The property rights controversy you never hear about

Who owns the land?

Headlines hype ranchers occupying public lands while insisting they have rights to use the land without compensating the federal government. What we seldom hear about are private ownership rights under the control of local governments. Today the land development process in Colorado is often met with municipal governments wanting only retail and commercial development so their community can generate sales and property tax based on high commercial, instead of low residential, assessments.

Some local governments also assume residential development creates a net cost to communities rather than a net benefit. In the ideal world of municipal financial officers, communities would have the entire retail tax base while neighboring residential communities get the social burden. This is a tragic form of community development that appears to be worsening along much of the Front Range. 

Urban economists are interested in how communities are born, grow, mature, decline – and are sometimes reborn. In addition to assisting planners as they design urban landscapes and develop property constraints to support sustainable local visions, economists must also consider the vagaries of the market. What does the market want and can the needs be met in a viable manner?

This is where urban economists tend to have a greater affinity for the developer who attempts to allocate scarce capital without taking unwarranted risks. Unfortunately, the capital required is substantial and the greatest risk faced on the front-end is dealing with uncompromising and slow moving planners, politicians, bureaucracies, fire departments, building authorities, etc. – each with their own agenda.

Communities are developed and redeveloped by real estate experts. In much of America, private interests own land, but that property ownership is limited, in theory, for the common good. The rapid growth of constraining property rights really started in the 1950s. This is about the same time economists and lawyers began addressing negative externalities whereby actions benefiting me and costing you should either be prohibited or I should compensate you or the government for the cost created.

There was also the notion that planners and local officials could enhance overall property values and quality of life through zoning – essentially congregating like uses into single locations. Community planning and limiting a complete laissez faire approach to real estate property rights has merit, but it often overlooks other possibilities in creating livable communities. There are models that point to successful alternatives. For instance, high-rise construction that incorporates multiple uses in a single building, or Houston’s model with no zoning and limited land controls, or the emerging trend of new urbanism that again combines different uses in a single location.

What we often forget is private developers are incentivized to build quality projects that attract customers long into the future. Also overlooked is the reality that markets are the mass reflection of individual wants, and that reflection changes. There are always fundamental trends moving markets and giving rise to new approaches to new growth and change. This is where urban planners and local leaders should focus today. 

Many trends argue for more home-based businesses and more walkable communities. Needs of an aging population and infrastructure can be helped by allowing additional housing units on existing residential lots – a perfect use for tiny homes.  Given trends in virtual shopping and working, there is far too much land master-planned for commercial development. There is a need for more warehouse space.  And finally, true urban renewal in dying neighborhoods has a legitimate role to play even though some private rights are subjugated to the common good.

Don’t get me wrong, the point is not to swing the pendulum all the way back to the point where the common interest in private property rights is eliminated, or where public corruption is the way to get things done. But we do need a more balanced perspective and a renewed emphasis on creating communities in a manner that is responsive to market trends.

Categories: Magazine Articles, Real Estate