Houston Strategies

Thoughts on the Supreme Court eminent domain ruling

Well, you've probably already heard about it because it's the top story on newsfeeds everywhere, but if not: the Supreme Court ruled 5-4 today that government can seize property and give it to private developers for economic development purposes, as long as there is a "public good" - which is pretty wide latitude.

This is another case where the arguments are pretty good on both sides. It's a dangerous slippery slope letting government buy out property owners for any "good" reason, but if a handful of recalcitrant - or even extortionist - property owners can hold up any large-scale private development, cities will certainly suffer.

People are screaming about the abuse potential on the government side, but there's a lot of potential for abuse on the private property owner side too. Here's my favorite scenario: you're a big-time commercial developer. You've already got the land you need for your big project. But you want a little "profit insurance", so you assess all the potential spots within a few miles where a competitor might come in (realistically in most cities, there aren't that many). You then buy small slivers of land in those spots, with absolutely no intention of ever selling. If eminent domain is not an option, voila, you've bought yourself a nice semi-monopoly on the cheap. Heck, you could even buy reasonably productive small plots of land that pay for themselves (rent on a house or small commercial center). I think that would strike most people as anti-competitive and unfair.

The Supremes didn't make the ruling I had hoped for. I was looking for something like their distinction between commercial and political speech (the latter has more protection). The solution? Make government pay a premium when eminent domain is for private development. Maybe 20% above market value? If the project still makes sense with that kind of premium, then it has a better argument for being in the "public good". That hurdle would also reduce the potential for abuse: private developers would actually have a financial incentive to negotiate private deals rather than go to the government for eminent domain.

Realistically, with a clear ruling now, I think this will be the wave of the future for larger-scale private developers. City governments will probably set up dedicated offices who do nothing but evaluate private proposals for eminent domain. If I had to predict, there will be a steady sliding down the slippery slope until enough serious abuses happen that the Supreme Court modifies their relatively broad and low-hurdle ruling today.

posted by Tory Gattis @ 3:59 PM