Recently, Adam, Stephen, and I did a podcast with Jake at The Voluntary Life about The Voluntary City. The book is a collection of papers on free market solutions to urban challenges, and we will post a link to the podcast here when it’s available.
In one chapter of the book, Stephen Davies discusses covenants as an emergent solution to the externality challenges inherent between neighbors using their property as they see fit. Since this topic came up in the comments of a recent post about neighborhoods built before Euclidean zoning was widely adopted, I thought it deserved further discussion. A couple of commenters suggested that because properties in Baltimore’s Roland Park neighborhood were sold with deed restrictions attached, the development there was not “organic.” My word choice was ambiguous, but in the post I meant it to signify that the development occurred in response to a market process as opposed to a regulatory regime. Private contracts governed land use as opposed to municipal rules.
Davies explains that covenants first came into widespread use in England, as the country was urbanizing between 1740 and 1850. Because developers could achieve higher values for their land by ensuring complementary uses between adjacent property owners, they put covenants in place to restrict the land uses that would be permitted within a community. Some of these covenants even went so far as to specify house’s architectural details. He writes:
Covenants were used in almost all urban development of the period and for a long time thereafter. Whenever a piece of land or the power to use that land was transferred from one party to another, the transfer, whether a lease or a sale, would normally contain a number of specific stipulations, or covenants. Covenants (literally, treaties) were legally binding agreements between the parties that were part of the contract of sale or lease, so that the failure to observe them could render the sale or lease invalid. . . . They could apply for a fixed term of years or for the term of the lease but were often “perpetual”–in other words, indefinite (The Voluntary City, 28).
While covenants serve some of the same purposes that Euclidean zoning does — preventing land uses that would impose undue negative externalities on neighbors — Davies explains that covenants are not coercive because landowners freely buy into these properties that have covenants in place. Furthermore, developers are competing to create the covenants that consumers most desire. If only deed restrictions limited land use, we would surely see huge variation in their strictness across neighborhoods and cities with some developers perhaps selling lots with no restrictions at all. Developers’ profit incentives and feedback mechanisms to meet varied consumer demand has no parallel in municipally-imposed zoning regulations.
Stephen previously discussed deed restrictions in Houston, the city that many libertarians point to as an example of free market urban development. In Houston, the city actively prosecutes and fines property owners who violate covenants, rather than allowing these contracts to be enforced only by neighbors who would go to the expense and effort to sue violators for breach of contract.
In the comments on the Roland Park post, Charles Gardner points out the awkward fact that privately created deed restrictions are often back by public legislation that allows for enforcement that would not be possible if covenants were treated purely as contracts. In general, the authors of The Voluntary City are optimistic about free market alternatives to zoning. Do you all see potential for deed restrictions replacing top down zoning in urban settings? If so, do you know of any instances of covenant enforcement working well without heavy government intervention?