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Kelo, a Year Later

Property Seized by Eminent Domain Must Remain Public

by MOSHE ADLER

Now, a year since the Kelo vs. New London case in which the U.S. Supreme Court affirmed that a local government can take the private property of one person and give it to another, some members of Congress are getting ready to put up a fight. U.S. Rep. James Sensenbrenner, R-Wis., has proposed a bill that would deny federal funds for any project that uses eminent domain to transfer property from one private party to another. If private property is taken by eminent domain, it would have to become public property or there would be no federal funding.

Some local governments, however, oppose the Sensenbrenner bill. In New York City, for example, the commissioner for housing preservation and development has warned that affordable housing and other projects will suffer if local governments have to maintain ownership of the land that they take by eminent domain. It would be better to give private developers full ownership of this land and maintain the method of private-public partnership, the commissioner argues. The record of private-to-private transfer and private-public patnerships in both New York and California provides strong support, however, to the Sensenbrenner bill.

To alleviate the housing shortage that followed World War II, the federal government heavily subsidized the construction of affordable housing with cheap loans — as low as 1 percent in many cases — and with government-subsidized rents. Local governments did their share by giving developers private land that was taken by eminent domain for "urban renewal." These programs did succeed for a while, but now that apartment rents and real-estate prices are skyrocketing in many parts of the country, and just when affordable middle-class housing is particularly needed, the private partners in these partnerships cannot resist the temptations of going to market.

In New York, Metropolitan Life Insurance, the owner of Stuyvesant Town, a housing development that was built entirely on land taken by eminent domain, is exploiting a provision in the rent-regulation law that will permit it to raise its rents to market rates. In California, out of a total of 2,287 federally subsidized housing projects, 271 have already gone to market, either by prepaying their mortgages or "opting out" by refusing to renew rental contracts with the government. An additional 76 projects have announced plans to go to market soon. Everywhere, anxious tenants see their lives taken over by the fight to preserve their homes.

The problem with all of these government projects, obviously, is that their affordability is not permanent. Yet most local governments are too weak to resist the pressure from real estate developers, and fix it. In New York, private-public partnerships still expire after 30 or 40 years. In California, only 1 in 5 "inclusionary housing" ordinances include a permanent affordability provision. Had these governments owned the land that these projects were built on, the problem would have not existed. At the time of lease renewal, the landlord reigns supreme. The main weakness in Sensenbrenner’s law, therefore, is not in what it tries to accomplish, but in the fact it will apply only to properties taken by eminent domain.

Those who oppose Sensenbrenner’s law seem to think that the mere mention of public ownership of land will strike horror in the heart of the public. But public ownership of land is common in Europe, where cities use it for the benefit of the public with great success. In Amsterdam, for example, 90 percent of the land is owned by the city. In Helsinki and Stockholm, the figure is 70 percent. The land is typically used in three ways:

* First, to provide affordable housing. In Amsterdam, 55 percent of the housing is provided by not-for-profit housing associations.

* Second, the rent for the land that commercial enterprises pay is adjusted periodically to reflect the changes in the market value of the land. Hence, when land prices rise, it is the public that is the beneficiary.

* Third, because the city is the landowner, it has full control over its use. All too often in the United States, the public finds that there is nothing it can do to stop offensive structures that manage to conform to zoning regulations. In Amsterdam, the city is the landlord, and, naturally, development cannot take place without the consent of the landlord.

How does it affect life in a city where virtually all the land is owned by the government? In a survey about the quality of life in 350 cities around the world, New York and Seattle tied for 46th and San Francisco ranked 49th. Amsterdam ranked 13th.

Sensenbrenner’s legislation is the most sensible eminent-domain proposal since the Berman vs. Parker 1954 decision that permitted private-to-private transfer of property for urban renewal. Local governments should be its main supporters. Land that is taken by the government should belong to the public.

MOSHE ADLER teaches economics in the department of urban planning at Columbia. He can be reached via his blog, www.mosheadler.blogspot.com