Eminent domain in the U.S. & housing prices

Factual Questions
1

In the market for a house myself (and especially mindful of prices when an entry-level house here is 175,000+), I found myself thinking of the new expanded use of eminent domain in the U.S.

I’m sure every country has a law of eminent domain, but as I understand it the criteria to meet has been signifigantly reduced in the 'States, to the point that local governments are looking to seize property just to build something similar that would bring in more tax revenue.

Wouldn’t this have a significantly negative effect on property values anyplace that these expanded powers were used? I know I wouldn’t move to or purchase property in a city where I couldn’t be sure I wouldn’t be joining Arthur Dent as one disposessed. OTOH, perhaps it would help the sale of new condos/etc., as if I had to live a certain place, I’d be more inclined to rent.
(Oh, and if anyone feels this would be more at home in GD or IMHO, go ahead and move it.)

2

First, governments have been taking property for questionable “public” use in the US for a very long time. That new football stadium could never get built if there was one old lady who refused to sell to the developers, so the city declares that having a stadium is something the city needs to do, and acquires the property through eminent domain. The only thing that changed recently is that challengers to this idea were shut down by the SCOTUS.

When a government acquires the property, they still have to provide “just compensation” according to our constitution. It’s not like siezure, which to me implies that they just take it.

I’m a small-L libertarian, but even I could see no other way for the SCOTUS to decide that case. A government has to have eminent domain powers, the only question is when should it use them. No one seems to question the right for roads, fewer people question it for stadiums, and it gets lots of objections for building a Wal-Mart. It’s up to the people to elect leaders who use eminent domain appropriately. Maybe I’m missing a key piece of what the case was about; if so please educate me.

3

Oh, and to reply to the specific question that I quoted, since the government has to pay a fair price for the property, this theoretically should have a minimal impact on property values.

4

What is still open is what, exactly, constitutes fair compensation? If I have a $100,000 home (on the lower side for non-slums in my area) and the government offers me $125,000 for my home, is that fair compensation? Let’s assume you still come out way ahead on the deal (moving costs, commissions, etc.). On the surface, yeah, you made out with more than the property was worth. But once it’s re-zoned for commercial use, and in conjunction with all of your neighbors’ properties, let’s say your lot is worth $500,000, and this is what Wal-Mart is going to pay for your lot to the city. Does that $125,000 suddenly sound like a fair payment?

Note: please don’t argue the points above here in GQ; that’s used to illustrate the fact that we still don’t know what constitutes fair payment in the courts. Yeah, you can site precedent, but that’s not what the case was about!

A couple of years ago the Mexican Federal Government wanted to expand the Mexico City airport (and give it a much needed facelift). The government was going to pay a very fair amount to the peasant farmers that occupied the expansion area, and move them to new, wet, fertile lands. Rather than going through the court system, they raised arms and used violence to not leave their lands. The government capitulated, and to my knowledge no one involved is in prison (armed revolt!). So Mexico City is still served by a non-expanding, outdated, piece of crap airport because the federal government was unable to use eminent domain (there were political reasons for their wimpiness that I won’t go into), and this will negatively impact the economy of the region and the nation.

The above is the kind of crap you see when there’s no effective eminent domain (whatever the reason).

I’m curious as to whether there’s any precedent for compensation to neighbors of new developments siezed under eminent domain. If I’m in a $300,000 house (nice place in my area), and a Wal-Mart moves in next door, then my property values are going to plunge. Wal-Marts bring traffic, poor people, litter, noise, dirt, pollution, prostitution, gambling, and drugs with them. Now in order to get away from all of this crap, I’m going to have to sell my house for $150,000, because no one will pay market value to live so close to a Wal-Mart. This low-ball price will scare the neighbors, too, and so now everyone has lost a fortune on their houses, and the beautiful $300,000 neighborhood has become a lower class neighborhood. Now if the municipality had sold out to Nieman Marcus or Marshall Fields, the above scenarious wouldn’t be as likely to happen. And yes, I know I went a little overboard with some of what Wal-Mart brings with it – remember its for illustrative purposes only.

5

Wow, Wal-Marts in Mexico offer a lot more products and services than the ones in the US!

6

This is a common mistake made by first year law students. One of my favorite episodes from con law was when a guy (an arrogant guy–very argumentative and usually wrong). At one point he got all excited and exclaimed to the professor: “That proposition is only supported by **one **case.” The professor quietly replied, “One case that you’ve read.” Same deal here. There are lots of cases on just compensation–both at the state level and in the supreme court.

What if the new use decreased the property value? Suppose they made it a toxic waste dump? Should your compensation be decreased to reflect the near zero (or even negative value that the property will have when the new use is in effect)? Should you be ordered to pay if the property truly gets a negative value?

It shouldn’t make a difference whether the new use came from a taking or from a private developer buying the land in an arm’s length transaction. The issue here is diminution of your property value or interference with your quiet enjoyment of the property. This is handled by nuisance law. Here is a summary of a case from Pennsylvania.

http://www.dsl.psu.edu/centers/aglawpubs/panuisancelaw.cfm

Different states have different formulations of the standards, of course. But zoning law often trumps nuisance. So if the new use is approved, you’re pretty much out of luck.

7

It has been my understanding that usually the developers will attempt to buy out the people who live in an area they want to use for something else before going through eminent domain proceedings. When they do this they usually will pay more than you would get if eminent domain is used to nab the land. This makes economic sense for the developer as eminent domain proceedings are likely to be lengthy and not a sure thing. The developer will pay a premium to get everyone to leave peacefully and happily, less trouble for them, no public relations black eye for kicking out grandma and the store opens for business sooner thus making them more money in the end. If it is true the city would sell the plot of land to the developer fo $500,000, your land is worth $150,000 it makes sense for the developer to tell the owner they’ll give him/her $300,000 now and if they do not sell they risk getting $150,000 from the government.

8

There’s not much new about it, so far as I can tell. In the 1990s, didn’t the Texas Rangers get the benefit of an eminent domain seizure for their new stadium? The Arlington government condemned the land for the stadium plus a whole bunch more. I seem to recall that the property owners there got screwed royally and a group of real estate developers got even richer.

9

Definitely not a new premise. http://info.detnews.com/history/story/index.cfm?id=18&category=business

10

I think we’ve gotten away from the OP’s question.

Eminent domain seizures, even when questionable, have always been for parcels that are, compared to the overall size of any city, small to insignificant. The New London case was for one section of its waterfront and involved 15 houses. No matter what anyone thinks of the ruling, the result will have no impact at all on housing prices elsewhere in New London, because they are simply not now nor ever likely to be candidates for eminent domain.

And the publicity given to this decision makes it more likely rather than less that future uses of eminent domain to benefit private interests in the name of overall city prosperity will be closely scrutinized by everyone.

There’s really no downside at all to this ruling in the sense that Nanoda postulates. If New London or the other cities using eminent domain in this way are right, then a more prosperous city will on average raise housing values (although most houses will see no change one way or the other because they won’t be in the right location). At worst, the developments won’t go through and the city will be in the same shape as before, and very unlikely to be appreciably worse. But the threat of indiscriminate seizures is a partly a paranoid fantasy of anti-government ideologues and partly confusion from very bad reporting of the subject by the media (and the ravings of paranoid anti-government ideologues).

In short, a non-issue.

11

Most of what I know about the issue, I got from a recent episode of PBS’s Now. I wonder whether you saw it. I’d be interested in learning whether you considered what was show in that program as good or bad reporting.

12

Gfactor, when I mentioned, “Yeah, you can site precedent, but that’s not what the case was about!” I meant in reference to citing precedent to what constitutes “fair payment” because such precendents potentially have a new standing based on the supreme court decision in this case, which did mention that “fair payment” is required. There’s no national precedent established above a circuit court level, meaning that relative to the supreme court decision, that’s not what this case was about. Sorry, I’m not a lawyer and wasn’t clearer.

Of course as to the rest, you make good points, but I won’t comment one way or the other because I may agree or disagree, but we’re still in GQ.

I think I can risk this, though: if a developer wants to buy my land, well, I have no special attachment. Pay away!

CurtC: LOL. My opinion of Wal-Mart generally sucks (hence my going overboard in my post above), but interestingly enough, the Wal-Marts I’ve been to in Mexico carry virtually the identical kind of stuff they do in the US. Prices are about the same, too. This means that many items are overpriced considering the local economy. They’re also at commercial locations accessible by car. So in Mexico the Wal-Marts have a very, very different demographic than in Michigan*, where every poor person has a car and access to Wal-Mart, which is cheaper than say Sears or Albertsons or whatever. I still don’t know if being crappy draws the wrong crowd, or if the wrong crowd makes Wal-Marts crappy.

*I say Michigan, because ours all seem to be sucky like this. Other people tell me they have nice Wal-Marts. And I tend to believe them a little, because the ones I’ve been to here seem to be rather nicer than I’ve seen.

13

I don’t mean to browbeat ya, but . . .

  1. The term is not fair payment, it’s just compensation, and it comes right from the 5th Amendment. I couldn’t find the term “fair payment” anywhere in the majority opinion. KELO V. NEW LONDON
  2. The idea of just compensation, coming from the Constitution, is not the slightest bit new.
  3. The link that I provided collects many of the supreme court opinions on the topic of just compensation. As you can see, there’s a lot of them.
  4. You are right *Kelo * did not involve the calculation of just compenstion for two reasons. First, the landowners in *Kelo * were arguing that the government could not take their property even if it paid for it. Second, just compensation law is well-settled. There were no constitutional issues regarding the amount of payment because the court worked most of that stuff out years ago. Indeed, the Court has ruled that “the Government was not obliged to pay the present market value of a tug when the value had been greatly enhanced as a consequence of the Government’s wartime needs.”
14

Sorry, but I didn’t see that show.

15

I honestly don’t know much about this ruling at all either - the biggest reason I ask is due to a CBC radio bit about this attempt to use eminent domain to seize a house belonging to one of the judges on this latest ruling in order to build a hotel.

I don’t question the need for eminent domain, but from what other random information came my way about this later, I was under the impression that the bar for eminent domain in the U.S. had been lowered (or at least, that many people seemed to think so, which for the purposes of my question is the same thing).

If it’s use is as limited as Exapno Mapcase indicates, (and people realize it), then I suppose the effect on housing prices is going to be nil.

Gfactor: It may be off-topic, but I reading this wikipedia summary of the Kelo/New London case, it seems to me that they weren’t arguing that the government couldn’t seize their houses (as it certainly can), but that it couldn’t do so for the reasons it was doing it.

16

Well, yeah. My point was that they weren’t arguing about how much the government should pay them because the were seeking to prevent the taking. I hope it is well known that the government can condemn property for some reasons.

17

Not to hijack or venture into GD territory, but as a fellow small-L libertarian I find that the concept of eminent domain is abhorrent and completely against the principles of freedom. People who refuse to sell their land outright are a minor, rare inconvinience that you just have to deal with. It is THEIR land, and should not be taken away just because you want a stadium, hospital, or what have you. You are free to offer them whatever amount you can afford. If they refuse, well that just means you can’t afford that piece of land. The nature of capitalism tells you to move on and seek more affordable land.

To answer the OP, if you run a propaganda campaign stating that “If you buy land here, it can be taken away more easily than if you buy land there!” or use it in advertising to raise the value of YOUR property, however, I do not think the average american cares what-so-ever about the remote possibility of eminent domain ever affecting them. We just tend not to care about things that MIGHT happen, unless they HAVE happened to us (or were overpublicized on the news). We are more worried about property taxes(and don’t get me started on those, how are those not rent, exactly?) which affect us as soon as we buy the property.

18

Here is a previous thread about the *Kelo *case.

19

That “attempt” is, depending on how one wants to look at it, a satire, a prank, a joke, or a whoosh on people who would take it seriously. It’s just a press release by an organization protesting the decision, or calling attention to it, or making mischief, or something. It was issued solely to get publicity for a tv show that hasn’t been sold yet. It’s not real.

That’s one of the reasons I said the media so badly mishandled the coverage. Too many people now think that this is possible.

20

While I really don’t see anything actually coming of it they seem to be accepting donations for the cause. That, I would suspect, would not be a good idea if you were trying for a joke. In fact they seem to be begging like a TV preacher, which could also be part of the joke but it looks like they are actually setup to take money. Link
I thought this was funny though: