Document Type

Article

Publication Title

Minnesota Law Review

Abstract

Externalities of all sorts and descriptions are a fixed feature of all real estate development in advanced societies, for much of the value of owning and using land derives from the simple fact that everyone has neighbors. But having neighbors is a two-edged sword, as they are welcomed on some occasions and scorned on others. To deal with inevitable appearance of neighbors, legal systems have developed a wide range of land-use control devices that have worked their way into the fabric of modern law. Thus modern legal systems contain techniques to regulate the use of land, such as private restrictive covenants and easements on the one side and elaborate local zoning codes and regional growth-control regimes on the other. These same legal systems often develop devices from rent control to affordable housing regimes to regulate the price at which real estate can be sold or rented. The use of these various devices has long been a source of intellectual disagreement and institutional conflict. What is needed in many cases is a single mode of analysis that tries to improvements that they generate and which should be condemned for the discord they sow. In order to achieve that goal, it is necessary to identify which real estate innovations from behind a veil of ignorance generate overall social improvements and which tend to result in redistributive struggles that tend to undermine both political stability and economic growth. In order to achieve that end, it is necessary to take a systematic look at the various devices that are used to identify and control both the negative and positive externalities in real estate markets. This Article take up that challenge by examining the existence and control of negative and positive externalities in real estate markets from a comparative perspective, with special emphasis on English and American law. These externalities are present everywhere but assume their greatest importance in regions with high population densities, where high land values make it essential to allow multiple claimants to create overlap-ping interests in the same parcel of real estate. But how should these common interests be coordinated? One approach is top down, where centralized state authorities make the allocative decisions. The alternative approach is decentralized. The state simply sets and enforces boundaries between strangers, and then it lets multiple parties decide privately whether to pool or to separate their activities. The first approach is marked by noble ambition and backed by claims of dispassionate expertise. Yet the results are usually disappointing. It is much easier for governments to keep people apart than to bring them together. As a rule, voluntary arrangements tend to work better than zoning laws or other compulsory land-use arrangements. In order to explain and defend this thesis, I shall proceed as follows. Part I examines the various meanings of the term externality as it is used in law and economics. Part II then launches a conceptual attack on the externality problem by examining the idealized conditions in which it cannot exist—namely those in which all persons obtain their full bundle of rights and obligations from a single owner, so that they wholly consent to the full package of benefits and burdens they receive. In these settings, any controls over both positive and negative externalities follow identical paths, given that the owner has every incentive to maximize total revenues from his project, which necessarily requires the minimization of future negative externalities and allowing, but not requiring, the creation of future positive ones. Part III then explores the differing treatments of positive and negative externalities when neighboring landowners do not acquire property from a single owner. It explains why it is both easier and more critical to control negative externalities than to create positive ones. It also rejects the provocative proposal of Professor Ariel Porat to recognize a private-restitution remedy for unrequested benefits. 6 Part IV then illustrates the perils of moving from the decentralized private law models generated by the single ownership paradigm to various forms of public intervention in land-use settings, such as zoning laws and affordable-housing mandates. The contrast is clear. The private models do not allow for redistributive objectives to weaken productive decisions. The public models, which operate over a far greater scope, necessarily use coercive power to enforce both land-use regulations and transfer payments. These interventions are far more vulnerable to political influences, especially when their exercise is not hedged in by a requirement to compensate parties who have suffered disproportionate losses of their property rights.

First Page

1493

Volume

102

Publication Date

2018

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