Thursday, June 23, 2005

Private property rights died today.

Normally I don't write about politics but the supreme court ruling on eminent domain today, really pisses me off. Briefly, the court ruled that cities have the right to take your land, and sell it to someone else if they think the "someone else" will pay more property taxes than youd do. In this particular case the city of New London, Conn. is trying to take these people's old victorian homes which are located on riverfront property and sell it to a big developer to build luxury condos, an Office Complex, and a Health Club on it. Their justification is that the new property owners will pay more property taxes than the current owners of the property do.

It almost makes me glad that I'm not a homeowner. All of my property is paper assets and intellectual property, rather than land. No city-council is ever going to want to take my QQQQ LEAPS and build a Costco on top of them. Nor do I have to worry about my software copyrights being confiscated so that Donal Trump's can build a limo parking lot on top of them, but all of you people who own actual physical property should be worried and pissed off!

UPDATE: I found this nice post on slashdot. (For the record I thought of this possibility too.):

And that creates a new way around California's Proposition 13 (which keeps them from raising property taxes on your house and land until it sells). Watch for this:

1) Emminent domain the tax-capped house.
2) Sell it to another buyer. (Taxes now at new rate.)
3) Previous owner has to buy a different house. (Taxes now at new rate.)

UPDATE: Here's a post I made on EliteTrade. I definately think that the poor and the middle class get hurt the most by eminent domain, but here's a plausible scenario for how the rich could be hurt as well. Unless one has Gates/Buffet/Soros quantities of wealth, most "rich" people are still "poor" compared to the resources and power of a publicly traded corporation.

... there are lots of beautiful beach-front properties in California with mansions on them that would be far more valuable if it they were developed into condos instead. A developer could easily turn a 29 million dollar beach-front La Jolla estate into a two-hundred million dollar condo complex, selling 2 bedroom condos for a million and a half each. The only thing stopping it is zoning and the willingness of the rich guy to sell his estate.

I could imagine scenarios where a big corporate developers worth 100's of millions of dollars might lobby government to kick rich guys off their land, tear down those mansions, bulldoze their sprawling gardens, and build high-density beach-front luxury condos for the "good of the public". The political power and resources of a rich guy worth tens of millions of dollars, though impressive are still no match for the money and power that a publicly traded corporation like KB homes could muster. When government has this kind of power, no one is safe.


At 6:19 PM, Blogger Alien Shaman said...

I wonder if this could create a new era of development. Every 30 years the city steps in, kicks everyone out, and redevelops that portion of the city. It's great for tax revenues, great for developers, great for cleaning up areas, great for infrastructure, great for reducing inheritance, and all you do is impact people that purchased homes in an area a "long time ago" or people looking for a reasonably priced area they can move into and fix up.

Heck, we could just lease land to people like Mexico does and make it a lot easier on everyone.

At 12:46 PM, Blogger Quant Trader said...

Good point mentioning Mexico. A primary characteristic of 3rd world economies is lack of strong private property rights. In the long term excessive government property takings, may act as a drag on our economy as people become more reluctant to make investments in land. In the scenario you postulated I would say it wouldn't be "great for revenues and development" (although I do realize you were being sarcastic) because over the long term property values would drop. Threat of government confiscation seriously reduces one's incentive to invest in development, which reduces the utility one can obtain from owning a piece of property. This is one of the prime reasons so many 3rd world countries can't seem to break out of poverty. The lack of private property rights (among other things such as weak rule of law, etc...) eliminates the incentive for their people to invest. Without investment they have no wealth creation, and wealth/citizen stays stagnant or declines.


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