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December 1, 2005

"privatizing the neighborhood"

In several books and articles, my colleague Bob Nelson has made an interesting proposal that he neatly summarizes in a new Forbes Magazine column (Robert H. Nelson, "Privatizing the Inner City," Dec. 12). I would rephrase his argument as follows:

1. Older cities have a disadvantage in attracting new development and investment, because their land is divided into small, individually held parcels. If there is a plan afoot to redevelop a district, each landowner can refuse to participate, either because he wants to extract a high price or because he holds a principled objection to the redevelopment. Investment therefore flows to the exurbs where there is wide-open land and no one can veto a plan.

2. Like other old cities, New London, CT, tried to avoid this problem by using eminent domain, a power that the Supreme Court upheld last June. But many people were outraged by the Court's decision, and the U.S. House has already passed a bill to restrict the use of eminent domain for economic development. Indeed, New London's tactic was a troubling exercise of state power--one often used in the interests of gentrification and to the disadvantage of poor residents.

3. There is an alternative. An existing urban neighborhood could be allowed to become a homeowner's association if a super-majority of its residents filed a petition to that effect. The association would gain ownership of the streets and other public facilities. The city would cease providing certain services, such as street cleaning, but the association would buy those services on the market. It would be governed by an elected board with considerable power. Among other things, it could decide to sell the whole neighborhood to a developer and divide the profits among the owners. This is what the residents of Sursum Corda, a public housing project in DC, have decided to do--taking $80,000 per unit as proceeds from the sale of the whole development. Alternatively, the association could allow portions of its neighborhood (such as open spaces or blighted lots) to be developed and then put the profits to common use.

More than half of all new American homes are built in homeowners' associations that collectively own the streets and public facilities, that are governed by majority-rule, and that exercise enormous power over each owner. Most of these community associations are new suburban developments. The association is formed before anyone moves in. Nelson's innovative proposal is to allow associations to be formed in existing urban neighborhoods.

Forbes has entitled Nelson's piece "Privatizing the Inner City." Nelson is something of a libertarian (who once included me in a Liberty Fund conference on homeowners' associations). However, the political valence of his proposal is not straightforward. An orthodox libertarian would not like Nelson's idea because it allows a super-majority to override individuals' rights, thanks to a law. Nelson ends his piece with this analogy: "In the 1930s the Wagner Act provided for collective bargaining between newly organized workers and businesses. Today we need a new Wagner Act that will enable collective bargaining between neighborhood property owners and developers." I can't believe that most Forbes readers admire the Wagner Act. But liberals and leftists ought to give Nelson's proposal a serious look.

December 1, 2005 12:02 AM | category: none


I am skeptical about home owner associations. Casual observation in this country has created the impression that they are not exactly bulwarks of liberty.

On the contrary, they tend to infringe basic rights that benefit both individuals and foster the emergence of quality communities. It often feels like the Bill of Rights does not apply anymore because you are subject to a "private" compact.

The domain of charters ought to be strictly limited and so should be the jurisdiction of association boards. No board should enjoy powers that city councils cannot have.

For example, I visited a family that lived in a neighborhood that prohibited school age children because the senior citizens wanted to keep property taxes low. Such provisions should be unenforceable. Citizens ought to be able to have children at wish without losing access to their own property. I have also seen provisions that interfered with political speech such as the placement of lawn signs and canvassing even during elections. If taken seriously, such provisions are obstacles to empowered communities.

Another reason why homeowner associations are suspect is their take it or leave it approach. Is it really a good idea to give developers and real estate agents the power to define the parameters that will govern communities? I would be much more comfortable with a compact that was negotiated by the community's resident.

For the same reason any compacts ought to include sunset provisions.

Ultimately, however, I believe that eminent domain is the better tool than the inflexible tyranny of covenants. The problem with eminent domain as encountered in New London, has nothing to do with the institution itself. The problem with eminent domain is rather a function of weak political institutions. First, we allow developers to exercise too great a role in campaign financing. Second, the role of expertise in local government ought to be strengthened. In other words, we need a better qualified and more independent civil service. Combine that with public funding of local elections and eminent domain will be used much more responsibly.

Bob Nelson's proposal also seems to be somewhat of an illusion. I cannot understand why any home owners would join such an association when they can retain autonomy over their property.

Even if they would, what about the rights of renters in urban settings? Every citizen can vote for the city council. Renters might not be able to have an equal voice in home owner associations. We might as well return to voting qualifications.

Finally, one has to question the premise that cities cannot prosper unless there is the ability to replace entire neighborhoods. That does not happen in Hamburg, Paris, and London and yet these cities are thriving.

The situation of urban areas would be increased substantially if we enforced quality construction standards and provided incentives to maintain old buildings. While there are some manifestations of urban plight everywhere, the extend of the problem in this country is unique.

"Redeveloping" neighborhoods would not be necessary if it had been developed sensibly in the first place. If I could find a led free home in a good school district then I would move down town tomorrow.

I concede that neighborhood associations can be useful for transitions. They might help us to get from DC to Paris. Ultimately, however, if we prefer Paris to DC, London to New York, and Hamburg to Trenton then we need better governance, i.e. less corruption in the electoral process, institutions that hold economic actors responsible for the long term costs of their business ventures, and incentives that attract investment for the preservation of quality construction.

As institutions come, home owner associations are not a good bargain. They extract a considerable price in terms of individual liberty and suppress vibrant communities. At best they might solve problems, which would not exist if our elites were committed to urban life in the first place.

December 1, 2005 9:48 PM | Comments (1) | posted by Hellmut Lotz

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