Walter In Denver

Eminent Domain in the Post

Andy made sure that I saw this editorial in the Denver Post today. The Denver suburb of Arvada attempted to seize a piece of a private property to use for a Wal-Mart parking lot but the town was thwarted by the State Supreme Court. The Post notes;

In overturning a district court ruling, the Supreme Court said the authority could no longer rely on the municipality's initial 1981 blight designation to condemn property. Further, the justices held, because blight had been eliminated from the parcel, the urban renewal authority no longer had any basis to exercise condemnation powers.

That ruling is a little to narrow for my taste. I'd like to see local governments blocked from that sort of action in general. The Post concludes:

One court victory doesn't mean the war is over: The legislature needs to make sure that homes and businesses aren't bulldozed merely because a big-box retailer wants to open a store, but redevelopment should not be made impossible.

The legislature is considering that option right now. The really despicable part of using eminent domain to favor one business over another is that it allows the favored business to bypass the market. In essence it's a subsidy for bigger business, in this case Wal-Mart.

Part of the probem is that a some people don't see that the displaced businesses were mis-treated - they were paid market prices for their property, weren't they?

That attitude underscores a fundamental ignorance of economics. The real estate market, like other markets, doesn't fix absolute values. The market can't do that, because there is no such thing. As Ludwig von Mises explained, economic values are subjective, that is, any piece of real estate is worth what you think it's worth.

Here's an example. Suppose you own a restaurant. You're very good at running the place, and it turns a nice profit. You're living comfortably, even if you're not wealthy.

Now suppose Wal-Mart wants the property where your restaurant sits. It's not the best neighborhood, so they don't expect to pay you much for your business. You ask for more money than they think it's worth, and they balk at the price. You won't sell at market price because you like your work, the place has been in the family for generations, and your talent in the business makes it more profitable the market would suggest. None of those three reasons are measurable by outside observers, only you can determine what monetary value they have.

That may sound like an extreme example, that most property owners aren't so attached to their property, but consider; if a property owner thinks the market price is a good deal for him then he doesn't need any additional incentive to sell.

If the above example happens in the city of Arvada, or many other municipalities, Wal-Mart can just go to the local government and and force the property owners to sell.

In that case it's fairly certain the property owner gets screwed.

Posted by Walter at March 3, 2004 09:49 PM