Coyote Blog

OK, here is the story to date:  Paradise Valley is a small, very wealthy town within the boundaries of Phoenix.  There is no commercial development allowed in the town except for a series of golf resorts, of which there are a number.  The town had one last large tract of unbuilt land, owned by the Wrigley heirs, I believe, that has for years been zoned for a resort.  There was an auction several years ago in which the land was sold for some figure north of $70 million to a group who wants to build a Ritz-Carlton resort, a hotel chain notorious for bringing riff-raff into communities ;=).  The Ritz group unanimously obtained all the town council and planning board approvals it needed to build.

Except now a ballot initiative will be voted on by the town residents in November as to whether to allow them to build a resort on their own land that is zoned for a resort (my previous report, complete with Zillow maps).  This action is consistent with the absolute resistence that every resident's attempt to do a major remodel of their house encounters from various community groups and zoning bodies.

One lesson, of course, is that local participative democracy can be just as much a threat to individual rights as the worst dictatorship  (though this is not a new lesson -- it was in fact learned in Athens when it was first tried).  But a second lesson is just how short-sighted this is.  I am sure residents convince themselves in each such individual effort that they are somehow protecting their property values.  But in sum, the effect of multiple such efforts is to make people reluctant to invest in property in the town, fearful that some citizens group or zoning body will take control of what they can do with their land. 

I live about 4 houses away from the Town of Paradise Valley in the city of Phoenix, though most of my neighbors and even the US Postal Service think I live in PV.  It used to be, about 10 years ago when I moved in, that living outside the PV boundary was considered a negative.  There was a big enormous value gradient between the nearest PV home and mine, based as much on snob appeal of the address as anything else.  Now, however, the gradient is reversing (hurray for my home equity!)  Real estate agents in my neighborhood who used to hide the fact that the homes are not actually in tony PV (shame on them) now use it as a selling point.  My remodel contractor breathed an enormous sigh of relief when he found out that I was, in fact, not in the town of PV.

Help me out, readers.  I seem to remember there was a name for an economic game where the profit maximizing strategy when playing once was different than if one were playing multiple times in sequence.

PS - If you are confused why a town would consider a Ritz to be bringing down the neighborhood, see here, complete with Zillow maps where not a single surrounding home is going for less than $1.8 million. 

Don't buy property in Paradise Valley (a suburb of Phoenix, near Scottsdale) if you actually expect the property to be fully your own.  Even the smallest revisions of your home can require multiple appearances in front of the town council.  By some odd statistical anomaly, property owners with friends in the city government seem to get these changes approved more readily than those without such influence. 

Anyway, things just get worse if you own a lot of land in PV. 

A residents group is preparing to launch a voter referendum against the
planned Ritz-Carlton, Paradise Valley Resort, claiming the project's
residences are too dense....

Scottsdale-based Five Star Development wants to build a 225-room resort
hotel, 15 1-acre home sites, 46 luxury detached homes and 100 patio
homes on about 105 acres northwest of Scottsdale Road and Lincoln Drive.

This really isn't very high density, but this can be a very flaky town.  One thing you have to realize is that I can't remember the last new home I saw go up in PV that was less than 5000 sq ft and 10,000+ sq ft is not at all unusual.  This may be one of the few cases where a town is trying to keep out the Ritz Carlton because its customers will bring down the neighborhood, lol, but that is exactly what is at work here, in part. 

Now I know you think I am exaggerating when I say the locals are worried about a Ritz-Carlton bringing down the neighborhood by attracting the unwashed, but here is the Zillow sales page for the area -- the vacant lot in the lower right is the property in question.

This piece of land has been empty and zoned for a resort for years.  I know it was zoned for a resort long before this sale because I was stuck in traffic court all day and had nothing to stare at but the town zoning map  (don't ever speed when crossing PV).  The buyers purchased this land several years ago (I think from the Wrigley family) after ensuring the zoning was solid.  If the town's residents wanted something else on the lot, they should have bought it themselves.  But it is ever so much cheaper to instead use your political influence to tell other people what they can and can't do with their property.

Another thought:  It is nearly an article of faith among libertarians that devolving government to the smallest possible unit enhances freedom.  Well, here is an example where it does not.  Not state or even city would pass a ballot resolution to change the zoning on one small piece of land.  But it is entirely possible this could pass in a town of just a few thousand people.

Update 6/23: Property rights lost 5-4.  More on Kelo decision here and here.  The arguments below are still valid, even if the SCOTUS did not agree.

As I have written before, there is a disgusting and increasingly popular trend among city governments to seize private property from one owner and give it to a developer who will build something that will generate more property taxes (e.g. seize house to build a new Home Depot).  This theory of eminent domain is being tested in arguments in front of the Supreme Court around actions of New London, CT to seize private houses and handing them over to a developer so he can build a private marina.  New London argues that it is economically depressed, and it needs to substitute some higher tax paying businesses for lower tax paying homeowners.  Dahlia Lithwick in Slate brings us this telling exchange yesterday between the Court and New London attorney Horton:

Justice Antonin Scalia asks what difference it makes that New London is depressed. What if a city acknowledged that it wasn't doing badly, but just wanted to condemn land to attract new industry? He describes Horton's position as: "You can always take from A and give to B, so long as B is richer." And O'Connor offers this concrete example: What if there's a Motel 6 but the city thinks a Ritz-Carlton will generate more taxes? Is that OK?

Yes, says Horton.

"So you can always take from A and give to B if B pays more taxes?" asks Scalia.

"If they are significantly more taxes," says Horton

"But that will always happen. Unless it's a firehouse or a school," protests Kennedy.

The Court even gave New London's attorney a bit of a lesson on how free exchange of goods requires consent of both parties:

"We're paying for it!" Horton exclaims, noting that no one is taking anything from these minorities.

"But you're taking it from someone who doesn't want to sell. She doesn't want your money," retorts Scalia.

Professor Bainbridge points out why Mr. Horton's payment will also be inadequate:

First, it fails to take into account the subjective valuations placed on the property by people whose families have lived on the land, in at least one case, for a 100 years. In other words, if the Supreme Court rules for the city, the government will be able to seize land at a price considerably below the reservation price of the owners. Second, unlike the prototypical eminent domain case, in which the land is seized to build, say, a school or road, in this case the city is using eminent domain to seize property that will then be turned over to a private developer. If this new development increases the value of the property, all of that value will be captured by the new owner, rather than the forced sellers. As a result, the city will have made itself richer (through higher taxes), and the developer richer, while leaving the forced sellers poorer in both subjective and objective senses

Read the whole thing, its depressing, all the more so since commentators seem to feel that New London will prevail.  To my eye, Mr Horton and New London look no different than Stalin-era Soviet planners.  The Economist (sub. req'd)agrees:

Put simply, cities cannot take someone's house just because they think they can make better use of it. Otherwise, argues Scott Bullock, Mrs Kelo's lawyer, you end up destroying private property rights altogether. For if the sole yardstick is economic benefit, any house can be replaced at any time by a business or shop (because they usually produce more tax revenues). Moreover, if city governments can seize private property by claiming a public benefit which they themselves determine, where do they stop? If they decide it is in the public interest to encourage locally-owned shops, what would prevent them compulsorily closing megastores, or vice versa? This is central planning.

Plenty more commentary at Professor Bainbridge (here and here), Volokh (here and here), Cafe Hayek,  and the Knowlege Problem.  The Institute for Justice is defending the property owners and is at the forefront of this fight - win or lose, they deserve props for their efforts.

Postscript:  I generally don't like the arguments I see in some blogs that go like "why aren't the ___________ [fill in  with liberal or conservative] blogs addressing such-and-such issue?"  Blogs are intensely personal, and since most of us write them as a hobby, there are always going to be issues that just don't really get us fired up.  For example, though many libertarian bloggers expend numerous electrons on gun rights, the topic is generally a yawner for me so I seldom go there.

With that said, it is interesting to speculate where the "progressives" are on this case.  When you see a story of a city making a virtue of taking from poorer people to give to rich developers, one would expect the left to go nuts.  As reason describes it (here and here and here):

... a growing number of governments are using eminent domain to circumvent the conventional real estate market. Eminent domain forces property owners to sell their property to the city while the city then turns around and sells the property to developers. Private developers can reap significant financial gains through this process. Reason finds these decisions are increasingly driven by local politics, not respect for property rights, and give well-connected property developers significant advantages over homeowners and small businesses.

Little guy vs. big guy -- where is the Left?  Well, the problem is that progressives generally support the erosion of private property rights.  They like cases that reinforce the ability of government and politicians to take, redirect, or otherwise control private property for their own goals.  In this case, I presume that they are willing to sacrifice a few little guys in Connecticut for the larger goal of increasing statism.

UPDATE:  Apparently the New London attorney ended on a note of mystery, according to SCOTUSBlog:

The moment of the day came in Kelo when the city's counsel attempted to close by saying, "I want to leave you with just four words," then his time expired. (Although he did say -- using more words, "I see my time has expired so I won't be able to tell you them.") Justice Kennedy then asked the plaintiff's lawyer on rebuttal, "You don't happen to know what the four words were?" Regrettably, he didn't.

Here is my guess for New London's last four words: "Everything belongs to us".  Of course "All your base are belong to us" would have been better, but that is seven words.