Gongol.com Archives: August 2021

Brian Gongol

August 31, 2021

Business and Finance Where's the property line?

The inaugural Major League Baseball game at the Field of Dreams in rural Iowa was, by every account, a smashing success. The TV ratings were a hit, the game itself was perfect for the moment, the views were out of this world, and MLB has already committed to coming back. ■ The whispered promise in the movie, as everyone knows, is "If you build it, he will come". But of course, that's not how things work in reality. Look carefully, and you'll find that the Field of Dreams is zoned within the corporate limits of the city of Dyersville, Iowa. And wherever zoning is involved, the "If you build it" can turn iffy in a hurry. ■ Communities routinely choose to make decisions about what may or may not be permitted within their boundaries. A small few choose a libertarian approach (Houston has no zoning), most American municipalities have some regulations, and a few (like San Francisco and environs) are battlegrounds for NIMBYism ("Not In My Back Yard"). (In San Francisco, a business location can hinge not only on what type of company is being operated, but on what floor it is located.) ■ At its heart, zoning seeks to tell people what they can do with their private property, and that's no small thing for a government to do. Consequently, zoning ought to default to the lightest possible touch that a community can agree to accept. Most places won't go for the laissez-faire of Houston, but many ought to try to come close. A modest amount of planning may of course be necessary as a community seeks to lay out the basic orientation of its physical infrastructure. But much more than that risks sacrificing lots of prospective good in order to preserve vague notions of "character" or "feel". ■ The basic assumption at heart is that most projects affected by zoning involve someone seeking to move some form of real property from a lower state of value to a higher one -- like constructing a new building on vacant land. Most people don't get into real estate or construction projects with the intention of turning a high-value estate into a low-value one. But what happens on one piece of land obviously has the potential to affect neighboring properties. ■ Thus, there are really three main tests at the heart of what a community might seek to restrict. Does the proposal meet reasonable and established community standards? Does it do so without imposing any extraordinary burdens on others? And does it create more value than it extracts? ■ If a proposal meets those tests -- and that can include remedies that make a project Pareto-efficient (that is, they compensate one party for the negative consequences of something done by another) -- then it's unlikely that the intervention of government planning authority will do, on balance, more good than harm. Nobody has, for instance, a right to arbitrarily dump radioactive waste in their back yard. But it's not hard to find people who get riled into full-throated opposition even to green energy installations and other projects, particularly when they occur at scale. ■ A good system of private-property rights is based upon predictability for all parties involved. As the Coase theorem would have it, the key is to define property rights carefully and minimize the transaction costs of working out the differences that inevitably arise when people have different interests in the same place. As Benjamin Franklin put it, "Love your neighbor; yet don't pull down your hedge."

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