Is A Referendum Democratic?

The Real Estate Espresso Podcast

Is A Referendum Democratic?

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Is A Referendum Democratic?

Welcome to the Real Estate Espresso Podcast, your Morning Shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. Citizen initiatives and popular referendums are two forms of direct democracy. The citizen initiative is a process that enables citizens to bypass their state legislature by placing proposed statutes and, in some states, constitutional amendments on the ballot. 24 States in the U.S. have a citizen initiative process. A popular referendum process allows voters to approve or repeal an act of the legislature. 23 states have a popular referendum process.

Referenda are processes of referring questions back to voters for a specific direction. Both form and content of a referendum question should reflect this. The first way in which referendum questions should reflect this is in the sorts of questions that are appropriately asked of voters. Referenda, specifically those with constitutional content, are often treated as exceptional. They are treated as exceptional in the democratic sense because they are thought to go beyond the usual democratic processes in institutions. So the political and legal significance attributed to votes in a referendum are far surpassing those of elections, of protests, or even votes in legislatures.

Now, I’m not here to make an argument against the use of referenda. Far from it. But it is an argument for the normalization of them, and in particular, if referenda are going to be used that they be used appropriately. We’ve seen many examples where referendum law has been weaponized against housing developments. In one particular case, a Utah lawmaker is pushing a bill to block voters from challenging legislative land use decisions if they have been approved by a super majority vote. This bill cleared its first legislative hurdle on Monday of this past week when it achieved initial approval from the Senate in the state of Utah by a vote of 18-6. It would need another affirmative vote in the Senate before heading to the House of Representatives.

Now, what’s happening across the state of Utah is the referendum process is being weaponized to hurt developers and cities as they plan for the future. Utah is one of the fastest-growing states in the nation and it’s been forced to reckon with growing pains as both its own homegrown population and immigration put pressure on an already constrained housing supply. Even though Utah leads the country over the last couple of years in terms of homebuilding, it is still facing a significant unit shortage. Like many parts of the U.S., Utah is facing an affordability crisis – especially during the years of the pandemic when a housing frenzy ravaged the western part of the country. The median single-family home price in Salt Lake increased a staggering 63 per cent since the start of this pandemic, from $400,000 in March 2020 to over $650,000 in May of 2022.

In recent years, Utah and other parts of the country have grappled with growth and housing pressure. Currently, Utah has a state law that allows citizens the power to challenge local legislative land use decisions if they gather enough signatures to force the question out of the ballot. There are other parts of the country that allow a similar process. The problem is that uninformed opponents of development argue that building more expensive housing is what’s causing the price of housing increase. But it’s the opposite – blocking development doesn’t keep prices low. The truth is, housing follows the laws of supply and demand. If you restrict supply and demand increases, prices will rise. It’s only by allowing new supply to enter the market that prices can become more affordable.

So under this new bill, SB-199, the sponsor wants to restrict the ability by applying to local legislative land use decisions the same standard that a legislature has when it comes to what is or is not eligible for a referendum challenge. Currently, if a legislature makes a decision with the support of a supermajority or two-thirds then that decision is not eligible for a referendum. If the law gets passed it would specifically affect land use decisions by local governments like city councils and it would be immune to referendum challenges if it’s approved with a supermajority vote. Now, the US division of our company, Y-Street Capital, which is also based in Spanish Fork suburb of Salt Lake City, happens to be the home city of the sponsor of this particular bill.

However, development cannot simply be reduced to a binary yes or no decision and that’s what a referendum does. This was clear, for example, with the Brexit vote. That was a referendum on whether to leave the European Union. The question was so badly worded even a yes vote didn’t fully enable those who were voting in favor 📝 to know what they were voting for or against. It was left up to the public relations exercise to determine what yes meant and in truth, they didn’t really know.

Some people believe that the referendum results in a more democratic process. But there are some questions with so many variables they cannot be reduced to a yes or no question. The referendum process creates a mechanism for a small number of people to circumvent the democratic process by filibustering the process and by frustrating developers simply through the act of putting a question to ballot. Even if the answer in the end is yes to development, the anti-development folks can win simply by costing developers more money by delaying their projects. This is one of those areas where those interested in providing housing need to really step up and provide feedback to their legislative bodies. Weaponizing the legal system against development only serves to hurt the communities in which they were designed to help. As you think about that, have an awesome rest of your day and go make some great things happen.