For the prior video in this series covering eminent domain, the power to tax and escheat, click here

Which authority controls?

The federal government’s authority to regulate real estate comes from the U.S. Constitution.

Like the state, the federal government has the power to tax and the power to take private property for public use. [U.S. Const., Amend. XVI; Calif. Const., Art. 1 §19]

However, the federal government has no police power. In its place, the federal government has a powerful clause to regulate areas of national concern, called the commerce clause.

The federal government has the right to regulate all commercial enterprises which affect interstate commerce.

Originally, the clause was designed to combat attempts by local states to pass protectionist laws under their police powers which would inhibit the flow of goods between states — interstate commerce. [Gibbons v. Ogden (1824) 22 US 1]

Today, the clause also applies to local and intrastate activities which have an indirect effect on the flow of goods, services and people from state to state.

For example, the federal government’s interest in the flow of commerce between states outweighs a motel owner’s right to exclude specific classes of patrons. The owner’s exclusion interferes with the flow of commerce – which includes the mobility of people. [Heart of Atlanta Motel, Inc. v. United States (1964) 379 US 241]

The federal government’s ability to regulate a purely local activity even extends to local real estate brokers’ activities within their trade unions.

For example, a broker sues the local board of realtors for federal antitrust violations, claiming the association fixes rates charged by its members for their services.

The association ostracizes brokers who refuse to comply with the fee-setting policies established by the association based on the maintenance of a minimum acceptable level of income for its union members.

The association claims the federal government may not regulate their activities as their services are purely local and have no effect on interstate commerce.

Do the federal antitrust laws cover local brokerage activities?

Yes! The association’s fee-setting of the charges for their members’ services affects housing locally, which in turn affects the desire to live in the area, which in turn affects the mobility of people in interstate commerce. [McLain v. Real Estate Board of New Orleans, Inc. (1980) 444 US 232]

Alternatively, states have the sovereignty to regulate within their own borders. At the same time, the federal government has the right to regulate local activities affecting commerce.

What happens when federal and state law conflict? Consider the following example.

An airport is established under the Federal Aviation Act of 1953. The airport expands its number of late-night and early-morning flights. The residents around the airport complain of the noise during late and early hours.

The city where the airport is located passes an ordinance restricting the number of flights between 11 p.m. and 7 a.m.

The airport objects, claiming it was established under the sole jurisdiction of federal law and the Federal Aviation Act of 1953 set forth by the Federal Aviation Administration (FAA) which has no restriction on flights between 11 p.m. and 7 a.m.

Does the federal law preempt (supersede) state law?

Yes! The goals of national flight service and the role of the FAA outweigh local laws inhibiting flight times. [City of Burbank v. Lockheed Air Terminal, Inc. (1973) 411 US 624]

A federal law will preempt state and local statutes and ordinances when:

  • federal interests outweigh local interests;
  • the federal law is so pervasive as to exclude inconsistent state law; and
  • inconsistent treatment nationwide would result if state law controls.

Thus, it is possible for federal and state law to regulate the same real estate activity.

For example, federal and state fair housing laws prohibiting discrimination exist. Both the state and federal governments can regulate fair housing. The state may provide more, but may not allow less, protection than the federal law. [Calif. Civil Code §51]