Kelo: One Year Later

A little over one year ago, the Supreme Court handed down the decision in Kelo, which held that the city of New London could condemn land to sell it to private developers in order to increase the tax base.



At the time, it generated huge amounts of outrage - the formation of Life Liberty Property, a group of about 100 websites being only one manifestation. Bills found their ways into various state legislatures whose stated purpose was stopping eminent domain abuse. A couple have passed, one or two have been rejected, most languished. Nor are any of the ones that have passed aimed at the root causes of eminent domain abuse.



Let's take a step back and look at the situation, which will tell us what the real problem is. Suppose there was no right of eminent domain? I realize such a question is rhetorical at best; for all the abuse and potential for abuse, eminent domain is an occasionally necessary power of the state. But let us consider, for a moment, what the situation would have been if there was no right of eminent domain.



Well, they New London Development Corporation or the developer they represent would have had two options. Either do without Suzette Kelo's property, or offer her a price so good she takes it. The price to change her mind might have been one million dollars, or it might have been ten million. Pretty much everybody has a price at which they will willingly sell.



Such an option would be extremely expensive, as is the other option, of doing without that particular property. Not only do they have to redesign everything, but now Suzette Kelo may have the grounds for a lawsuit. That factory wasn't there when she bought her property, and now it's making all kinds of noise at all hours of the night, generating excessive traffic, etcetera, etcetera, etcetera. It could very well be that the development hampers her enjoyment of her property, I'm pretty certain it would hamper enjoyment of mine in similar circumstances. Keep in mind that it's our tax dollars at work and at risk here.



The central issue, therefore, is money, our private property, not liberty. There is certainly a component of liberty in that we would love to be free not to sell so we could extort huge prices for a property that government or developer basically has to have. Furthermore, there is a little bit of pure greedy unfettered capitalist in the back of my mind asking why being able to extort the state is a bad thing? Cha-ching! But there we go, back to money.



In fact, the central issue of eminent domain is that the condemning agency does not want to offer an appropriate price that compensates the owner not merely for the expense of acquiring a comparable property, but the effort and expense of moving. Unless the property is already on the market, moving is not something the owner wants to do. It isn't cheap to move, and it isn't easy, never mind that if they're running a business there are all kinds of issues involved to make certain you don't lose clients when you move. Therefore, in order to motivate someone who wasn't planning on moving, a price above the market is appropriate.



Furthermore, the fact that condemnation is involuntary merits some compensation on its own. If you do not want to sell (for whatever reason) but are being legally forced to sell, the state should compensate you for the fact that your investment has been aborted.



Now, by way of contrast, real estate is expensive. Expensive enouth that any money the state and developers spend trying to play games with your evaluation will likely be money well spent. A while ago I wrote about a man whose family homestead - 105 acres that had been in his family over a century - was condemned for a new port terminal building in Houston. Initially, he got $1.9 million, reduced on the condemning agency's appear to one dollar. By contrast, for the new port down in Baja California, they are paying around $10 per square foot, and that's not in an urban area. At $10 per square foot, 105 acres would be $45 million dollars plus, and I suspect suburban property in the United States is far more expensive. Especially if it's got a commercial zoning.



Even for residential lots, the games are worth playing for the developer. Appraisals are highly subjective, and they can not only afford the appraisal, they can afford top notch legal help, and if they spend $20,000 but deflate the price $100,000, they come out well ahead. This is the sort of math they do, Their responsibility is to the taxpayers and shareholders, not the current owner of a property they want.



This is why I believe that the condemning agency should pay the legal fees and evaluation fees incurred by the victim of a condemnation suit. This can get to be some real money, money that not everyone has lying around, not to mention the fact that if the idea is to resist the suit, it doesn't seem important to conduct an evaluation. The victim of the suit didn't ask for their land to be condemned; if they had I strongly suspect they would be willing to sell.



Indeed, the point of this is to make it worthwhile for the condemning agency (or developer) to offer a good price for a voluntary sale. If they're paying legal and evaluation expenses for both sides, not to mention employee time tracking and coordinating and documenting the necessity, and because of this, the suit's victim can stop them from getting the property on the cheap, it becomes the most cost effective thing to do to offer a price where the owner will want to sell - voluntarily - in the first place.