Friday, July 18, 2008

When property rights hurt markets

This may be like throwing gasoline onto a fire, but here goes. Because I'm busy today writing a column for Saturday's Observer -- which I hope you'll read at -- I'll toss out some red meat to the libertarians and free-marketeers among you. Check this book review from about "Gridlock Economy," by Michael Heller, an academic who studies property theory. The subtitle: "How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives."

Heller argues, says reviewer Tim Wu, that creating too many property rights can actually wreck markets. Wu then critiques both the book and Weller's thesis, but concludes that even though it has some flaws it's one of those concepts that helps you see the world in a different way. The idea is that too many property owners means there are too many stakeholders and that can impede the functioning of the marketplace. As Wu puts it, "The basic idea that too many stakeholders can kill a project is well-known to anyone who has ever worked on a committee or spent 15 minutes in Washington, D.C."

Read before you rant. And please recognize that just because I link to an article I find interesting, it doesn't mean I necessarily agree with everything in it. It usually means I'm working on my full-time job as an editorial writer and oped columnist and don't have time for lots of blogging. Full disclosure: I haven't read the book and until today had never heard of Michael A. Heller.


Anonymous said...

The idea is that too many property owners means there are too many stakeholders and that can impede the functioning of the marketplace.

The problem with this whole line of reasoning, Mary, is that it assumes that property rights are something that have to be granted to property owners, when in fact property rights are in inherent part of being an American. Say it with me:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Now, I am all in favor of a well-functioning and prosperous marketplace. Well-functioning markets are synergistically created through the existence of complementary businesses, and they often just happen through no intentional plan.

BUT, I, as a business owner and an individual human being, have to be concerned with my own well-being first, because I am not an ant or a bee and I do not live in a eusociety or hive where the needs of the many outweigh the needs of the one or where I am expected to sacrifice myself on the altar of what is good for anyone else. John Nash's famous Equilibrium holds that sometimes the best result can be achieved through cooperation, but this is not always the case. Altruism for strangers is OK, but only when it does no real harm to the benefactor.

So if it makes financial sense for me to participate in a planned or naturally-emergent marketplace, then I will do that. But if I see a better future for myself if I sell my property to a developer who wants to tear it down and build something else, then that is my call to make, not yours.

Unless, of course, you'd like to buy my property from me at the price I am asking. Then you can do whatever the heck you want with it.

Anonymous said...

Mary , I lived in a neighborhood back in OHIO in the third best sub-division that had no association fee; Everyone for the most part did a great job with their house. One person did a great job with their house and everybody tried to keep pace with them. Home ownership is a privilege in this Country ,as we are seeing with all the foreclosures; I dont like someone forcing me to make my property look one way or another but ,lawns that go unmowed, apartments that are from hell look really bad as well.

Anonymous said...

Mary , I think Charlotte has become way over apartmented and we are all suffering; To much crime and decay is coming with the deal of over apartmented area's; The apartments are from other State's so how does that help Charlotte or any of North Carolina. Other States benefit because most of the money goes back to the headquarters. How many People do apartments hire about seven People?

Anonymous said...

Interestingly, it actually is my call to make if you seeling your property next to mine could harm my health or that of my family. We live in a society, which means we all must deal with each other, whether we like it or not. We have to cooperate with each other for survival and prosperity.

Cooperation is an inherent part of being an American, and has been since the first european settlers had to work together to build each others' homes, survive harsh winters, build infrastructure for their towns and cities, fight wars of independence and self-protection, and so on.

Our right to property cannot trump the rights of others to live or control what happens to their own bodies. It is an important right, but not the ultimate right from which all other rights are derived -- as the libertarians would have us believe.

When the actions you take with your property tend to harm the rest of us, we have a right to stop you -- no matter how profitable that action is for you. If you are my next-door neighbor and decide to tear down your house and build a chemical plant that could poison my family and destroy my property values, I have a right to do something about it. So, not only are property rights not the only important rights (my right to live vs your right to make money from your property), but conflict arises when the property rights of different people come into conflict (the profit value of your chemical plant vs the real estate value of my home).

Anonymous said...

Sorry, but you are forgetting something: Following your example, if I sell my ratty old low-rent building to a developer and he intends to tear it down and build a high-rise, your beef is with him, not with me, as I am not the one building the high-rise. The mere act of me selling my property does not cause direct harm to you, and last I saw, there is no guarantee anywhere that your property values will never decrease. Also, I am under no obligation to continue to own and operate my property according to some imagined status quo that suits you, or anyone else. If I want to sell, I can sell, and it would be unconstitutional for you or anyone else to try to stop me.

I do agree that I can't build a chemical plant, because the effects of it would extend beyond the boundaries of my property. But non-industrial, residential or business construction is what we are talking about here: No one that I know of is proposing a chemical factory in NoDa. So that is a bit of a strawman argument there.

Anonymous said...

It looks like Mary has brought a bunch of grenades back from Cambridge and is ready to use them.

For the record, I'm center left politically, don't listen to AM radio stations, live in an apartment, and studied urban planning in college.

I have no problem with various zoning rules, because I would hate to see a chemical plant or a porn shop next to a residential area. That said, I don't want someone like Mary or her ilk coming in and telling me what color a house should be, what its size should be, or if it's on an urban corridor how high it should be. Common sense people! If high rises are the future of NoDa, so be it. If it involves a pink building, so be it (the Arlington is great for giving directions by the way). The fact it, if certain people on this blog, or this newspaper had their way, there would be no creative or innovative architecture at all around here. Just a couple fake brick warehouses and a white mill house. go to any great city and you will see some amazing structures that totally compliment the area around them. Since Mary was in Cambridge, I wonder when she'll bring up some of the interesting buildings MIT has on its campus. All right along Mass Ave, a walkable street along a subway line. This is what light rail can do for Noda. That takes some forward thinking property owners and developers too, but only if Mary and the city let them.

Anonymous said...

2:59: Exactly.

What Mary and others are proposing is a total freeze on property rents, akin to the rent-control that they have in New York, but only in certain neighborhoods that they deem worthy of "protection". The conversation goes something like this:

Me: "Wow, this building of mine is falling apart. But NoDa is full of new buildings that are better than mine, so I think I'll tear it down and replace it with a new building. Then I can attract customers who want to be in a nicer building."

Mary: "No, because if you do that, you'll charge higher rent. And then all those starving artists won't be able to afford to rent there anymore."

Me: "I'm actually OK with that. I've done my homework and I know that I can attract customers who are willing to pay the higher rents that I plan to charge in my new building."

Mary: "Sorry, no. We've all decided that NoDa should be filled with a certain class of people, and if you raise rents they won't be able to afford to be there. We are not quite brazen enough to force rent control on you, so we're going to try to stop you from changing your building in any way. Unless, of course, we decide that you need to upgrade certain things. But you still won't be able to raise your rent."

As you can see, I am not a big fan of people who try to dictate to me how I can and cannot make use of my private property.

Anonymous said...

^ Nobody in this conversation has suggested a rent freeze other than you. Talk about a strawman.

Anonymous said...

Nobody may have suggested it verbatim, but 3:10 is right on the money with what Mary implies quite often, and that is where she is so wrong.

Anonymous said...

In other words, you feel like it's fair to just put words in her mouth and then refute whatever you think she must have meant? Especially when all she does is say, "this is interesting" and provide a link to someone else's writing?

Doesn't sound to me like there's much attempt on your end to actually understand Mary's point of view, or for that matter any point of view other than the one to which you're already committed.

Anonymous said...

Mary's own words:

I'm very worried about the NoDa business district being beset by the same forces that are hitting South End and threatening the Dilworth historic district and its bungalows.

She is talking, of course, about property values going up and the character of the neighborhood changing as people sell their houses and make other changes.

The way land values work, if zoning allows high rise buildings on your land and there's a strong economic market, eventually you're likely to have high rises there. Say so long to the Center of the Earth Gallery building, the Evening Muse building, the Neighborhood Theatre building, and say hello to more brutalist modern towers like the reviled, pink Arlington.

So while it's true that she did not explicitly say "we need a freeze on rents in NoDa", her meaning was quite clear: Dilworth and South End and now NoDa are all seeing their property values increase, and that is causing those neighborhoods to restructure. In NoDa's case, that means saying good-bye to all of those old buildings, which are often in bad shape and not reflective of the new value of the land, and hello to new buildings. Obviously, with the high property values and new buildings, rent will be higher.

What Mary and others seem to not get is that some other neighborhood, possibly Plaza-Midwood, will naturally become the next NoDa simply due to low rents. But if that new area also becomes hip, then it too will follow the path that NoDa has taken and undergo gentrificiation.

You cannot have your cake and eat it, too.

Anonymous said...

So while it's true that she did not explicitly say "we need a freeze on rents in NoDa", her meaning was quite clear: Dilworth and South End and now NoDa are all seeing their property values increase, and that is causing those neighborhoods to restructure.

Well, there is a HUGE difference between wanting to protect a neighborhood and advocating a rent freeze.

It's pretty well documented that the healthiest communities are those which are well-rounded and balanced. There is no reason to believe that universally-low rents are any better than universally-high rents, because either would disturb the balance of the community and lead to either a ghetto or a highly gentrified enclave respectively.

What NoDa needs is simply balance. There is plenty of room for high-rent condos and schmaltzy businesses catering to the elite. There is also plenty of room for low-rent warehouse lofts and independent coffee shops.

The problem is that only one side of that balance really has the power to protect itself independently: while the wealthy have enough resources to buy up the poor and exclude them from the community, the poor necessarily rely on outside forces for protection. In this case it would most likely be a neighborhood association or possibly the city government.

But in no case has anyone suggesteed a ham-handed approach such as a rent freeze. Simply providing extra incentives for refurbishing homes and operating independent businesses should be enough to maintain the balance in NoDa, and that approach has been quite successful in similar neighborhoods all around the country (including NoDa in its infancy).

I can't find one word of Mary's that suggests she wants to see a full-scale takeover of NoDa by the government. The only people even bringing that possibilty into the conversation are those who have a political agenda to tear down Mary's ideas without really understanding them.

Anonymous said...

What NoDa needs is simply balance.

And what I and those like me are saying is that it should be allowed to find its own balance, as it has done in the past. That means letting property owners keep or sell their property as they see fit. People who move in to the area will obviously want the neighborhood to succeed, and they will work for this to happen.

But we don't need some special set of rules for neighborhoods like NoDa, and we don't need some ham-fisted government busybody deciding what is allowed and what is not.

Don't forget: The neighborhood is made up of the people who live there, not the other way around. NoDa is not Colonial Williamsburg, and it does not need to be managed. Let it evolve naturally.

Anonymous said...

People who move in to the area will obviously want the neighborhood to succeed, and they will work for this to happen... The neighborhood is made up of the people who live there, not the other way around.

I could have understood this statement 5 years ago...

... but how anyone living in Charlotte in 2008 can seriously believe that developers have ANY interest in our communities -- other than selling units, of course, for as much $$$ as possible as quickly as possible -- is beyond me. How many carpetbaggers need to take advantage of our community before people stop bending over and taking it willingly?

Mary Newsom said...

I didn't propose freezing rents. I don't propose freezing property rights. I don't care what color you paint your house and never have, even if it's Clemson orange. Where do you get this stuff?

Note, please, that it isn't until the city rezones a property to TOD or MUDD or UMUD that you're allowed to build a high-rise on it. Most of the city is zoned for low-intensity single-family residential. The city can rezone NoDa or South End for high rises, or rezone it for 5-story buildings, whatever property owners request and the city elected officials decide.

To the poster who remarked on the area of Cambridge around MIT and the interesting, low-scale stores and businesses along Massachusetts Avenue: Cambridge zoning in most areas sets height restrictions, according to a planner I interviewed there. I don't know the intricacies of it, but I'm pretty sure they are lower than the ones Charlotte is approving in TOD areas, and that you can't just take your property on Mass. Ave and build a high-rise whenever you want. That is true in NoDa -- until/unless it all gets zoned TOD. In Charlotte -- unlike what I suspect is the case in Cambridge -- the city council approves most developers' rezoning requests.

Anonymous said...

In Charlotte, the city council not only approves most developers' rezoning requests. It even approves them over the objections of the Planning Department, the Zoning Committee and the majority of residents of the impacted neighborhood.

Lewis Guignard said...

After reading the review, I'm not convinced the author makes his case. The issue in Russia seemed to be one of government permission, the one on an Alzheimers cure made more sense, but it and many of the other examples had to do with intellectual property. The one of highways in Manhattan made the point that anti-commons can do good as well. The one about Indian reservation land being broken into small pieces is true of most land in the US. A family owned 1000 acres and had 5 children. Not having a culture of primogeniture, the land passes to all the children and from them to their many children and thus the land becomes fragmented into 1 acre yards.

Having said that, we don't usually have the problem of too many property rights in the US. Government, by way of eminent domain, will legally/forcibly take your property for 'public' works, or for those rich developers who use government as part of their land acquisition team.

Zoning is a restriction on property rights, whose intent seems to be to give government planners, zoning bureaucrats and attorneys jobs as zoning seems to change to suit the developer.

Heller's argument that property rights cost lives, here he is referring to intellectual property, seems to be forgetting the purpose of copyright and patent laws. They are to encourage innovation and the spread of information by giving protection to those who first find/write/thinkof something. Without them, the innovations he wishes to be made, would not even be considered as much of the knowledge available would be hidden by those not wanting to allow others the opportunity to take the originator's ideas and convert them to their own.


NoDa - A blip in the rise and fall of neighborhoods. People build, the buildings get old, rents fall, starving artists move in, they attract sychophants who make more money, rents rise, the area becomes attractive, new buildings go up, the starving artists move to another area to start the process anew.


Lewis Guignard

Danimal said...

Mary, Cambridge may have height restriction, but not as restrictive as some would want for NoDa. For those who haven't been there, please take a look at the following website.

This features Harvard Square, as well as countless other 'squares' (aka popular intersections/gathering spots) in the Boston area. Along with the colonial architecture, there are some mid-70's glass buildings rising six or more stories high. They don't seem to bother anyone. Also worth noting, chains and independent stores seem to live together in harmony. Local book, record and clothing stores plus restaurants and coffee shops coexist with The Gap, Bank of America, Subway, Starbucks and other familiar names. This is what NoDa should model itself by (along with South End, Plaza-Central, East-Kennelworth,7th-Pecan, etc.) It's like having plenty of little walkable downtowns all over the city with something for everyone.

While we're talking about Cambridge, let's walk down Mass Ave towards MIT. Lat me brig your attention to The Stata Center...

and Simmons Hall...

Some people find these buildings repulsive but I think they rock! What do you think Mary? Is Charlotte ready for something like these?

Daniaml said...

oops, let's try this again

You may have to copy and paste.

Anonymous said...

Mary, the areas that surround uptown Charlotte should be dealt with in this manner; The City should offer buyouts to downspiraling houses in decay; For instance , the city can take a city block and buy it at three times the value per house and then turn that land over to skyscaper development; We did this in my City of Ohio with great results. The ghetto near Dilworth as you go from South BLVD would give People $150,000 dollars and they can take the house with them, so to speak. The money would come from office space and parking garages needed for the next ten years. VOILA' another problem solved.

Anonymous said...

Great suggestion 7:29. we need more people like you to speak up here.

Anonymous said...

To the resident from Ohio, Dilworth could have been considered a ghetto not too long ago until the market decided to make it valuable. The city did not have to buy anything.

Unless the use of a property causes direct physical harm to adjacent residents or properties the government should not be involved. If economic development is the intent the market will decide what to do and when. We don't need to repeat the Brooklyn/Second Ward debacle.

Anonymous said...

The 7:29 comment is interesting, but still there should be a middle ground between buyouts and laissez faire.

Clearly it is the role of city government to intervene in areas which are poised for a downfall, but not the the extreme of simply purchasing and reconverting land. Why not simply provide some kind of incentive for redevelopment in that area? There is a good track record, even in Charlotte, for neighborhoods rebounding due to incentives.

Lewis Guignard said...

The prevous post advocates incentives for areas on a downward slide. Incentives are nothing more than reverse taxes, but avoid the issue of normal economic cycle of new to old to teardown and possibly rebuild.

How is the judgement made? Further the correlation implied by the previous poster may well be coincidental. While incentives have been used on Wilkinson Blvd, to my knowledge they have not in the NoDa area. Neither were they used in Dilworth or Plaza Midwood.

I suppose one could say the new coliseum downtown is an incentive, as was the one off Billy Graham. But what an expense to make rich a limited number of people. Of course that seems to be the goal of many of these 'subsidy/incentive' projects; to make a certain few rich at the expense of the general taxpayer.

Anonymous said...

^ Not sure where you get the idea that cutting taxes is the same thing as raising them. Just think through the contradictions for a moment.

Also, it doesn't make sense to say that by keeping big-money corporate developers from overrunning individual property holders, we are somehow hurting the little guy.

It sounds like you're so opposed to any government that you're willing to let the ship sink rather than plug the leak. As has been said repeatedly -- there IS a middle ground between totalitarianism and libertarianism. Every city, including Charlotte, lives in that middle ground already -- why the big opposition to small-business incentives when we already pour billions into bonuses for the corporate giants?

Seems to me that it's about time for the little guy, especially the little guy who has worked and sacrificed to revitalize a neighborhood, could stand to get a break for a change rather than simply being bulldozed by a Beazer.

Anonymous said...

Seems to me that it's about time for the little guy, especially the little guy who has worked and sacrificed to revitalize a neighborhood, could stand to get a break for a change rather than simply being bulldozed by a Beazer.

The only way the "little guy" gets bulldozed by a Beazer is if he sells his property, which is his choice.

Unless, of course, you are talking about eminent domain.

Anonymous said...

The first time a developer moves in and puts a 5-story multi-use midrise in the neighborhood, all other sales become a foregone conclusion. Once all the neighboring bungalows are reappraised the property taxes will make preservation infeasible.

And while Little Guy might end up with cash in hand, the reality is that he had no choice but to be bought out from the minute corporate developers gained a foothold -- his home was bought-out long before any actual transaction took place.

It's the "eminent domain" of the private marketplace, and just as unfair as government buyouts.

Anonymous said...

What the heck are "reverse taxes"?

Last time I checked it's a GOOD thing when people are taxed less. What better group to be protected from over-taxation than those who have few resources but are trying to do good for the community?

And more importantly, why do the same people opposed to small-business incentives have nothing to say about the way developers have taken advantage of this city for decades?

Anonymous said...

It's the "eminent domain" of the private marketplace, and just as unfair as government buyouts.

Give me a break. The difference between true eminent domain, as exercised by the government, and what you call "eminent domain" is that in the former case, the property owner has no choice but to bend to the will of the state. In the latter case, the owner can demand whatever price he wants, or not sell at all.

Words have meaning. Use them correctly, please.

Anonymous said...

In the latter case, the owner can demand whatever price he wants, or not sell at all.

As 4:03 said above, the property taxes on even a single-story home are astronomical when located next to a high-rise. The owner cannot demand "whatever price he wants" because the developer knows he can't hold onto the property for long (unless the owner happens to be super-rich to begin with). All the leverage lies with the developer, not the property owner.

The root of the problem is that even though it's theoretically possible to keep your property in the face of development, in reality it's impossible. You'll either be taxed into submission, bullied out by aggressive development on all sides, or simply crushed by the political power of their lobbyists. It happens all the time, especially in Charlotte which has no standards when it comes to rolling over for developers. So the "free market" is not free at all for the ordinary citizen, who can only hold out if protected by some outside agent -- be it a neighborhood association or city council or something else. Nothing else seems to work.

Anonymous said...

"Words have meaning. "

So do quote marks. Pay attention to them next time.

Lewis said...

To Post of 7/21 12:08

The point about reverse taxes has to do with how taxes are applied and used. The question was raised about why are some people/businesses chosen to benefit from these 'incentives' and others are not?

Avoiding the question and jumping to conclusions unwarranted by any information, while entertaining, is only slightly amusing.

Incentives are a method of using government's legitimate use of force to engage in a biased activity: charging some groups more in tax than others. The rationale is made that 'oh- these people need it', but again, how is that decision made? Incentives may be a legal use of government, but as they subsidize one group over another, are not a moral use of government.

Better to eliminate any business taxes, leaving only user fees and thus we all have a level playing field. Otherwise, the way the game is played now is known as 'corporatism' (subsidize the already rich).

Anonymous said...

So do quote marks. Pay attention to them next time.

Sure thing, "genius".

Mitch K said...

Brilliant! Just like having too many voters with too many individual opinions impedes the important work of city councils (bonds) or the Federal government. Less voting = government getting more done. Right, Mary?

Anonymous said...

The rationale is made that 'oh- these people need it', but again, how is that decision made? Incentives may be a legal use of government, but as they subsidize one group over another, are not a moral use of government.

There is no law, not even a precedent for that matter, stating that everyone must be taxed at exactly the same level. The fact that you're arguing against a REDUCTION in taxes for small, local, independent businesses should be setting off red flags in your mind that perhaps your theory is not altogether sound.

Nearly every major problem that Charlotte faces -- school overcrowding, rising crime, traffic, blandness, de facto economic segregation, government corruption (see Mary's next blog post), and so forth -- originates with the fact that this city has whored itself to developers for the past 30 years. Think Harris, think Beazer.

Just once it's suggested that small businesses should get a break, and the libertarians rush out to defend corporate developers who are already parasites on our taxes and officials. What does this tell us about your ideology?

But just to pacify the need for developers to crush individual landowners at every turn: How about a preservation incentive that applies equally across the board? That way McDonald's can still buy out and close the Neighborhood Theatre, which seems to be your idea of a "healthy" turn of events, but at least it will have a compelling reason to keep the historic facade.