Is the Debate Over Eminent Domain “Empty and Incoherent”?

In a recent post on Kaur v. Urban Development Corporation, the Columbia eminent domain case currently before New York’s state supreme court, NYU lawprof Rick Hills argues that the debate over eminent domain is largely meaningless. Kaur, like the Atlantic Yards case before it, addresses a key issue in takings law: whether the condemnation of “blighted” property for transfer to a private party qualifies as a “public use” under state and federal constitutions even if “blight” is defined so broadly that almost any area can be declared blighted and condemned.

Hills argues that efforts to address this question are ultimately futile and tend to elide the really important issues:

[T]he doctrinal battle… [in Kaur] really is rooted in empty, incoherent blather that can never be a satisfying basis for a doctrine. “Blight” is an epithet in search of a definition, while “public use” is either merely a requirement of public benefit (in which case, it is judicially unmanageable) or a requirement of public title (in which case, it is a perverse encouragement of statist inefficiency).

The concepts of “public use” and “blight” ignore the real and fundamental dilemma raised by over-fragmented land — viz.: (a) land markets tend to do a poor job of re-assembling over-fragmented parcels but (b) assemblers use eminent domain to hog all of the post-assembly surplus, to the justified resentment of the dispossessed owners. Absent some assembly mechanism beyond arms’ length private bargaining, Manhattanville will be locked into drab industrial uses — gas stations, storage facilities, auto repair, etc — that, I strongly suspect, the owners themselves would quickly jettison if they could get a reasonable share of the “post-assembly” value. Getting rid of eminent domain will not vindicate these owners’ private property rights: It will simply insure that they can remain trapped in a collective action problem

Hills’ argument is interesting. But I think it is ultimately wrong on all counts.

I. Why a Narrow Definition of Public Use Does not Lead to “Statist Inefficiency.”

If, as I have advocated, “public use” is interpreted to require either government ownership of condemned property or at least a right of access by the general public (as in the case of land used by common carriers or public utilities), it will reduce “statist inefficiency,” not aggravate it. Such an approach would block takings like those in the Kelo and Poletown cases, where property was taken from politically weak owners for transfer to politically powerful ones. In the process, far more economic value was destroyed than created. In Poletown, for example, some 4000 people were expelled from their homes and dozens of businesses, churches and schools were destroyed, in order to give the land to General Motors to build a factory, which ultimately failed to generate anything remotely approaching the economic benefits that were promised.

Hills’ argument implicitly assumes that if government is not allowed to condemn property and transfer it to private entities, it will simply undertake the exact same condemnations and use the land for the same purposes itself. This, however, is highly implausible. If the whole purpose of the condemnations was to transfer the land to politically powerful interest groups, that objective won’t be accomplished if the government can’t give them the land they covet. If Detroit were forbidden to transfer Poletown to General Motors, it is hardly likely that the city would have still condemned it and then built a government-owned auto factory on the site. Almost certainly, the condemnation would never have been undertaken in the first place.

To be sure, sometimes public ownership can be a mere fig-leaf for control by a private interest group. In my article on Poletown, I discuss the hypothetical possibility of the government retaining ownership of the area, but giving GM a long-term lease for a nominal fee. Effective enforcement of public use limits on takings requires judicial policing of such subterfuges.

II. The Case for a Narrow Definition of “Blight.”

Hills is right to suggest that “blight” is a vague term. Still, it is more than just an “epithet.” As I argue in this article, there is a strong case for using government intervention (though not necessarily condemnation) to eliminate blight defined as conditions on one property that inflict serious harm on the entire neighborhood, for example by spreading disease. If the effects are spread out over a large area, private parties face a collective action problem in trying to alleviate them.

On the other hand, there is no good justification for using eminent domain or other government coercion to alleviate “blight” defined merely as a lesser degree of development than government bureaucrats consider to be desirable. Market competition can generally do a good job of determining which land should be developed and to what extent. Indeed, defining “blight” so broadly that virtually any area can be declared blighted and condemned will actually undermine development by rendering property rights insecure, thereby deterring investment. Such blight condemnations merely enable politically powerful interest groups to take property that they covet from the politically weak.

Even in genuinely “blighted” areas, condemnation is extremely problematic, often leading to the expulsion of poor and minority populations to benefit more influential groups. But the case for government intervention in such areas is at least a plausible one.

III. Why Private Developers (Usually) Don’t Need Eminent Domain to Prevent Holdout Problems.

Hills also makes the standard argument that we need eminent domain to prevent holdouts from blocking valuable assembly projects. I have answered this claim at some length in this article (204-10). Interested readers should also check out this excellent article by Notre Dame property scholar Daniel Kelly. To briefly summarize, Kelly and I point out that private developers can effectively prevent holdouts by assembling property using secret purchases that prevent potential holdouts from learning that a major assembly project is ongoing. Therefore, they cannot use that knowledge to try to extract so large a share of the profit that the project becomes infeasible. This is how Disney assembled the land it needed for Disney World. Of particular relevance to the Columbia University case, it is also how Harvard University has routinely assembled property it needed in the Boston area. Secret assembly doesn’t perfectly solve all holdout problems. But it does work quite well.

Not only does secret assembly alleviate holdout problems, it is also superior to eminent domain because it sifts out those development projects that create more value than preexisting uses of the land in question from those that do not. By contrast, the use of eminent domain often leads to the transfer of land to uses that are actually less valuable than those of the original owners, as happened in both Kelo and Poletown. If the current owners genuinely value the land more than the would-be developer does, we should actually want the holdouts to succeed. This point is well addressed in Kelly’s article.

Finally, I think that Hills also errs in suggesting that the main problem with eminent domain is that current owners don’t get enough compensation for their losses. Owners are indeed often undercompensated. Yet even perfect compensation would not eliminate the danger that unconstrained eminent domain power leads to takings that actually destroy more economic value than they create. The problem is not so much that developers “hog all of the post-assembly surplus,” as we often end up with a post-assembly loss.

UPDATE: At another time, I will comment on Hills’ and Michael Heller’s important and innovative proposal to operate eminent domain through “land assembly districts” that would give greater protection for current property owners than traditional takings. My general view is that LADs would in many places be an improvement over the status quo, but still inferior to strict enforcement of “public use” constitutional limits on takings. I intend to discuss LADs in some detail in the book on Kelo and public use that I am currently writing.