Property-Friendly Urban Development
by George Liebmann

The recent election has seen the adoption in several states of constitutional amendments designed to reverse the recent Supreme Court decision allowing the City of New London, Connecticut to condemn private homes for purposes of economic development. That decision, Kelo v. City of New London, was applauded by supporters of traditional government slum clearance and urban development schemes, and was decried by many conservative writers, including some with a broader agenda of discrediting or prohibiting all forms of redistributive government activity, by regulation and tax as well as by eminent domain. A dialogue of the deaf, similar to that we see in connection with the abortion and ‘gay rights’ controversies, is well under way: a controversial and not well considered judicial decision ignites frequently extravagant political responses; arguments are cast in the form of absolutes, and the underlying social problems are not rationally discussed, a syndrome well-described by Mary Ann Glendon in her "Rights Talk: The Deformation of Political Discourse."

Certainly cities have not benefitted from ‘the federal bulldozer’, used to create huge housing projects, themselves in turn ultimate subjects of demolition, as well as super-highways leading to the suburbs. The condemnation of owner-occupied homes so that land can be handed over to developers is almost invariably unwise and unjustifiable. But it is also an unhappy fact that our inner cities do not lend themselves to spontaneous regeneration. Because of the splintering of lots and the complication of titles by tax liens and tax sales, private land assembly is a difficult and costly process, and developers are held to ransom by ‘hold-outs’; the line of least resistance is to develop on greenfields elsewhere. Improving single properties is likewise difficult; in the worst neighborhoods, vandalism renders it infeasible. Although there is some re-gentrification in historic neighborhoods and around harbors, decay is the rule, renewal the exception. Those who urge that rights of property and ‘law and order’ are all that is necessary to renewal overlook some formidable information and transaction costs.

Several foreign countries in the wake of wars have found a method of private renewal that utilizes private developers rather than public authority and that minimizes, though it does not completely eliminate, governmental coercion. The technique is known as ‘land readjusment’ or ‘land pooling’ and supplies the basis of post-war re-development in the war-damaged cities of Japan, Korea, and Taiwan, as well as in some European cities like Kiel and Rotterdam. The technique derives from measures taken to consolidate splintered agricultural holdings, and was first applied to cities in Frankfurt at the turn of the 20th century. Under it, a specified percentage of owners in a city block petition a city council or court for creation of a readjustment district.

Unlike the situation with eminent domain, any owner-occupier is given an absolute right to exclude his property. If creation of the district is found to be reasonable, the properties within it are appraised. Any owner not wishing to remain in the scheme has the right to be bought out at an appraised value, as in eminent domain. The remaining owners frame a plan of redevelopment, give shares in it to a developer, and on completion of the redevelopment, receive either their improved property, shares in a corporate owner, or a combination of the two. In practice, creation of the districts is driven by developers. The method relieves both developers and municipalities of land acquisition costs, and gives owners, in inner cities typically landlords, absentee investors, or municipalities, an incentive to cooperate in rather than delay and obstruct the redevelopment scheme.

Although a number of American and British academics including William Doebele and Frank Schmidman in the United States and Nathaniel Lichfield and Owen Connellan in Britain have sought to foster the technique, it has never caught fire in the United States, although there is no reason save unfamiliarity why it should not. The Lincoln Institute for Land Policy in Cambridge, Mass. has held several international conferences dealing with the device, most recently in 20002. Similar legal techniques have been used in America to consolidate land parcels in cemeteries and failed recreational developments. Provided that compensation of dissenters is immediate, there are no constitutional obstacles, and the technique has been used in other common-law jurisdictions including Western Australia and two Indian states. When the defenders and foes of Kelo are through screaming at each other and celebrating their victories and mourning their defeats in November’s election, they, and developers and city officials, might usefully turn their attention to this moderate and hopeful device.

The writer, a Baltimore lawyer, is the author of a number of works on neighborhood institutions, including Neighborhood Futures: Citizen Rights and Local Control (Transaction Books,2004)