The knotty questions of private property rights

Some economic problems are the same, regardless of scale. That is true in my neighborhood. Someone developing a never-used lot felled a dozen large oaks. The tract is small, but raises the same economic issues as would millions of square miles of tropical rain forest in Brazil or Zaire.

Economists agree that well-defined property rights are essential to economic efficiency. People making decisions need certainty about what they can and cannot do with things they own. So legal systems of most countries give considerable latitude to property owners. Rights usually include free use for one’s personal benefit, and rights to alter, rent, sell, bequeath to heirs and even to destroy.

But in all systems, there are limitations, the principle being that any use may not harm others. Economists call such collateral harms “external costs.” If you use your property in a way that benefits you but hurts your neighbors, there are limits. And there comes the rub.

Practically, it is impossible to own modern city lots without doing something that hurts a neighbor. Smoke from my barbecue stinks to my neighbor. The boom box her son plays as he paints a wall near our window grates on my ears. If manure around my rhubarb really isn’t “well-rotted,” the odor is nauseating.

Thus we have zoning and nuisance ordinances. These restrict the autonomy of owners to use their property as they might wish.

However, not all “external effects” of property are negative, harming someone else. They can be positive. The scent from one neighbor’s lilacs is pleasant. Another’s motion-activated light increases our safety. Our oaks shade a neighbor’s parties.

A nearby seminary has a large grassed tract that neighbors use as a park. Someone else bought a double lot in 1880, but built on only one half, holding the other as an investment. For decades, the neighbors on the next lot looked at trees rather than a house wall only feet away. And patrons of a food co-op park their cars under leafy oaks when some owner doesn’t develop her commercial lot for decades.

Moreover, these positive effects often are not just “nonmonetary amenities.” Nearby green spaces increase property values. Own a house across the street from the seminary’s open acres and your property has a higher market value than one for which any park is distant. Ditto if your lot adjoins an undeveloped one full of beautiful oaks.

People who benefit from properties of others, whether monetarily or not, dislike losing those benefits, even when owners have legal rights to act. I wouldn’t reproach a neighbor if they rooted out their lilacs, but I would miss the scent and the separation the hedges give. And the food co-op will be a bit less attractive place to shop if a blocky commercial building is next door rather than a mini grove.

People seldom try to block changes when they know owners personally. If a neighbor erected an addition that shaded my gooseberries, I wouldn’t think of objecting. But if a new buyer scraped off the existing house to build a McMansion, as often occurs in some suburbs, I might contest it. If the seminary builds a new library, there will be little opposition. If it tries to sell to a commercial developer to build a swank office building, there will be an uproar. But what if the offices are for a social service agency of the same denomination?

Wetlands serve a common good of runoff reduction and aquifer recharge. We now limit their destruction. Trees improve neighborhoods in many ways that benefit all. So why not restrict their removal? However, if we prohibit clearing trees from a vacant lot, should I have been banned from removing an oak when we built a garage 28 years ago?

Note that imposing limits on use long after tracts were acquired favors early developers. Much of my net worth stems from my mother draining wetlands 60 years ago, drainage that would never be permitted today. Should I condemn others who want to drain now? If someone bought a commercial lot 60 years ago as an investment and let small trees grow to large ones, should we now confiscate much of that accrued value so that the rest of us can continue to enjoy a nice urban grove?

There is no right and wrong here. Impose no rules on property use when there are external effects and the economy is worse off. Resources are wasted and neighbors are harmed. Impose too many rules and there is a similar efficiency loss and owners are harmed.

Note that Zaire and Brazil are in the same boat as the seminary and the owner of the undeveloped lot. For centuries, they left their oxygen-producing forests alone while North Americans and Europeans cut down millions of acres of primeval temperate forests. Now richer people argue that tropical forests are the “lungs of the world” and castigate poorer countries and private developers for inadequate preservation.

Conservationists are right that the world will suffer tremendously if rain forests are eradicated. But we don’t want to pay for their preservation. We live in houses built cheaply by our grandparents when we clear-cut pine across Minnesota and Wisconsin. Most of us don’t blink at buying plywood at the local big box just because it is from the tropics.

There are no easy answers here and less moral high ground than many organizers of NIMBY protest meetings think. Economists can point out trade-offs that others might ignore, but we have no surer insights on where lines should be drawn than anyone else.

This story was originally published December 23, 2016 at 11:39 PM with the headline "The knotty questions of private property rights."