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?