Three years ago today, the Supreme Court decided Kelo v. City of New London, the case in which it held that the Public Use Clause of the Fifth Amendment does not forbid government to transfer property from one private owner to another in order to promote "economic development." The Court ruled that "economic development" by private parties is a "public use" of the condemned property and therefore such takings are permissible.

Kelo stimulated a broader political backlash than any other Supreme Court ruling in American history. As I documented in this article, the decision was opposed by at least 80% of the general public and was condemned by politicians and activists from across the political spectrum. It also led 42 states and the federal government to enact new laws purporting to restrict eminent domain power - a more extensive legislative response than that generated by any other Supreme Court decision.

The third anniversary of Kelo is an excellent opportunity to assess the state of property rights today. On the whole, I think there has been considerable progress over the last three years, even if not as much as some hoped. The cause of property rights is ultimately better off with the Kelo decision than it would have been without it. In this post, I explain why Kelo, severely flawed as it is, was an improvement over what came before. In followup posts, I will briefly summarize progress in protecting property rights at the state level, and consider the new political alliances for property rights that Kelo made possible.

As I explained in this 2007 Supreme Court Economic Review article, Kelo leaves property owners almost completely unprotected against takings. As such, it was definitely a defeat for property owners. Moreover, the Court also misapplied early twentieth century "substantive due process" cases to falsely claim that there was a 100 years of precedent supporting its conclusion that virtually any taking is permissible under the Public Use Clause of the Fifth Amendment (see pp. 240-44 of the SCER article).

Nonetheless, Kelo was a significant improvement over Hawaii Housing Authority v. Midkiff (1984) and Berman v. Parker(1954), the Court's two previous important Public Use decisions. These two cases had held that any governmental purpose could be a "public use" justifying condemnation so long as it was "rationally related to a conceivable public purpose." By contrast, the Kelo majority opinion imposed a slightly stricter (though still extremely permissive) test on economic development takings and Justice Kennedy's concurring opinion held out the prospect that some takings could be invalidated if there was too much "favoritism" towards private parties (these aspects of Kelo are analyzed in great detail on pp. 227-240 of my SCER article).

Far more important than the majority's insignificant new protections for property owners is the sheer fact that Kelo was a close 5-4 decision in which the dissenters argued that "economic development" takings that transfer property to private parties are categorically banned by the Fifth Amendment. This marks a sea change from the "anything goes" approach unanimously adopted in Midkiff and Berman. Ironically, Justice Sandra Day O'Connor - the author of the Court's ultra-permissive opinion in Midkiff - also wrote the principal dissent in Kelo. In her Kelo dissent, O'Connor event went so far as to repudiate what she somewhat misleadingly called the "errant language" she herself had written back in 1984.

Before Kelo, most experts believed that the Public Use Clause was essentially dead as a meaningful restriction on eminent domain. Since 2005, the issue is once again very much alive. Kelo probably won't be overturned in the near future. But the Court's permissive approach to public use is no longer cast in stone, as most experts believed it was before Kelo.

UPDATE: I have corrected the typo in which I accidentally indicated that Midkiff was decided in 1954 rather than 1984.