Shaky Ground

Why Flexible Rules and Reasonable Regulators Are a Builder's Worst Nightmare.

Gene Callahan from the January 2001 issue

(Page 3 of 3)

Epstein's suggested solution is elegant: simply split the difference, awarding half of the damages that would have been awarded had the plaintiff not also been negligent. Although this eliminates all discretion, and may seem to be unfair in some cases, Epstein contends that most cases wind up near this mid-way mark anyway. The huge administrative costs involved in the futile attempt to arrive at a "reasonable" apportionment of blame swamp the meager gains from the few cases where the result of a 50-50 split of losses is manifestly unjust.

Our problem was not that the town had set rules restricting our use of our property. Such rules are necessary, since some property uses significantly affect neighbors and, if permitted, would allow the property owner to impose large costs on others. Preventing us from building a nuclear weapons facility on our rural land in a residential neighborhood does not in a significant way impair our liberty. If we are hoping to construct such a factory, we know in advance to avoid properties with residential-only restrictions, and therefore we are still able to plan.

But the town does not really intend that its restrictions be uniformly enforced. As DeLong points out, regulators prefer vague restrictions that allow them great leeway. This type of restriction requires an administrative apparatus with large discretionary powers, which serves chiefly to enhance the power of bureaucrats. The bureaucracy avoids a public outcry because it drives up the cost of new construction, limiting its supply and raising the prices of existing homes. For the majority of homeowners in town who do not intend to expand in the foreseeable future, the large losses suffered by a small minority are an acceptable cost of protecting their own investment.

DeLong recognizes the basic problem when he writes: "Several things are necessary to restore the balance [in regulation]. The first is to assert the boundaries and certainties of property rights. Cities need to get their basic rules in place, and then let people act, without more nit-picking detailed review. A recent news article reported on the success of city planning in Portland, Oregon. What does Portland do? Well, for one thing, it follows its own zoning laws. If the code says you can build apartments somewhere, that is what you are allowed to do."

Howard fails to see that it is in the market where citizens can properly exercise their discretion over property use and that once government is given discretion in this regard, it has the arbitrary power to decree one citizen's aims more worthy than another's. Although Howard cites Hayek, he does not seem to comprehend his message. Howard has no wish to limit the state's power to infringe upon private property rights as long as it does so "reasonably."

If you enter my house and begin to negotiate with me about what I may watch on TV, the issue at hand is not how reasonably you do so. You have intruded into my private sphere and are unwelcome, however reasonable your requests may seem to you or others. The U.S. Constitution does not say that Congress should "make no unreasonable laws respecting an establishment of religion"; it says that Congress shall make no laws at all establishing a religion. Congress is not enjoined from "unreasonably abridging the freedom of speech" but from any such abridgment. Of course, these rights may come into conflict with others, and the government is well within its bounds in preventing a religious group from practicing infanticide or in punishing free speech if it is slanderous. But these are rare exceptions to otherwise clear rules. As DeLong says, "What is needed is a restoration of government of law rather than government by whimsy."

It is possible to conceive of other, realistic arrangements that would both preserve the property owner's liberty and achieve environmental and planning goals. A government, be it local, state, or federal, can set minimum guidelines that say when a project may proceed without, for instance, a wetland permit-if, say, it is more than 100 feet from any area that is below water more than six months a year. That government can then sell increasingly expensive permits that allow transgressing these limits, up to a point where certain activities, such as draining a pond, may be strictly prohibited. Strictly prohibited should mean that no exceptions can be granted, resulting in clear guidelines for the property owner. Where such restrictions impose a significant burden on property owners when compared to normal use in the area, takings law should apply, and the state should pay for the loss of normal use. (For instance, if two-acre zoning is the norm for an area, a restriction that limits a landowner to one house on a six-acre lot should require compensation.)

These permits should be made fungible, so that a market can develop in them. DeLong notes that such a system of transferable development rights has already been established in many municipalities. With a market in these rights, property owners could plan activities on a site with a reasonable degree of confidence by calculating whether the project would be worth the cost, including the purchase of the necessary rights. The revenue raised could be used to buy and preserve undeveloped properties. If the people in a town want to limit development, this purchasing of open land is by far the fairest and most efficient means available. The townspeople are not able to impose the cost of their preference for open space on isolated individuals, who have had a portion of their property rights seized in order to create a public good.

It is not only economically sensible to establish clear property rights in regard to wetlands, open space requirements, historic districts, and other land use issues. It is also morally correct. Even if a certain course of action is beneficial to a community and requires the abnegation of certain property owners' rights, this does not justify imposing the entirety of the cost of this community benefit upon a few individuals. DeLong notes that "these decisions [to restrict property use] involve a judgment by the supporters of the restriction that someone must sacrifice, and your friends and neighbors have selected you."

A healthier environment, historic preservation, open space: These are not goods that most of us should steal from a few of us. If we want them, we should all be prepared to pay our part of the cost. And citizens who want to use their property as they see fit should not have to grovel before boards that exercise arbitrary power over their lives. Having a "standing rule to live by" makes any tradeoff involved manifest and will ultimately result in both more respect for a community's true values and a more secure right to plan our individual futures.