economic Infeasibility Shown by Both Parties: Uncontroverted expert testimony established zero present feasible uses given mandatory elevation costs.
3. Rejecting “Hold for Investment” as a Use: The court treated speculative holding as leaving the property economically idle, squarely within Lucas.
4. Sale Value ≠ Economically Beneficial Use: Quoting Nekrilov, the court emphasised that a prospective sale matters only when underlying economic uses still exist, which they do not here.
5. Inapplicability of Flood-Control Justification: Because Lucas imposes a per se rule, public-interest balancing is irrelevant; only a recognised “background-principles” defence could save the City, and it was forfeited.

3.3 Likely Impact of the Decision

• Regulatory Strategy for Local Governments: Cities in the Fifth Circuit must now evaluate repair-permit denials more cautiously; if a regulation would leave property economically inert, compensation (or an alternative accommodation) is constitutionally required.
• Flood-Control and Climate-Adaptation Ordinances: The ruling signals that climate-resilience regulations are not immune from takings scrutiny. Agencies must craft exceptions or buy-out programs to avoid categorical liability.
• Litigation Playbook: Plaintiffs can escape Penn Central’s uncertainty by marshalling undisputed expert evidence of economic infeasibility. The decision lowers the evidentiary bar for Lucas claims where redevelopment costs are objectively prohibitive.
• “Investment-Holding” Argument Devalued: Previously common defence—claiming that land can always be held for appreciation—will carry little weight in the Fifth Circuit and may erode nationwide.
• Prompting Supreme Court Interest: By effectively broadening Lucas, the decision may create tension with circuits that have been reluctant to find categorical takings where any residual value exists, inviting eventual review.

4. Complex Concepts Simplified

• Lucas Categorical Taking: A bright-line rule: if a regulation leaves an owner with no presently profitable or beneficial way to use the land, the government must pay full market compensation.
• Economically Beneficial Use: A use that produces present economic return in the real marketplace. Speculation about future value or mere paper value does not count.
• Background Principles Doctrine: Even if a regulation destroys all use, the government need not compensate if longstanding state property or nuisance law already banned that use. (The City waived this defence.)
• Penn Central Test: The alternative, flexible standard weighing economic impact, investment-backed expectations, and character of government action. Irrelevant once a Lucas taking is found.
• Facial vs. As-Applied Challenge: A facial attack claims a law is unconstitutional in every circumstance. An as-applied attack (this case) says the law’s application to a specific property is unconstitutional.

5. Conclusion

DM Arbor Court re-energises the Lucas doctrine by declaring that property left economically idle is constitutionally “taken,” notwithstanding residual sale value, paper appraisals, or long-term investment hopes. The Fifth Circuit’s uncompromising stance will reverberate through land-use, environmental, and flood-control planning, forcing governments to balance public-safety goals against the Takings Clause’s just-compensation mandate. Practitioners should treat the decision as a cautionary tale: if a regulatory scheme renders compliance cost-prohibitive, the government must be prepared either to compensate or to provide a feasible alternative. In short, the court has reminded regulators that, where property is concerned, tomorrow’s promise cannot cure today’s confiscation.