The destruction of inner cities at the hands of bureaucrats wielding eminent domain has been well documented by urban theorists from Jane Jacobs to Richard Epstein. As Ilya Somin points out, eminent domain has played an important role in destroying property in Detroit, contributing to its population losses. Dating back to the implementation of Title 1 of the Housing Act of 1949, urban policymakers began using federal funds for slum clearance. Unsurprisingly, destruction of housing units correlated with the population decline in Detroit and other cities.
While one would think that the horrors of slum clearance under Title 1 have been adequately demonstrated to prevent planners from pursuing neighborhood destruction as an economic growth strategy, cities across the country continue using eminent domain to clear “blighted” neighborhoods. Last year Denver declared an area of its Five Points neighborhood, including 246 homes, blighted, meaning that now developers interested in building in the area can request the city to use eminent domain to grant them the properties that they want. While the Atlantic Yards project received extensive press coverage, policymakers often employ eminent domain more quietly on behalf of stadium builders, benefiting sports fans at a dear cost to neighborhood residents and business owners. Like urban renewal projects dating back to the 1950s, Forest City Ratner has failed to deliver the promised housing that was part of the Atlantic Yards agreement when the city agreed to condemn the neighborhood.
Perhaps Robert Caro provides the most poignant description of the horrors of eminent domain in The Power Broker, explaining the losses of neighborhood cohesion when the tool is used to demolish private housing to be replaced by public housing or in some cases vacant lots when promised public works are not delivered. One would think that the well-documented failures of urban renewal would lead policymakers to be very cautious when employing eminent domain for corporatism, or “public benefit.” However, even in the Kelo case in which the Supreme Court established that cities can legally use eminent domain in an attempt to provide public benefit through economic development, the Pfizer project for which homes were condemned fell through. Not only did New London policymakers fail to incite economic development by demolishing houses, they shrunk their tax base and created the blight of vacant lots where there was no blight before.
Today, policymakers in California are leading the charge to use eminent domain in a creative new way: using its power to confiscate underwater mortgages from banks, write them down to current market values, and refinance homeowners’ loans with more favorable terms. While the policy has yet to be implemented, unintended consequences are easy to foresee. Once city policymakers employ this policy, mortgage bankers will be much more reticent to make loans to people there, ultimately limiting the city’s housing supply. Furthermore, this policy will be yet another example of policymakers attempting to raise homeownership rates when its unclear that homeownership is beneficial, especially for those who can’t afford it comfortably. The policy will doubtless have other unintended consequences yet unknown. Eminent domain often results in the opposite of what policymakers say it will; slum clearance creates slums and giving individuals’ property to corporations to create jobs ultimately results in decreased economic growth. In this case, using eminent domain to increase affordability for homeowners will likely lead to lower homeownership rates and more expensive housing in cities that employ this strategy.
Polls demonstrate that a large majority of people oppose eminent domain for economic development. Despite this stated support, all but a handful of states permit eminent domain based on the subjective and easily manipulated designation of “blight.” Despite eminent domain’s long history of being used for racist ends and ongoing use to eliminate low-cost housing, eminent domain fails to spark the widespread liberal outrage it deserves. The liberal bastion of The New York Times editorial page not only stayed silent when its business side used eminent domain to clear away existing businesses for its new headquarters, Matt Welch of Reason points out it was one of few neighborhoods across the country to throw its support behind the Kelo decision. The corporatism inherent in using eminent domain for economic development is an area where those on the left and free marketeers should be able to find plenty of common ground to support state-level reforms. Unlike many areas where public choice incentives make policy reform unlikely, eminent domain has not only concentrated benefits, but also concentrated harms. In turn, this makes it an area of land use policy where reform should be possible.