eminent domain

Since the U.S. Supreme Court’s 2005 Kelo v. New London decision, significant attention has been paid to the way government interacts in the property development realm. The case centered on a comprehensive redevelopment plan meant to augment pharmaceutical giant Pfizer’s new research and development campus (Pfizer announced construction in 1998 and decided to close the facility in 2009). The city devised a plan, financed in part by $15 million in bonds, which included financing for the Fort Trumbull State Park and a mixed-use development adjacent to the Pfizer campus. City planners estimated that the project would create 1,000 jobs and bring in new tax revenue.

After several homeowners refused to sell, the city of New London, Connecticut, initiated eminent domain condemnations through a public development corporation set up to complete the plan. The private developer of the mixed-use property was to receive a 99-year lease at $1 annually in exchange for developing the property in a manner consistent with the city’s plan.

The U.S. Supreme Court—in an unfortunate 5-4 decision—upheld the Supreme Court of Connecticut’s ruling. The lower court found that projected increased tax revenues and job creation resulting from potential economic development satisfied the requirements of the Fifth Amendment’s Takings Clause, which restricts private property condemnations by government only when the land is taken for “public use” and that the owner is given “just compensation.” This ruling, many scholars fear, has essentially rendered the Takings Clause meaningless in terms of its ability to actually protect individual property owners from unnecessary and unjust seizures. Justice Sandra Day O’Connor went as far to write in her dissent that the U.S. Supreme Court’s decision was “to wash out any distinction between private and public use of property—and thereby to effectively delete the words ‘for public use’ from the Takings Clause.”

Fundamentally, property development is an area where government has very little positive to contribute. Government cannot accurately forecast future economic conditions, as the New London-Pfizer situation demonstrates, and public officials have far less expertise in real estate development than private sector investors. Moreover, land-use restrictions such as zoning distort the real estate markets and are often used to justify public-sector involvement in real estate, as the private sector isn’t capable of fighting city hall—or so the story goes.

A recent study on New York City rezoning found that upzoned areas (those where zoning restrictions were eased to allow more types of development) were predominately populated by lower-income minorities outside of “high growth areas.” While upzoning will have beneficial effects on the neighborhood and the city as a whole, eliminating burdensome land-use restrictions such as zoning altogether should be preferred. Removing these restrictions would also neutralize the red-tape cutting argument for more government involvement in real estate development.

Real estate development policy nationwide has also become more beholden to ideological planners. The so-called “smart growth” and “New Urbanism” movements, which aim to promote “sustainable” and “livable” urban development, have begun to dominate urban development policy discussions across the country. These ideological movements have also received support from government bureaus such as the Environmental Protection Agency. Proponents desire to limit “suburban sprawl” and attempt to create denser developments closer to the urban cores, supported by expensive public “livability” projects and transit systems. A new method of promoting and enforcing this ideology is the form-based code.

Form-based codes, which have become quite popular as zoning alternatives in the southeastern United States, go far beyond the government invasiveness of Euclidian zoning regulation. Unlike traditional zoning, form-based codes specify regulatory compliance and land-use requirements that go beyond broad separation of uses restrictions. While they are touted as an improvement over zoning, form-based codes are in reality considerably worse. Public-sector meddling (and the resulting distortions) is increased across the board, which includes new requirements on green space (e.g., shade trees on private property and public parks), accessibility to public transit, and construction guidelines. In essence, form-based codes further undermine the spontaneous order that largely characterized the real estate market prior to the Euclid v. Ambler Reality decision by greatly enhancing the ability of central planners to dictate the terms of development.

Government in recent years has grown more interested in “aiding” the private sector in real estate development through public-private partnerships. The justifications generally given are that markets alone can’t bring about redevelopment—although, if true, policy makers rarely try to understand why that is the case (perhaps consumers don’t want them in the first place?)—and the existing public institutions are inadequate or counterproductive. Most often, this entails either a comprehensive redevelopment plan as was seen in Kelo or the development of large single-purpose structures such as stadiums and indoor shopping malls.

Unfortunately, these are merely symptoms of the disease: the command-and-control urban planning mindset. Planners presumably get the same rush that the political class feels when it “democratically” exercises its authority over the unwashed masses, and have convinced themselves (and much of the rationally ignorant public) that they produce significant social returns. This is not the case. In reality, they are merely misdirecting taxpayer dollars and private investment into development projects that no one desires enough to privately provide—another example of the road to Hell being paved (a bit more literally in this case) with good intentions.