One year ago the Supreme Court decided the Kelo case, upholding a controversial use of eminent domain. Kelo has precipitated a widespread and healthy debate across the country about when and how this important but intrusive government power should be used.

There is no doubt that there have been abuses, including cases where homeowners, farmers and small businesses have been forced to sell their property for use by developers to build massive distribution centers and shopping malls. And there are memories from decades ago of urban-renewal projects that destroyed vibrant historic neighborhoods for sterile high-rise structures. It is important that such abuses be stopped.

Since Kelo, more than half the states have acted to modify and reform their own eminent-domain rules and procedures. From Pennsylvania to Alabama, Georgia to Idaho, states have enacted new legislation. And the process is continuing.

This is how our federal system is supposed to work, with each state customizing its own law and procedures to meet local needs and reflect its own history and traditions. It ensures that whatever reforms are put in place will be best suited to protect individual property rights, while responding to distinctive local land use planning, zoning and development practices.

While Kelo has had a positive impact at the state level, it has also stimulated members of Congress to pursue a national remedy. Their intention is worthy – to ensure the protection of private property rights.

But we must always be wary in our complex federal system that a well-intentioned national solution not have damaging impact on important state functions. There is no more basic state and local responsibility than land use planning, and federal regulation and restriction should be done with the utmost care to avoid unintended consequences.

Proposed federal legislation, such as has already passed the House of Representatives, should be amended so as not to run this risk. Imposing a blanket prohibition on eminent domain for economic development projects by the states would undermine successful efforts now under way to create tens of thousands of units of affordable housing and homeownership in impoverished and deteriorated center-city neighborhoods.

For example, Melrose Commons, a neighborhood in the South Bronx that was a poster child for urban failure and despair in the 1970s, is now a stunning success story. The strategic use of eminent domain has been a vital part of that success. Extensive community-based planning efforts guaranteed that local residents had a real say in the outcome.

This kind of effort is based on years of work by people in both parties who were willing to be candid about the failures of the past and who shared a common dream for a better urban future. It is being replicated in states and cities across the country.

Melrose Commons demonstrates that we have found a much more effective way to restore deteriorated communities, leveraging private investment, know-how and efficiency to avoid the sterile bureaucratic government programs of the past. And we have seen a flowering of these efforts across America, led by such inspired nonprofits as Habitat for Humanity, Local Initiatives Support Corporation and Enterprise.

The bill adopted by the House should include provisions for neighborhoods with significant blight and crime. Currently it arbitrarily pronounces that a project using eminent domain to build public housing is acceptable, while privately financed and developed affordable housing is not.

We need also be mindful of the lessons of our recent past. We must resist creating unresponsive government bureaucracies. We should be careful not to create a whole new cadre of Washington bureaucrats, perhaps even a National Land Use Board, to decide if each local project across the country violates the new federal eminent-domain law.

Careful federal eminent domain legislation can be justified and beneficial if it ensures that when federal funds are used a project using eminent domain follows rigorous procedures under state law that ensure effective public notice, full public hearings and reviews, detailed findings and development plans, and adequate compensation for homeowners and business owners. Perhaps a state ombudsman should be available to assist aggrieved landowners, as has been successfully pioneered in Utah and now adopted in other states.

Whatever Congress does, it must be sensitive to the balance of our federal system and not seek to remedy one troublesome problem by overriding the effectiveness of states’ powers and responsibilities in areas where they can best operate to the ultimate goal of bringing affordable housing and homeownership opportunities to our blighted urban pockets of poverty.

Mr. Kemp is founder and chairman of Kemp Partners.