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Thursday, February 19, 2009

Sagalyn on Land Assembly

Lynne B. Sagalyn (Columbia Business School) has posted Land Assembly, Land Readjustment and Public/Private Redevelopment on SSRN.  Here's the abstract:

A firm premise of urban redevelopment is the need for public action to deal with the practical problems of urban land assembly: numerous small parcels, fragmented ownership, and balkanized derivative interests, all of which hinder spontaneous market-driven transformations. Relying on the process of eminent domain to assemble land has been the stalwart convention of urban revitalization as practiced in the U.S. during the decades following World War II. Nonetheless, the use of eminent domain powers is fraught with obvious political problems. Because it is politically unpopular, public officials typically use it only as a last resort, and they are on the defensive from the first announcement of condemnation intentions. Because it is inherently controversial, ensuing litigation inevitably delays projects, sometimes terminally so. While government often prevails in judicial contests of condemnation, the process is not without its costs, as evident in the Kelo case, which intensified rather than diminished the controversy in the court of public opinion.

Given that the condemnation process is so cumbersome and costly, inherently litigious, and full of political risks, what other policy options exist to effectuate public ambitions that call for land assembly? In particular, what is the applicability of land readjustment schemes to public/private redevelopment projects commonly pursed in U.S. cities today?

In this paper I explore the lessons learned from the redevelopment of Times Square at 42nd Street, where 13 acres of prime, if blighted, land was assembled by the customary method of condemnation. This experience vividly argues for a more efficient strategy, though in such large-scale redevelopment project where issues of overall control and the redefinition of land uses are often paramount, land readjustment schemes may be difficult to apply. Land readjustment, however, may be a useful mechanism to rationalize land-use patterns in failed subdivisions, obsolete cooperative apartment houses, older inner-city suburbs or neighborhoods blighted by failed projects of any kind. In these situations, land readjustment is potentially a much more efficient process than governmental site ownership precisely because the original owners are retained as participants, thereby eliminating the need for an Request-For-Proposal (RFP) process to choose redevelopers. The process creates either salable publicly owned parcels or public improvements, both potentially at no cost to the public, while at the same time improving property values and thus, the tax base.

Land readjustment schemes are complex. They require large up-front expenditures of time and cost, tricky valuations of contributed interests and determinations of cost-equivalent land, and holdouts; in addition, the length of time it takes to execute a readjustment scheme defines owners' opportunity cost of pooling their land interests. To discuss the application of a land-readjustment model to urban land assembly for public/private redevelopment, I review three core policy issues (the creation of new economic interests, the balance of public objectives and private interests, and the implications for public finance of a voluntary land-pooling system) and discuss the perceived difficulties arising from the politics of development opposition and the fragmented character of city property markets. Where these politics obstacles are not dominant, land readjustment schemes hold greater potential application. In particular, the model of a joint-stock development corporation holds much promise in cities and states where the politics of development are less fractious and more consensual.

Ben Barros

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