Wednesday, October 18, 2006

Compensation for adversely affected property owners ... in the private and public sectors ...

   Why do homeowners assert NIMBY?  In many cases, it’s because a nearby land use plan may decrease the values of their properties or lower the quality of their lives.  In economic terms, one person’s land use has an external effect upon another person’s property.  If the effect is too much, the offending land use might be enjoined as a legal nuisance.  Likewise, if government “goes too far” in regulating one person’s land in order to protect neighbors or other values, the regulation might be considered a “taking.”  A solution to these external effects is to compensate adversely affected landowners for decreases in property values.  Here’s a twist to this idea in the private sector:  A Los Angeles developer is offering to give nearby residents an equity interest in other developments, in return for their not opposing the condominium.  This solution would avoid the need for up-front “buy outs” of local opposition. 

   Governments probably can’t take similar steps because most government land use efforts –- such as permitting a locally unwanted water filtration plant, or a public housing project, or regulating land for environmental reasons –- don’t provide monetary profits to the government.  Such projects DO, of course, provide a public service.  Accordingly, some property rights advocates argue that adversely affected property owners should be compensated, with the money coming from those (the taxpayers) who presumably benefit from the public service. A tax-and-compensation scheme has the same effect as the private equity-sharing system.  Governments typically resist such ideas, of course, because the citizenry rarely accepts arguments of, “We’re raising your taxes for good projects.”  The public usually prefers to be told that politicians can both provide services and cut taxes at the same time –- perhaps through magic.  In my state of Florida, most of the politicians are filling the airwaves this election season with variants of, “I’ll protect your home from hurricanes, I’ll subsidize your homeowner’s flood insurance, and at the same time I’ll cut your taxes.”

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