Economics

Instead of Suing or Appealing to Regulators, These Manhattanites Paid Market Price for Their Condo Views 

NIMBYs can keep their views. They just have to pay for them.

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Faced with the prospect of a new apartment complex going up next door and blocking their view of the Empire State Building, a group of wealthy Manhattan condo owners in 2016 did something extraordinary: They decided to negotiate rather than litigate.

Together, the building's residents offered developer Gary Barnett, who was behind the neighboring construction project, $11 million for the air rights over his land.

Residents on the upper floors, whose views would be most severely impacted, kicked in up to $1 million to finance the deal. Lower-floor residents paid less, while those on the ground floor paid nothing. Folks that didn't have the cash right away relied on loans from neighbors. Without a single lawsuit or zoning board hearing, these condo owners got to keep their views, and Barnett got his money. It was a win-win.

Mutually beneficial trades over intangible views aren't unprecedented, but they're hardly common either, as Barnett himself told The New York Times. "Most of the time, they sue you and try and stop you somehow. These people stepped up to the plate and paid market value for the building rights," said Barnett.

The deal these parties worked out among themselves is also a textbook example of the Coase Theorem. Named after the late British economist Ronald Coase, it holds that so long as property rights are clear and transaction costs are low, different parties with competing claims will be able to produce an efficient outcome through negotiation, without the need for government intervention. Importantly for Coase, it doesn't matter which side holds the property rights.

In our example, the developer owned the air rights over his land, which he wanted to turn into new, profitable housing. If that were to happen, however, the existing condo owners next door would lose a view they also valued highly. Through their bargaining, we learned that the value the condo owners placed on their view exceeded what Barnett thought he could make from building apartments.

We would expect the same outcome even if the situation were flipped and the condo owners started with a right to their views of the Empire State Building. A developer could offer to buy that right from them. But unless he or she was willing to spend more than $11 million, the odds are that the building next door still wouldn't be getting built.

This story offers a window into how "markets in everything" could reduce the incessant urban conflict between developers and their "not in my backyard" (NIMBY) foes. Most cities deal with the externalities of urban development through regulation. Rules are drawn up for how tall new buildings can be, what they have to look like, and even how much shadow they're allowed to cast. These rules aim to address real problems, but they fail because they allow parties to get something for nothing.

A group of homeowners deeply concerned about their view or the traffic flow on their street need not pay a developer to build a smaller project on his land. Instead, they can ask the local planning department to withhold the developer's permission. This is almost certainly cheaper, particularly when local laws give planners a great deal of power to deny or condition permits for new development.

In addition to being a win-lose proposition, this regulated approach also hides the value of urban land. Is our hypothetical homeowners' view worth more than the return on a larger apartment complex? We'll never know, because the negotiations that would have put a price tag on the view never took place. Crucial information about the most efficient use of urban land thus goes undiscovered.

So long as cities such as San Francisco, Seattle, Los Angeles, and New York give political power to opponents of new development, the negotiations that put prices on seemingly intangible things like views or sunlight will never happen. Developers and their opponents will be forced into politically driven, zero-sum planning and legal processes where only one party can come out on top.

It doesn't have to be this way. As New York's bargain-happy condo owners proved, property rights provide a way to solve these conflicts in a mutually beneficial way. NIMBYs can keep their views. They just have to pay for them.

NEXT: Brickbat: Crikey!

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  1. Microsoft Edge right now is telling me reason.com has a bad security certificate and is trying to direct me away from the site.

    1. It isn’t just edge. It is the cert. Same result on Chrome.

      1. And it looks like they just uploaded the new certificate.

    2. So is Firefox. Said the certificate expired last night. It’s probably their admin fucking up. Else, I’m gonna get a virus.

      1. worse. They stole your password and now they are going to use your account as another sockpuppet.

      2. Apparently, not only can’t they afford decent journalists anymore, they’re also going for the bottom of the barrel when it comes to IT staff.

  2. Never buy property for the view, unless you can buy the view. I guess they could.

    1. I’m about to build a home at $100k profit on a lot I got for free from neighbor A. The other neighbor B, uphill, is trying to block my project because of his view, but the local planner is a Yimby. The planner even said if uphill neighbor wanted it, he should have bought it.

      Praise the arbitrary gods.

  3. This is terrible. Not a single politician got a single ‘campaign contribution’ out of this whole affair!

    1. Its worse than you imagine.

      A community organizer group didn’t get a cut to end their opposition.

      Something has to be done to prevent people from reaching peaceful voluntary agreements.

      1. “Something has to be done to prevent people from reaching peaceful voluntary agreements.”

        I know! Let’s vote for democrats!

  4. While I applaud both parties coming together to settle a dispute without use of government. But, I can also see Reason writing this article in a much different way. How about rich citizens coming together to ensure more much needed housing is not built. All this does is put more upward pressure on the housing costs, keeping lower income citizens from obtaining affordable housing. NIMBYism is bad, period. It really does not matter that one party paid an exorbitant amount of money to the other party, or used the stick of government to beat the other party. The result is still the same.

    It seems to me, considering the amount these people paid for their view, they could have just installed those “projection” windows that can display any scenery they desire.

    1. How does “rich citizens coming together to ensure more much needed housing is not built” plausibly happen? The most they can do is buy up the property in the immediate area. Even in New York, that still leaves lots and lots of other property available for development. And now the prospective developer has more capital to work with, having fleeced all those “rich citizens” in their neighborhood.

      Affordable housing is a problem entirely created by ham-handed government intervention in housing markets. No one has a “right” to live someplace they can’t afford.

      And NIMBY-ism is only bad if you somehow think that your “backyard” extends beyond the property you really own. NIMBY-ism in your actual backyard is just property rights.

      1. The core issue is the concept of “rights”, and what people might be entitled to by political fiat, and what they have to pay for.

    2. “It really does not matter that one party paid an exorbitant amount of money to the other party, or used the stick of government to beat the other party. “

      You don’t see a difference between people making voluntary agreements and using the government to force people to do things they don’t want to do?

    3. That $11M is now available for new construction elsewhere. Money is fungible. Don’t be so short-sighted.

      1. And from the builder’s perspective, it’s $11M risk-free.

    4. How about rich citizens coming together to ensure more much needed housing is not built.

      But more housing will be built, just not right there.

    5. “”It seems to me, considering the amount these people paid for their view, they could have just installed those “projection” windows that can display any scenery they desire.””

      Why do you think they should do it YOUR way.

      This is a problem I have with a lot of people. They want things about them done their way, and things about you done their way. They want to rob you of your own choices while keeping the right to make their own. Most self center group of people ever. Too authoritarian for my liking.

    6. EVERYTHING IS SO TERRIBLE AND UNFAIR!!!!!!!

      Haha

  5. Nice to see some humans who can distinguish what they actually own from what they think they own.

  6. Property owners negotiating with one another is exactly how white supremacy works. Slaves were considered property. Slave owners negotiated slave sales with one another. This property deal is nothing less than 1619 reborn.

    Ronald Coase was disproportionately a white male. There was insufficient diversity in the development of his theorem.

    (Hey Vox/HuffPost/New Yorker – do I get the journalist job now? Huh, do I?)

    1. Meh. Tone it down to white privilege instead of slavery and you might be on to something. No need to get carried away.

      Haha.

  7. Without a single lawsuit or zoning board hearing, these condo owners got to keep their views, and Barnett got his money. It was a win-win.

    In NYC? Rich people in NYC? No, no – I’m not believing it.

    You’re just fucking with us now, Britches.

  8. Next up. The city will seize the property, build what it wants, and you lose your view anyway.

  9. “Instead of Suing or Appealing to Regulators, These Manhattanites Paid Market Price for Their Condo Views.”

    Refresh my memory.
    What’s that old saying about a fool and their money again?

  10. Thanks for sharing this amazing app with us, Really appreciate your efforts.

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