4
Land Markets & the
Law
Urban Land Theories & Policies
IHS/EUR & POLIS University, Albania
Lecturer: Dr. Paul E. Rabé
The Market for Land & Property
A Simplified Framework
Private parties Government
Objectives
Economic Housing Environmental etc.
Development Management
Actors,
Supply and Partnerships and Conflicts Policies and
Demand Regulations
Land Tenure
Physical Characteristics
Land Markets and the Law
Questions for this Topic
1. What is the so-called “tragedy of the
commons”? And what can be done to prevent
this tragedy?
2. What are “property rights”? What shape do
these rights take?
3. What does the concept of a “bundle of rights”
mean? And why is it significant for
landowners?
4. What causes policy shifts towards property
rights in Western democracies?
Public Intervention
Basic Concepts for this Topic
Land Markets and the Law
Important to know the definitions but also
the significance of these concepts!
Common pool resource (CPR or commons)
Tragedy of the commons
Property rights
Bundle of rights
Takings; eminent domain; expropriation
Public interest or public use
Efficiency, effectiveness and equity
Property Rights
Tragedy of the Commons
Definition of a “commons”: a “pasture open to all”
(= metaphor for common property)
Property Rights
Tragedy of the Commons
Garrett Hardin (1968)
One man’s “utility” of adding one more animal
to his herd…
1+1+1+…
Definition: “Utility” is a measure of relative
satisfaction (usually expressed in terms of
consumption of goods and services). In economic
parlance, everyone tries to “maximize their utility”.
But, in the long term, for all users of the
common pasture overgrazing
Negative utility for all
Property Rights
Tragedy of the Commons
Garrett Hardin (1968)
The “tragedy of the commons” is that “freedom in a
commons brings ruin to all”
“Each man is locked into a system that compels him to
increase his herd without limit—in a world that is limited”
“We are locked into a system of fouling our own
nest, so long as we behave only as independent,
rational, free-enterprisers”
Hardin’s frame of reference:
Pollutionand population growth…but relevant to many
more areas, including urban land
Property Rights
Is this a Commons?
Outside Durrës (April 2011)
Property Rights
Tragedy of the Commons
Garrett Hardin (1968)
So what is the solution?
“Private property, or something formally like it”
(in case of agricultural areas, which can be
“fenced”)
“Coercive laws or taxing devices that make it
cheaper for the polluter to treat his pollutants
than to discharge them untreated” (in case of
“air and waters” and other resources that
cannot be “fenced”).
Property Rights
Tragedy of the Commons
Garrett Hardin (1968)
What kind of coercion?
“Mutual coercion, mutually agreed upon by the
majority of the people affected”
Appeals to common sense and human conscience are not
sufficient to ensure compliance!
For mutual coercion that is legitimate, we need
appropriate laws, instruments and social
arrangements
“When men mutually agreed to pass laws, against
robbing, mankind became more free, not less so”.
“Freedom is the recognition of necessity” (Hegel)
Property Rights
A Solution to the “Tragedy”?
“Every new enclosure of the commons involves
the infringement of somebody’s personal liberty (Hardin)”…
But “freedom is the recognition of necessity (quoting Hegel).”
Property Rights
Example & Discussion
Tragedy of the Commons in the peri-urban context:
Agricultural land conversion choice (Example from Harvey
Jacobs, LDS, IHS/EUR)
Individual owner can sell land for €2,500 per hectare to
someone who will use the land for agriculture OR
Individual owner can sell land for €25,000 per hectare to
someone who will convert land for housing
Rational decision-making and its consequences:
Coercive laws: do we need planning laws to protect
agricultural land from mass conversion and/or prevent sales
of agricultural land?
Side effect: these will raise prices of land…
Property Rights
An Alternative View (1)
Not all commentators agree that private property rights
are necessarily the best solution in all cases
Elinor Ostrom (Nobel prize winner in economics, 2009):
“The professional literature (incl. Hardin: PR comment)
is…pessimistic about [human beings] adopting effective
self-regulation…[their] literature is used by policy
analysts to recommend sweeping reforms. These
reforms, however, may ‘sweep away’ successful human
efforts to solve extremely difficult problems” (Ostrom
and Schlager, 1992)
“Blind faith in private ownership, common property
institutions, or government intervention” is not justified in all
cases
Property Rights
An Alternative View (2)
Ostrom’s arguments (Ostrom & Schlager, 1992):
“The development of effective property rights systems to
manage [natural resources or commons] is extraordinarily
difficult no matter what type of property rights regime is
adopted”
“Assigning full ownership rights does not guarantee an
avoidance of resource degradation and over-investment”
Sometimes, alternative (informal) arrangements can be more
effective:
Fishermen on the Maine coast were better able to protect their CPR
through a de facto system of “authorized user, claimant, proprietor,
and owner” than private property arrangements with ownership alone.
The effectiveness of private property rights regimes needs to
be tested in the field in every case
Property Rights
The Concept of “Property”
Dictionary definition:
Merriam-Webster: a) something owned or possessed;
specifically: a piece of real estate; b) the exclusive
right to possess, enjoy, and dispose of a thing:
OWNERSHIP; c) something to which a person or
business has a legal title
Property is a relationship between people with
regard to things:
"... that sole and despotic dominion which one man
claims and exercises over the things of the world, in
total exclusion of the right of any individual in the
universe” (Lord Blackstone, British Jurist,18th Century)
Property Rights
The Concept of “Property Rights”
Property is composed of property rights
What are “Property Rights”?
A “bundle of rights”
A social and legal institution (H. Jacobs, 2002), rooted in a
particular historical and cultural context
A set of “rights and obligations”
“An instrument of society…that help a man form those
expectations which he can reasonably hold in his dealings
with others” (Demsetz, 1967)
“A bundle of rights, characterized by exclusivity; inheritability;
transferability; and enforcement mechanisms”. These rights
define the “legitimate, exclusive uses of land and identify
those entitled to those rights” (Brandão and Feder, 1996)
Property Rights
Bundle of Rights
Property Rights
Bundle of Rights
Each stick represents a different form of right to the property
There are rights representing physical reality and those regulating
social relationships (H. Jacobs):
Soil rights, water rights, air rights, etc.
Right to sell, right to lease, right to prevent access, etc.
Rights can be taken out of the bundle changes over time
Bundles of rights look very different from one location (country, region)
to another!
National and sub-national laws regulate what landowners can do with their
properties
Property Rights
Bundle of Rights: an Example
The 3 components of land:
A landowner might
not enjoy all the
rights described in
the diagram. Local
and national laws
apply!
Source: http://www.uwec.edu/geography/Ivogeler/w270/bundleofrights.htm
Property Rights
Rights and Obligations
Property rights prescribe rights as well as
responsibilities pertaining to land:
Some typical rights in a bundle (H. Jacobs):
Rights representing physical reality
Rights regulating social relationships
Some examples of responsibilities:
Restrictions on ownership, use and transferability
(Rose-Ackerman, 1985)
Property tax contributions
Heritage preservation laws (in some countries)
Etc.
Property Rights
Evolution of Property Rights
Harvey Jacobs (2009)
Property rights change over time
(H. Jacobs, 2009):
Changing social values
Shifts in technology
Other factors…
Appropriate balance of property
rights and public regulation is
never settled continuous
renegotiation is underway
Property Rights
Evolution of Property Rights (2)
Harvey Jacobs (2009)
Case of the U.S. (19th Century):
“Jeffersonian principle”:
Land ownership enshrined as basis for
democracy and freedom
Protection against land “takings”:
Land may be taken only for public use,
and only with compensation
Fifth Amendment to the Constitution: “…
nor shall private property be taken for
public use, without just compensation.”
Property Rights
Evolution of Property Rights (3)
Harvey Jacobs (2009)
Case of the U.S. (21st Century):
Starting in the 1970s, a “quiet revolution” in land use
control:
“It appears that government has been allowed ever-
increasing authority to intrude upon, reshape, and
take away property without respecting the
protections afforded by the Constitution” (H. Jacobs)
Underlying shift: Vacant land is scarce; U.S. is
becoming a more crowded country. Land management
is becoming more of a priority
Governments are adopting more land use controls
(planning, zoning, eminent domain, etc.)
This shift has caused the emergence of a counter-force:
an activist “private property rights movement”
Property Rights
“Takings”
“Takings” of land are done through “eminent domain” or
“expropriation” extreme example of government
regulation
Expropriation/takings are an integral instrument of urban
development policy, but usually as a last resort only
A controversial but sometime necessary instrument for public
authorities access to land for the state
In most Western countries, expropriation is permitted under
certain conditions:
Takings can only be done in the “public interest” (usually for infrastructure
projects or to combat “blight” in the U.S.)
Provision of market compensation
Controversial issues:
Definition of “public interest” or “public use”
Assessment of adequate compensation market rate?
Property Rights
Before Expropriation…
Victoria
Hotel,
Amsterdam
1882-1889:
Developer
failed to buy
out all
property
owners, so
one owner
was left
standing in the
new develop-
ment
Property Rights
Kelo vs. City of New London
Landmark Supreme Court case in the
U.S. (2005)
Has the pendulum swung all the way
in the direction of government
regulation?
Main question: what constitutes
“public use” in expropriation cases?
Court decision: In the Kelo case, public
use was defined as “consolidation of land
for distribution to another private owner
in order to facilitate and further economic
development in the city through new jobs
and increased property tax revenues”.
Property Rights
Kelo vs. City of New London
Exercise:
“Was Kelo decided properly?”
Was “public use” justified in this case?
Assess this from the point of view of the
Balkan situation, using local laws
Formulate a set of arguments for or
against the Supreme Court decision.
Base your arguments on the concepts
discussed in class, as well as recent social,
political, economic and environmental trends.
Form groups
Summarize your arguments on flip chart
sheets
Property Rights
Judging “Takings” Cases
Some questions to Key considerations
consider when analyzing (Azuela, 2007):
“takings” cases: Constitutional issues
Is the public need
Economic development
considered more important Housing as a human
than the interests of those right
who own the land? Protection of investors
What are the social, Three key “tests”:
cultural and economic Efficiency
trends in society that Effectiveness
justify (or not) the use of Equity
“takings”? Where does the
Property rights vs. human balance lie in each
rights? Or both? case, and why?
