A New Yorker cartoon by Jack Ziegler captures the essential irony of buying into condominiums, cooperatives, and other homeowner associations. A car is entering a driveway that leads to a group of townhouses in the distance, and a sign by the entrance proclaims, “Welcome to Condoville and the Illusion of Owning Your Own Property” (Ziegler 1984).

Despite this ambiguity, about a quarter of the American population now lives in association housing situations, collectively known as common interest communities (CICs). Figure 1 shows the tremendous increase in CICs over the past several decades. From 1970 to 2013, the number of housing units in such communities spiked from about 700,000 to 26.3 million, while the number of residents multiplied more than 30-fold from 2.1 million to 65.7 million.

With their growing popularity, common interest communities have raised policy challenges and legal issues that require ongoing resolution. These conflicts generally reflect either external concerns that CICs segregate the wealthy from the rest of society or internal disagreements between individual owners and their associations’ governing bodies. This article examines some of the controversies associated with the CIC model and its governance, and suggests approaches for enhancing the benefits of common interest communities for both property owners and society at large.

The Rise of Common Interest Communities

With increasing industrialization during the 19th century, the intrusion of pollution, traffic, noise, and disease led many planners and citizens to favor the separation of residential, commercial, and industrial uses. (Zoning had not yet emerged as a planning tool and would not be validated by the Supreme Court of the United States until 1926.) Some residential developers thus imposed “servitudes”—covenants, restrictions, and easements—on their subdivision projects. Servitudes generally restricted the properties to residential uses and often created shared rights to communal facilities and services in exchange for fees. Lot purchasers agreed to the servitudes, and once the restrictions were recorded, subsequent purchasers were also legally bound. The common law proved to be an effective vehicle for creating high-end residential areas, including New York City’s Gramercy Park (1831) and Boston’s Louisburg Square (1844).

After a slowdown during the Great Depression and World War II, construction of CICs began to boom in the late 1960s, after the Federal Housing Administration (FHA) recognized the condominium as an insurable ownership vehicle, and state statutory authorization followed. FHA mortgage insurance encouraged developers to build middle-class condominiums, which gained market acceptance as a result of the “new town” movement—exemplified by early planned communities such as Reston, Virginia (1964), and Columbia, Maryland (1967). The passage of California’s Proposition 13, the initiative that limited property taxation in 1978, and similar measures in other states also spurred an increase in CICs, as cash-strapped local governments, under increased pressure to provide more services, were unwilling to absorb the infrastructure and service costs from new development. As a result, they tended to approve new developments only in CIC form, where the developer (and ultimately the owners) covered the costs.

Today, CIC owners are generally subject to a variety of constraints related to their private units, from limitations on the layout and design of buildings and the type of construction materials used, to restrictions on visible home decorations, ancillary structures, and landscaping. There are often controls on the owner’s behavior and use of the property, which is typically limited to residential occupancy. Noise, parking, and traffic rules may also be imposed, along with vehicle restrictions. In some cases, political signs, leafleting, and related activities are also prohibited.

In exchange for their association dues, owners have access to common facilities, such as roads and recreational areas, and to private services, such as security, trash collection, street cleaning, and snow plowing. The CIC is usually administered by a private residential government and various committees, elected by the owners and subject to the law of contract rather than public administrative and Constitutional law (see Box 1).

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Box 1: Common Interest Community Models

CICs typically create a private government elected by the owners to administer and enforce contracts, and to promulgate rules to advance community interests. While the exact form of the arrangement may vary, the basic concepts are similar.

Homeowner Associations
Unit owners hold fee title to their individual properties, which are usually single-family or townhouse homes. The association holds title to common areas and grants the owners easement rights for their use. These can be created by common law or under statutes in some states. Homeowner associations make up more than half of community associations nationally.

Condominiums
Unit owners receive fee title to their units plus a percentage ownership in the common areas. The association administers the common areas but does not hold title to them. Condominiums may be vertical (high-rise) or horizontal (single-family or townhouse homes), and they are created exclusively pursuant to state statute. Condominiums represent 45 to 48 percent of community associations.

Cooperatives
A cooperative corporation owns the building, and the owners receive shares in the corporation and automatically renewable, long-term leases on their individual units. Unlike condominium and homeowner associations, the corporation can control transfer of leases and shares by cooperative owners. Only 3 to 4 percent of community associations are organized as cooperatives.

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Economic Benefits of CICs

CICs bring substantial economic benefits to owners and to society at large. Residents who buy into these communities have determined that shared facilities, such as recreational areas, are a better value than, say, personal swimming pools and other private facilities. Similarly, those joining CICs have determined that certain restrictions—such as a prohibition on parking mobile homes in driveways—increase property values.

These communities help to achieve efficient use of land as well. The costs of organizing and administering a private residential community are lower than in a public system (Nelson 2009). Transaction costs and rent-seeking through the political system are also reduced. Finally, because it is free from statutory and constitutional restraints, a private community has greater flexibility in the substance of its rules and operations, freeing it from adherence to public guidelines when entering into contracts with service providers and suppliers.

American courts have recognized these efficiency benefits when enforcing CIC arrangements and the owners’ reliance on them. As one court noted, “It is a well-known fact that [covenants] enhance the value of the subdivision property and form an inducement for purchasers to buy lots within the subdivision” (Gunnels v. No. Woodland Community Ass’n, Tex. Ct. App, 17013 [1978]).

External Concerns: Secession from the General Community

Despite these benefits, various commentators have argued that the services and private facilities of CICs are available only to those who can afford them and facilitate the separation of the wealthy from the rest of society. The rest of a CIC’s municipality is forced to do without, creating a permanent, two-tier system of housing. Critics also claim that privatization of infrastructure and services isolates CIC residents and reduces their stake in broad communal issues.

By this logic, CIC dwellers are less willing to engage with public government on civic matters and more likely to resist tax increases, given that the CIC rather than the municipal government provides many services. Where community associations are part of suburban developments, isolation from the urban core may be acute. These concerns often center on a fear of class and economic segregation. As former Secretary of Labor Robert Reich wrote in a New York Times article called “Secession of the Successful”: In many cities and towns, the wealthy have in effect withdrawn their dollars from the support of public spaces and institutions shared by all and dedicated the savings to their own private services. . . . Condominiums and the omnipresent residential communities dun their members to undertake work that financially strapped local governments can no longer afford to do well (Reich 1991).

Freedom of Choice

This characterization of community associations, however, is at odds with the fundamental American values of freedom of contract and freedom of association. It is a shared value that people may spend their money for lawful purposes as they wish and enter into contracts as they please. The law intrudes on freedom of contract only in rare instances when major policy considerations are at stake. Courts have recognized freedom of contract as an important consideration for upholding private servitude arrangements: We start with the proposition that private persons, in the exercise of their constitutional right of freedom of contract, may impose whatever restrictions upon the use of land which they convey to another that they desire to impose (Grubel v. McLaughlin, D. Va. [1968]).

CICs also reflect the American belief in freedom of association, exemplified in a long tradition of utopian communities and other belief-centered networks. Residents in modern CICs might share common interests, such as the homeowners living in golf or equestrian communities. Other residents may simply share a desire for neighborhood tranquility or character. In Behind the Gates, Setha Low suggests that CICs allow “middle-class families [to] imprint their residential landscapes with ‘niceness,’ reflecting their own aesthetic of orderliness, consistency, and control” (Low 2004). Whatever the reason, community associations are consistent with de Tocqueville’s observation about American interactions: Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds—religious, moral, serious, futile, extensive or restricted, enormous or diminutive (de Tocqueville 1835).

Moreover, the available evidence indicates that CIC residents are generally happy with their choice. In a 2014 survey conducted by Public Opinion Strategies for the Community Associations Institute, 64 percent of owners were positive about their overall experience, and 26 percent were neutral. While 86 percent of respondents indicated that they wanted either less or no additional governmental regulation, 70 percent maintained that association rules and restrictions protect and enhance property values.

The Issue of Double Taxation

While the rise of CICs reflects a variety of factors, the constrained finances of municipalities following the property tax revolts in the 1970s were key. In fact, a different take on the “secession” narrative is that some owners in common interest communities believe that municipal government abandoned them.

CIC owners pay property taxes at the same rates as other citizens, even though they privately purchase services such as trash collection, street cleaning, and security with their community association dues. This amounts to double taxation, charging association owners for a service they are not receiving.

If a no-service policy were in effect before an owner purchased a unit in a CIC, theoretically the buyer could lower the offer price to reflect the lack of municipal services and the double-taxation-effect. The unit owner would be protected, and the developer would absorb the loss. But if a municipality reduces services but not taxes after the unit purchase, the owner suffers an uncompensated loss. This outcome would be bad policy in that it permits rent seeking, allowing the majority of citizens in the town to select one group of residents to bear an extra tax burden even though they do not create extra costs. This offends notions of both fairness and efficiency, and it’s antithetical to community building and civic trust.

It is especially important for legislatures to avoid the use of double taxation as a matter of policy, given that judicial challenges are unlikely to succeed. The few courts that have entertained attacks on double taxation have been unsympathetic to claims that it violates due process of law, offends the equal protection clause of the Constitution, or works a taking of property without compensation. While double taxation may be bad policy, it is not unconstitutional. The courts should not overturn such legislative decisions, because these are essentially political outcomes that the public should challenge at the ballot box.

The Question of Inequality

The “secession of the wealthy” argument appears to be based on the notion that only higher-income owners with higher-value homes live in common interest communities. The available data, however, do not clearly support this assumption. As Figure 2 indicates, prices for condominiums and cooperatives—half of the units in CICs nationally—are below those for all existing homes (including condominiums, cooperatives, and single-family homes inside and outside of community associations). While these estimates are not deeply segmented (for example, they do not break out single-family homes inside and outside CICs), they do show that the values of condominiums and cooperatives are consistent with those of homes generally.

Housing affordability and access are significant challenges in the United States, but community associations are not necessarily the cause of these deep-seated, complex problems. Employed before CICs became popular, exclusionary zoning imposed by local governments in the form of large lot requirements has prevented developers from building affordable housing. CICs have in fact been found to lower the costs of home purchases. Multi-unit housing, such as condominiums and townhouses, is more affordable than single-family homes because it cuts the cost of land, infrastructure, and building (Ellickson & Been 2005). Affordable housing cooperatives permit restrictions on resale prices and owner income, thus ensuring that housing opportunities remain available for lower-income families. For these purposes, developers operating under city requirements or incentives often designate condominium units within a project as affordable units.

It is therefore simplistic and counterproductive to see community associations as a battleground between rich and poor. Similarly, pejorative use of the term “gated” communities to describe those CICs with limited public access does not advance understanding. Indeed, a moderate-income cooperative with a front door locked for basic security reasons falls within the definition of a “gated” community.

Guiding Principles

In what ways should the “secession of the successful” critique affect our understanding, acceptance, and authorization of common interest communities? The issue is complex and does not lend itself to binary choices. Instead, it is a matter of accommodating competing interests according to the following principles:

• Acceptance of the CIC model has increased over time. These types of housing arrangements represent the free choice of many people, and the law enforces their contracts in most instances.
• CIC owners should relate to the municipal government and the CIC structure under what might be termed “augmented federalism.” Under this notion, residents have additional contractual duties to the CIC, but these obligations do not excuse them from duties to and participation in federal, state, and local governments. In return, legislators should base policy decisions affecting CIC owners on considerations of fairness, efficiency, and community building.
• Housing access and affordability require comprehensive solutions. These issues should be discussed and debated directly, and the political process should determine the course of action. Viewing these issues only as a CIC problem is unwarranted and will not bring effective results.

Internal Conflicts: Individual Owners vs. the Community

In his groundbreaking book Privatopia: Homeowner Associations and the Rise of Private Residential Governments (1996), Evan McKenzie warned that: CICs feature a form of private government that takes an American preference for private home ownership and, too often, turns it into an ideology of hostile privatism. Preservation of property values is the highest social goal, to which other aspects of community life are subordinated. Rigid, intrusive, and often petty rule enforcement makes a caricature of . . . benign management, and the belief in rational planning is distorted into an emphasis on conformity for its own sake.

Conflicts between residents and CIC associations or boards often revolve around two general issues: the substance of the restrictions and the procedures for enforcement (see Box 2). As Figure 3 shows, disputes may focus on a range of topics, from landscaping restrictions to assessment collection. Indeed, 24 percent of CIC residents responding to the 2014 Public Opinion Strategies survey had experienced a significant personal issue or disagreement with their associations. Of this group, 52 percent were satisfied with the outcome and 36 percent were dissatisfied; in 12 percent of cases, the issue was still unresolved.

There are indeed certain risks that community associations can overstep with respect to the substance and enforcement of restrictions, but legislation and judicial supervision can address these substantive and procedural policy concerns.

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Box 2: Conflicts Make Good Copy

While the following headlines fail to represent the myriad positive interactions between individual owners and associations, they do suggest some of the difficult interactions that can occur.

• “Marine’s Parents Sued Over Sign of Support in Their Bossier City [La.] Front Yard.” The 3 ft. x 6 ft. sign displayed a picture of their son in uniform, before deployment to Afghanistan, with text that read, “Our son defends our freedom” (Associated Press, July 25, 2011).
• “Bucks County Woman Fined by Homeowners’ Association For Colored Christmas Lights.” Association members had previously voted in favor of permitting white lights only (CBS Philly, December 2, 2011).
• “Dallas Man Suing Rabbi Neighbor Who Uses House as a Synagogue.” The plaintiff claimed that the use of the home for a 25-person congregation violated the residential restriction (KDFW Fox4 Online, February 4, 2014).
• “A Grandfather Is Doing Time For Ignoring A Judge’s Order in a Dispute Over Resodding His Yard.” The association won a judgment of $795 against the owner who claimed that he could not afford to resod his browning lawn. When the owner failed to pay, the court jailed him for contempt (St. Petersburg Times, October 10, 2008).
• “Hilton Head Plantation Resident Disputes Gate Toll for Unpaid Fees.” An owner brought suit after an association imposed a $10 entrance gate fee on homeowners delinquent on their annual association dues (Island Packet, August 29, 2014).

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Freedom of Choice

As discussed earlier, individuals exercise their freedom of choice by purchasing homes in CICs and agreeing to be subject to their rules. Association living may not be for everyone, but the expectation of people who choose the CIC life should generally be respected and not be frustrated by someone who subsequently seeks to violate the compact. The courts generally reflect this view, as suggested by this 1981 ruling: [The original] restrictions are clothed with a very strong presumption of validity which arises from the fact that each individual unit owner purchases his unit knowing and accepting the restrictions to be imposed. . . . [A] use restriction in a declaration of condominium may have a certain degree of unreasonableness to it, and yet withstand attack in the courts. If it were otherwise, a unit owner could not rely on the restrictions found in the declaration . . . since such restrictions would be in a potential condition of continuous flux (Hidden Harbour Estates v. Basso, Fla. Ct. App. [1981]).

There are several scenarios, though, where homeowners may have no freedom of choice. First, it is possible that the only new housing available to buyers would be in CICs—i.e., developers are no longer building new homes outside of associations. Indeed, a recent report found that in 2003, 80 percent of all homes being built at that time were in associations (Foundation for Community Association Research 2014). In addition, municipal government may require developers to create associations as a condition for subdivision approval. (Recent legislation in Arizona prohibiting this practice indicates that it still occurs.) Finally, some courts have suggested that while rules in place at the time of purchase should be enforced, a rule subsequently enacted by the association or board under a reserved power should not be enforced if an owner can show that it is “unreasonable.” Other courts disagree: Homeowner should not be heard to complain when, as anticipated by the recorded declaration of covenants, the homeowners’ association amends the declaration. When a purchaser buys into such a community, the purchaser buys not only subject to the express covenants in the declaration, but also subject to the amendment provisions. . . . And, of course, a potential homeowner concerned about community association governance has the option to purchase a home not subject to association governance. . . . For this reason, we decline to subject the amendments . . . to the “reasonableness” test (Hughes v. New Life Development Corp., Tenn. Sup. Ct. [2012]).

Guidelines for Protecting Personal Autonomy

Association restrictions raise concerns when they threaten the personal autonomy and fundamental individual rights of owners. Constraints of this type might include prohibitions of political signs or messaging, and restriction of occupancy to “traditional” families.

Courts should enforce restrictions if they limit spillovers (also known as fallout or externalities) from one owner to the rest of the community. They should not, however, enforce restrictions that limit the nature or status of the occupants or the behavior within a unit that does not create externalities. This approach is based on the theory that the primary purpose of CIC regimes is to enhance economic value and encourage efficient exchanges. Thus, if the owner creates no externalities, the courts should not enforce bans on the particular behavior. Moreover, some values of personal autonomy are too important and trump the usual rules of contract. We do not, for example, permit contracts of indentured servitude or the sale of human organs.

By this standard, limiting noise and banning smoking (because of seepage of odors) in multi-family units would be legitimate, but restrictions based on the marital status of residents would not. Some situations are trickier—for example, restrictions on pets. Under the suggested guidelines, it would usually be legitimate to bar pets because of the potential noise and the reluctance of some residents to share common areas with them. In the case of service animals, however, the unit owner’s health needs may trump community concerns.

First Amendment–type issues present special challenges. Free expression—such as political or issue-related signage, leafleting, demonstrations, or other manifestations—can cause spillovers that may include noise, aesthetic interference, and disruption of the community’s general ambience. At the same time, however, free speech is fundamental to our republican form of government, arguably whether it is addressed to the larger public government or the private government. In expression cases, courts might apply the longstanding doctrine that prohibits covenants that violate public policy, rejecting total bans on speech in favor of reasonable restrictions on time, place, and manner. This would allow expression but limit, if not eliminate, spillover on the community.

Religious freedom is another fundamental American value. Restrictions on the placement of a mezuzah on doorposts and the display of crèches, statues of saints, and Christmas lights limit free exercise of religion. While it would open a Pandora’s box to engage in balancing the religious importance of colored versus white Christmas lights against CIC standards, it would nevertheless be appropriate for the courts to impose a general standard of reasonable accommodation on CIC regulations that affect religious practices.

Finally, in the development and enforcement of association rules, CIC property owners have a right to expect certain behavior from associations and boards. This expectation traces from the obligation of good faith and fair dealing that is incumbent on all parties to a contract. Thus, an owner should have a right to fair procedures, including notice and an opportunity to be heard; to be treated equally to other similarly situated owners; and to be free from bias, personal animus, and bad-faith decision making by the board and its members.

Conclusion

Common interest communities are a large part of the American residential landscape, currently providing homes for a quarter of the U.S. population. While CICs bring great economic advantages to residents and society in general, these types of housing arrangements do require nuanced interactions between the community association and the municipal government, and association rules can impinge on the personal autonomy of members. However, strategies are available to mitigate if not overcome these problems. Indeed, these approaches can make ownership of a home in a CIC less of an illusion and more of a reality.

About the Author

Gerald Korngold is Professor of Law at New York Law School and a visiting fellow at the Lincoln Institute of Land Policy. He teaches and writes in the fields of property and real estate law.

References

De Tocqueville, Alexis. 1835. Democracy in America. London: Saunders and Otley.

Ellickson, Robert C. & Vicki L. Been. 2005. Land Use Controls. New York, NY: Aspen Publishers, 3rd edition.

Foundation for Community Association Research. 2014. “Best Practices. Report #7: Transition.” www.cairf.org/research/bptransition.pdf.

Foundation for Community Association Research. 2013. “National and State Statistical Review for 2013.” www.cairf.org/research/factbook/2013_statistical_review.pdf.

Grubel v. McLaughlin Gunnels v. No. Woodland Community Ass’n, 17013, Texas Court of Appeals (1978).

Hidden Harbour Estates v. Basso, Florida Court of Appeals (1981).

Hughes v. New Life Development Corp., Tennessee Superior Court (2012).

Low, Setha. 2004. Behind the Gates: Life, Security, and the Pursuit of Happiness in Fortress America. London: Routledge.

McKenzie, E. 1996. Privatopia: Homeowner Associations and the Rise of Private Residential Governments. New Haven, Connecticut: Yale University Press.

Nelson, R. H. 2009. “The Puzzle of Local Double Taxation: Why Do Private Communities Exist?” The Independent Review. 13 (3) (Winter) 345–365.

Public Opinion Strategies. 2014. “Verdict: Americans Grade Their Associations, Board Members and Community Managers.” Falls Church, Virginia: Community Associations Institute.

Reich, Robert. 1991. “Secession of the Successful.” The New York Times Magazine. January 20.

Treese, C. J. 2013. Association Information Services, Inc., compiled from National Association of Realtors data. https://docs.google.com/document/d/1I_2LgTIYSqR4nLPRxN-HtCV-oOFK_QqN1AcO5JJTw-g/edit.

Ziegler, J. 1984. The New Yorker. September 3.

In a report titled A Rise in Downtown Living, the Brookings Institution and the Fannie Mae Foundation (1998) highlighted an emerging land use movement in 24 U.S. cities. The release of the 2000 U.S. Census data verified the progress in those cities in another brief, Downtown Rebound (Sohmer and Lang 2001). While these publications alerted the nation to a possible trend, they did have some limitations, which inspired Eugenie Birch’s follow-up study, A Rise in Downtown Living: A Deeper Look, funded by Lincoln Institute, the University of Pennsylvania and the Fannie Mae Foundation.

This study, initiated in summer 1999, employs census data analysis, survey research, personal interviews and field visits to the sample cities. Birch draws on a larger and more representative sample of 45 cities, including 37 percent of the nation’s 100 most populous cities selected for balanced regional distribution, and of these 100 percent of the top 10 and 62 percent of the top 50. The sample includes 19 percent of the 243 cities having a population of 100,000 or more. Birch defined each city’s downtown by census tracts to create a baseline for mapping and collected data on nine population and housing factors for the downtowns and their cities and Metropolitan Statistical Areas (MSAs) over three decades. Birch administered two mail surveys, in 1999 and 2001, of city officials and business improvement district leaders to identify their respective roles in encouraging downtown housing, and she is currently making site visits to all 45 cities to verify the census data and survey results.

In this article, Birch summarizes seven key findings of her research, which were also presented at a Lincoln Institute lecture in March 2002 and reported in the APA Journal (Birch 2002).

The Definition of Downtown

Although most people think they understand what downtown is, there is no single socioeconomic meaning or geographical definition for the term. While U.S. downtowns share several common characteristics (a central business district at the core, access to substantial transportation networks, a supply of high-density buildings, expensive land), they differ dramatically in their age, size, functions, contents and character. Furthermore, downtowns are in a state of flux as their boundaries and contents are changing. Tracking downtown boundaries over time reveals that in almost all the cities in the sample, the downtowns of today are remarkably different in size (measured in the number of census tracts included) than they were 20 years ago. Downtowns that are incorporating residences are also attracting more community-serving facilities, such as supermarkets or cineplexes that used to be in neighborhoods. Maps of the several downtowns, created as part of this study, illustrate the size variations.

Residential Populations by the Numbers

The rates of increase in downtown residential populations vary enormously among cities. While downtown growth rates are impressive, numerical counts for MSAs still overshadow those of downtowns. Measuring the growth against basic benchmarks (1970 population levels for the defined downtowns and comparative growth rates with city and MSA) reveals just how fragile this movement is. For example, only 38 percent of the sample cities had more downtown residents in 2000 than in 1970. Only one-third had a downtown population growth rate between 1970 and 2000 that was greater than that of their cities. For the same period, 42 percent of the sample showed a negative downtown growth rate even when their cities had positive numbers. Finally, only seven cities (Chicago, Cleveland, Los Angeles, New York, Norfolk, San Francisco and Seattle) had downtown growth rates that exceeded those of their MSAs in the entire 30-year period.

Looking at the data decade-by-decade tells a different story. Not surprisingly, downtown population declined most severely in the 1970s, when 89 percent of the sample showed losses that ranged from 2.4 percent (Des Moines) to 60 percent (Orlando). In contrast, by the 1990s more than three-quarters (78 percent) of the sample posted increases. However, only four cities (Los Angeles, New York, San Diego and Seattle) had gains in all three decades. Comparing city and MSA data shows similar nuances.

Downtowns also vary in the amount and level of residential development. In 2000 for example, 24 percent of the sample cities had 20,000 or more downtown residents, while 20 percent had fewer than 5,000, and a great deal of diversity exists within the categories. Denver’s downtowners number just over 4,200, but most observers perceive the city’s record in attracting residents as a stand-out success, while Cincinnati, with about 3,200 downtown residents, is struggling to maintain a critical mass. At the other end of the scale, Chicago’s 73,000 and Philadelphia’s 78,000 downtowners are integrated into their larger metropolises.

Differences in the proportion of a city’s population that lives downtown are also striking. For example, Boston and Philadelphia have roughly equal downtown populations, but Boston’s comprises 14 percent of the total while Philadelphia’s is only 5 percent. Finally, a simple numerical listing of the sample downtowns is misleading. Downtown population growth has occurred at varying rates with some cities experiencing the phenomenon for a longer time than others. This may account for the greater success of some cities. Also, given the varying geographical size of the different downtowns, density measures as well as demographic analysis should be added to any assessment in order to gauge the potential impact (economic, political, social) of new residents.

Approaches to Creating Downtown Housing

Over the past decade, policy makers and investors have relied on six types of approaches to create downtown housing, and they often blend more than one of these:

• fostering adaptive reuse of office buildings, warehouses, factories and stores;
• building on “found” land such as a reclaimed waterfronts or remediated brownfields sites;
• redeveloping public housing through HOPE VI;
• constructing residentially driven, high-density, mixed-use projects;
• targeting niche markets such as senior or student housing; and
• using historic preservation to forge a special identity.

To accomplish these ends, cities have engaged in creative financing, leveraging public funds, tax credits, gap financing pools and other tools at their disposal. Philadelphia, Boston and Lower Manhattan present examples of the office conversion trend, while Atlanta, Minneapolis, Cincinnati and Cleveland have employed warehouse store adaptive reuse. Charlotte represents a combination of HOPE VI, new construction and historic preservation. The found-land approach is seen in Milwaukee with its riverfront redevelopment (including brownfields remediation), Cincinnati with its expressway diversion/riverfront development, Des Moines with its construction of a new downtown neighborhood, and New York at Battery Park City. Chicago is the king of mixed-use new construction. Columbus (Georgia), Lexington and Chattanooga have fostered historic districting as a means to protect older, downtown residential neighborhoods.

Deep Roots of Success

Today’s growth in downtown living is the fruit of more than five decades of sustained attention to downtown revitalization. It has come about because cities have steadily improved their environments through downtown planning and additions of new elements to reinvent their old central business districts. In so doing, they have transformed their downtowns into new, hip places, thus making them competitive and attractive for housing. Although specific municipal policies such as favorable tax treatment, zoning amendments and infrastructure investments have, without doubt, flamed the private market activities in downtown housing, public investment in large-scale projects dating from the mid-1950s to the present have helped create a sympathetic climate for this investment. Preliminary evidence shows a strong relationship between investor choices and the presence of new downtown amenities. For example, developers in Los Angeles, Denver, Baltimore, Detroit and Memphis cite the presence of stadiums or sports arenas as important factors in their location decisions.

Demographic Characteristics of Downtowners

Downtowners are more affluent, more highly educated and more white than the city dwellers overall, but more diverse than those in the MSA. Singles, empty-nesters, gays, and childless or small households are more highly represented in downtowns than in MSAs. Families with children are present but not dominant. Other submarkets are students and the elderly. In some cities where the housing market is tight, notably Boston, New York, Chicago and San Francisco, low- and moderate-income groups are reporting difficulty in finding space for affordable housing. In other cities like Charlotte that have an excess of downtown land, much of it devoted to parking lots, the issue is not space but cost. In these contexts, questions arise as to what resources should be devoted to high-rent downtown units.

Private Development Efforts

Promoting downtown housing has emerged as a central strategy of private downtown groups, mainly business improvement district (BIDs), working with municipal government, often city planning and/or economic development departments. In 59 percent of the sample, BIDS or other privately sponsored organizations have engaged in pro-housing campaigns. As membership organizations their internal needs drive the agenda, so the amount and nature of their efforts vary widely.

Contribution to Citywide Growth

Downtown growth has contributed to the numeric changes in citywide populations in many cities. While the percentage contribution to overall municipal growth is often quite small, in 53 percent of the sample cities the downtown numerical contribution is a significant portion of the total, and in another 22 percent of the sample cities the downtown portion has offset losses in other parts of the city. In other words, without the downtown population growth, 60 percent of the sample would be worse off. In Boston, for example, downtowners constituted 25 percent of the increased number of people living in the city, while in Pittsburgh the additional downtowners reduced the city’s population loss by only one percentage point.

Conclusions

Reviewing these seven findings reveals a few themes. Downtowns are ever-changing places. Their functions, their boundaries and their very characters have been evolving in the postwar period. They are like complicated jigsaw puzzles with players (urban leaders) fitting the pieces together slowly. Just as assemblers first frame a puzzle and then fill in the center, city leaders have provided infrastructure outlines—streets or street improvements, schools, redeveloped river edges, improved open space—and now are adding other parts. Downtown living is one of these. In many places it has fit very well, especially in the past ten years. In a few cases, new downtown residents contribute significantly to the numerical growth of their city’s population. Just as certainly, many downtowns have not really kept up with their MSAs, and a majority of cities have yet to recover their 1970 populations. Nonetheless, having formerly vacant and/or abandoned buildings occupied (and eventually paying taxes) and having more (and more diverse) people on the streets night and day, weekday and weekend, are positive factors for urban life.

Making sense of this housing phenomenon requires not only placing it in the context of contemporary metropolitan development but also making it part of an evaluation of past urban redevelopment programs. Downtown living is not a silver bullet for curing urban ills but one element of an ongoing planning and investment effort for a part of the city.

Public/private partnerships have been essential in achieving changes in downtown living. The existence of productive interplay between focused interest groups, especially the growing number of business improvement district leaders, and public planning and economic development units has resulted in bold, imaginative, creative and thoughtful approaches to creating housing opportunities.

The findings and themes in this research give rise to other questions related to individual downtowns. These include an evaluation of the costs and benefits of attracting different types of downtowners and an assessment of the reasons why some places have been more successful than others in gaining the populations. This information that would be useful, for example, for policy makers in cities having less developed downtowns who first must decide whether a downtown living approach is appropriate for their cities and, second, must determine whether supportive incentives or complementary activities are needed. Other questions revolve around how to spread downtown progress to nearby neighborhoods without provoking displacement or unwanted gentrification and how to resolve the inevitable political disputes that will arise with the newcomers.

All in all, the rise in downtown living is as complex and layered as any urban issue. While widely reported in the popular press, it deserves a balanced, scholarly appraisal. This study raises important planning and development issues that still need attention: for example, information on the critical mass of residents required to make a difference in downtown life, the relationship between downtown housing units and employment, and the number of households needed to support community-serving functions. All of these issues lead to questions of balancing appropriate density for new development and quantity for adaptive reuse with other downtown functions like office, parking, retail and entertainment. No one really knows the proper composition of a balanced downtown.

Eugenie Ladner Birch is professor and chair of the Department of City and Regional Planning at the University of Pennsylvania.

References

Birch, Eugenie Ladner. 2002. Having a Longer View on Downtown Living. Journal of the American Planning Association 68 (1):5-21.

Brookings Institution Center on Urban and Metropolitan Policy and Fannie Mae Foundation. 1998. A Rise in Downtown Living. Washington, DC.

Sohmer, R.R., and Lang, R.E. 2001. Downtown Rebound (FMF Census Note 03, May). Washington, DC: Fannie Mae Foundation and Brookings Institution Center on Urban and Metropolitan Policy.

Gated communities are residential areas with restricted access designed to privatize normally public spaces. These developments occur in both new suburban developments and older inner city areas retrofitted to provide security. We estimate that at least three or four million and potentially many more Americans are seeking this new form of refuge from the problems of urbanization.

This rapidly growing phenomenon has become ubiquitous in many areas of the country since the late 1980s. While early gated communities were restricted to retirement villages and the compounds of the super rich, the majority found today are middle to upper-middle class. Along with the trend toward “forting up” in new developments, existing neighborhoods of both rich and poor are using barricades and gates with increasing frequency to isolate themselves.

Gated communities can be classified in three main categories based on the primary motivation of their residents. Two types of “lifestyle” communities provide security and separation for the leisure activities and amenities within. These include retirement communities and golf or country club leisure developments as one subgroup and suburban new towns as another.

In “elite” communities the gates symbolize distinction and prestige. Through both creating and protecting a secure place on the social ladder, these communities become enclaves of the rich and famous, developments for the very affluent, and executive home developments for the middle class.

The third type is the “security zone,” where fear of crime and outsiders is the key motivation for defensive fortifications. This category includes middle-class areas where residents attempt to protect property and property values; working-class neighborhoods, often in deteriorating sections of the city; and low-income areas, including public housing complexes, where crime is acute.

Urban Problems Stimulate Trend to Gating

High levels of foreign immigration, a growing underclass and a restructured economy are changing the face of many metropolitan areas and fueling the drive for separation, distinction, exclusion and protection. Gated communities are themselves a microcosm of America’s larger spatial pattern of segmentation and separation by income, race and economic opportunity. Suburbanization has not meant a lessening of segregation, but only a redistribution of the old urban patterns. Minority and immigrant suburbanization is concentrated in the inner ring and old manufacturing suburbs. At the same time, poverty is no longer concentrated in the central city, but is suburbanizing rapidly.

Gated communities are not yet the normal pattern in the nation. They are primarily a metropolitan and coastal phenomenon, with the largest aggregations being in California, Texas and Florida. However, gates are being erected in almost every state. Real estate developers suggest that the demand for homes in gated communities is increasing, and there is evidence that housing appreciation in such developments is higher than outside the gates.

Fear of crime is the strongest rationale for this new form of community. According to recent reports in Miami and other areas where gates and barricades have become the norm, some forms of crime, such as car theft, are reduced. On the other hand, some data indicate that the crime rate inside the gates is only marginally altered by barricades. Nevertheless, residents report less fear of crime in such settings. This reduction in fear is important in itself, since it can lead to increased neighborly contact, which can reduce crime in the long run.

Policy Issues for Community Life

The development of gated areas is related to the uncoupling of industry from cities and of professionals from the industrial core. Geography compounds current trends toward fragmentation and privatization by undercutting the old foundation of community and providing a new rationale for the lifestyle enclave or gated community based on shared socioeconomic status. This narrowing of social contact is likewise narrowing the social contract.

Privatization- the replacement of public government and its functions by private organizations which purchase services from the market- is promoted as a “benefit” of gated communities, but it may have serious impacts on the broader community. Private communities provide their own security, street maintenance, parks, recreation, garbage collection and other services, thus relieving taxpayers of additional burdens. However, they may also have the unintended consequence of reducing voter interest in participating in tax programs or voluntary efforts to deal with community problems or additional public services such as schools, streets, police or other city and county government programs.

The resulting loss of connection between citizens in privatized and traditional communities loosens social contact and weakens the bonds of mutual responsibility that are a normal part of community living. As a result, there is less and less talk of citizenship. The new lexicon of civic responsibility is that of the taxpayers who take no active role in governance but merely exchange money for services. Residents of privatized gated communities say they are taking care of themselves and lessening the public burden, but this perspective has the potential for redistributing public costs and benefits.

Walled and gated communities are a dramatic manifestation of the fortress mentality growing in America. As citizens divide themselves into homogenous, independent cells, their place in the greater polity and society becomes attenuated, increasing resistance to efforts to resolve municipal, let alone regional, problems.

The forting-up phenomenon has enormous policy consequences.What is the measure of nationhood when neighborhoods require armed patrols and electric fencing to keep out other citizens? When public services and even local governments are privatized and when the community of responsibility stops at the subdivision gates, what happens to the function and the very idea of democracy? In short, can this nation fulfill its social contract in the absence of social contact?

Edward J. Blakely, a visiting fellow of the Lincoln Institute, is dean and Lusk Professor of Planning and Development for the School of Urban and Regional Planning at the University of Southern California. Mary Gail Snyder is a doctoral student in the Department of City and Regional Planning at the University of California at Berkeley.

Additional information in printed newsletter:

1. Map of the United States showing concentrations of Gated Communities.

2. Table showing Social Dimensions of Gated Communities.

The Lincoln Institute sponsored a wide-ranging international conference in June on “Land Policies for Urban Development.” A few of the major themes and messages from the presentations are summarized below.

The three most populous developing countries, China, India, and Indonesia, with 40 percent of the world’s population, are entering the stage of rapid urbanization simultaneously. By 2030, they are projected to add an additional 2.2 billion persons to urban areas, increasing the world’s urban population by nearly 80 percent over the 2000 figure of 2.8 billion. The related infrastructure investment needs are likely to reduce or eliminate any perceived savings surplus in the world. Economic growth and urbanization in most East Asian countries have occurred in coastal regions and near ports. In India, however, urbanization and growth are currently focused on inland cities and on information technology rather than on labor-intensive manufacturing. This may be due to weaknesses in traditional infrastructure services, particularly in transport.

A review of property tax practices across 25 countries found an extremely wide range of practices in terms of tax base definitions, tax rate levels, and assessment practices. In most developing countries property tax rates are very low (a fraction of one percent of market values). Nevertheless, property taxes are one of the few revenue sources under local control and are an important component of local government revenues. Simplicity was found to be a virtue of property tax regimes in developing countries, because complexity raises administrative costs and erodes public support for property taxes.

Efforts to measure land values in urban areas of the United States—either by analyzing vacant land sales or by subtracting the value of the structure from property sales—indicate that they have appreciated more rapidly than construction costs since 1985, with a 2005 value between $12 and $24 trillion. This compares to estimates for 1980 of about $3 trillion, suggesting that land values have increased four to eight times in a period when consumer prices have increased only 2.4 times. In addition, land values have been volatile, falling by around 40 percent from 1989 to 1995 in many urban markets before increasing rapidly in the past 10 years.

While average housing prices across the United States have increased faster than construction costs, increases in housing prices have been particularly sharp in urban areas on the West Coast and on the East Coast from the mid-Atlantic region to New England. In these coastal metropolitan areas, median single-family housing prices are nearly five times larger than median prices in the least expensive metropolitan areas in other regions.

Analysis across all U.S. metropolitan areas shows a strong association between the level of housing market regulation and the level of prices—metropolitan areas with the most regulations on residential development have the highest housing prices. Moreover, areas with the highest prices also have low growth rates of housing stocks. Together these findings suggest that rapid growth in housing prices in coastal cities is due in large part to growing impediments on the supply side of the market. Supply constraints may not be only a U.S. phenomenon. A review of planning experience in the United Kingdom showed that urban development corporations, which have the power to overrule local regulations, have been more effective than most other approaches in fostering urban revitalization.

The ownership of second homes (for own use, not for rent to others) has been growing rapidly in the United States, and about 5.6 percent of all U.S. housing units were second homes in 2004. The main determinants of second-home ownership are income, wealth, and age of the household head. Second-home ownership is highest for those in their sixties, suggesting that the aging of the baby boom generation will increase second-home ownership. Additional research (and better data) is required to determine if this trend is related to the location or characteristics of a household’s primary residence.

The complete collection of papers and commentaries presented at the conference will be published as an edited volume in 2007.

We suggest that a better approach is to link IH to the ongoing process of rezoning—either by the developer or by local government initiative—thus treating it explicitly as a vehicle for recapturing for public benefit some part of the gain in land value resulting from public action.

From 2000 to the end of 2005, the value of U.S. residential land and dwellings increased from $14 trillion to $24 trillion. Until about 2002, housing price increases had followed the normal pattern from the mid-1980s, and housing prices grew along with household incomes. But starting in 2002 housing prices began to grow much faster than incomes in most metropolitan areas.

There were three main causes for this acceleration in housing prices. First, the interest rate for 30-year fixed rate mortgages declined from 7 percent in 2001 to 4.6 percent in 2003, buoying housing prices. Second, starting in the early 2000s mortgage originators began to reduce lending standards and to offer high-risk mortgage instruments such as no-document mortgages and other subprime mortgage instruments. Finally, the national policy to increase home ownership supported the latter trend because increased mortgage availability seemed to increase housing affordability.

These changes led to the rapid growth in mortgages with high loan-to-value ratios and to the approval of borrowers with modest financial reserves. This increasing risk of mortgages was assuaged by the belief that “housing prices could not decline,” which was based on national housing price indices dating back a few decades. Of course, in several metropolitan areas housing prices had declined from 1989 to the mid-1990s, but the national price index had only flattened out in this period.

Nationally, house prices softened in 2006 and fell 30 percent to the present time, while housing starts declined precipitously from 2.27 million in 2006 to 500,000 now, a level well below the typical low point of 1 million starts experienced in the past half dozen recessions. The reduction in housing starts eliminated millions of construction jobs and contributed significantly to the rapid increase in the unemployment rate.

The accompanying financial crisis reduced employment more broadly as part of a severe recession. Mortgage defaults and subsequent foreclosures spiked, caused by the severe housing price decline that left many homeowners “under water” with a mortgage greater than their house value, combined with the loss of household income from unemployment and the tightening of lending standards that made refinancing impossible for many households. From 2006 through 2009, 6 million homes were foreclosed, and 2010 has seen another 2.9 million foreclosure filings. Foreclosure rates are likely to have peaked, and filings in December 2010 were a quarter lower than those in December 2009. But foreclosure rates remain far above historic levels—in 2005 banks foreclosed on about 100,000 homes. The lack of recovery in housing and other construction has in turn been a factor in the slow reduction in unemployment.

House prices may now be stabilizing—national housing prices rose in the second quarter of 2010, but have declined modestly in the third and fourth quarters. This has led some analysts to forecast a possible second round of price declines. In any case, the likely slow decrease in unemployment will continue to restrain income growth and demand for home ownership. Clearly, housing will not lead the economy out of this recession. Needed now is regulatory reform to prevent the repetition of a housing bubble and an inevitable subsequent housing bust and its related financial meltdown.

While some modest steps have been taken in this direction, much remains to be done and the announced reform of Fannie Mae and Freddie Mac have increased uncertainty about the course of future mortgage finance. The realization by households that housing price appreciation is not inevitable will likely slow the shift to ownership by younger households and encourage older empty-nesters to move their assets to investments less risky than housing. The resulting growth in rental demand will focus in denser parts of metropolitan areas and give some impetus to smart growth outcomes. Housing demand will be robust only in several years, driven by long-term growth in incomes, population, and household formation.

The United States is emerging from a great recession whose major hallmark has been the collapse of national housing prices, which grew by 59 percent from 2000 to 2006 and then fell 41 percent by 2011, all in constant dollars. Nationally, real house prices in 2011 were 6 percent below levels in 2000. The housing price collapse had unanticipated contagion effects that helped produce the accompanying financial crisis and the most severe economic downturn since the Great Depression. The share of U.S. mortgages that were delinquent by 90 days or more rose from about 1 percent in 2006 to over 8 percent in 2010. The economic and social costs of this house price bubble and subsequent collapse have been immense.

The benefits of preventing future house price bubbles is obviously great, but realizing such benefits will require that policy makers learn to detect price bubbles as they are forming and then implement policies that will attenuate or mitigate them. A recent Lincoln Institute policy focus report, Preventing House Price Bubbles: Lessons from the 2006–2012 Bust, by James Follain and Seth Giertz, addresses the challenges of diagnosing and treating price bubbles in the real estate market. Their report builds on extensive statistical analysis available in several Lincoln Institute working papers.

While it is common to summarize the recent housing market bust using national indicators (as in the first paragraph above), these national indicators don’t account for great variations in both the levels and changes in housing prices across metropolitan areas. For example, from 1978 to 2011, constant dollar housing prices in Dallas, Texas and Omaha, Nebraska varied by less than 20 percent from their 1978 levels; those in Stockton, California nearly tripled from 1978 to 2006, but by 2011 fell back to their 1978 levels. Local housing markets are all influenced by national economic and financial policies and conditions, but these large differences across metropolitan markets indicate that local conditions play a very important role as well.

A key element of the statistical work by Follain and Giertz is to use metropolitan housing markets as the unit of observation for their analyses, which are based on annual data (for 1980 to 2010) and quarterly data (for 1990 to 2010) for up to 380 metropolitan areas. Their econometric work indicates that house price bubbles can be detected across metropolitan areas and that price changes and the accompanying credit risk vary greatly in size. Stress tests, such as those used to evaluate mortgage credit risk, can be useful indicators of potential price bubbles at the metropolitan level.

Because the levels and changes in housing prices vary greatly across metropolitan areas—with bubble-like price increases in some and essentially stable prices in others—Follain and Giertz conclude that policy measures to mitigate housing bubbles should be tailored to target metropolitan areas or regions rather than be applied uniformly across all metropolitan areas at the national level. Thus monetary policy would be an unattractive intervention to counter house price increases in a few metropolitan areas, because it would affect financing terms across both frothy and stable housing markets. Instead, Follain and Giertz favor policy interventions that would target those metropolitan areas with high price increases. The policy they advance would raise the capital reserve ratio that banks are required to hold against mortgages that they finance in those areas. Such countercyclical capital policies would both dampen house price increases and strengthen the reserves of the issuing banks, improving their ability to withstand any unexpected financial shocks.

Applying prudential housing market policies at the metro-politan level seems to be an obvious thing to do; so why has it not been done before? A major part of the answer is that housing market analysis is benefitting from a revolution in the availability of spatially disaggregated data at the metropolitan, county, and even zip code level. The data required to inform policy interventions targeted at the metropolitan level have only recently become widely available, and such data underpin the empirical work carried out by Follain and Giertz. For more information on their analysis, see http://www.lincolninst.edu/pubs/2245_Preventing-House-Price-Bubbles.

Las personas que trabajan conmigo por lo general se sorprenden de hasta qué punto mi canon filosófico deriva de las películas no convencionales de bajo presupuesto, especialmente de la década de 1980. Cuando busco sabiduría, suelo recurrir a las enseñanzas de la película “Repo Man” (traducida al español como “Los recolectores”) o, en el caso de este ensayo, a la obra maestra alegórica de Terry Gilliam, “Time Bandits” (“Bandidos del tiempo”). En esta película, un grupo de trabajadores públicos son empleados por el Ser Supremo para rellenar los agujeros que quedaron en el continuo espacio-tiempo por el apresuramiento de haber creado el universo en siete días: “Verán, fue un trabajo algo chapucero”.

Igual que los bandidos del tiempo, los gestores de políticas generalmente tienen la tarea de rellenar agujeros: agujeros literales, como los baches de las calles, o agujeros más teóricos, que son los artefactos de los mercados privados disfuncionales. Uno de los grandes agujeros que la política ha tratado de rellenar durante décadas es la oferta inadecuada de viviendas sociales. Por ejemplo, los economistas especializados en vivienda de los Estados Unidos se han vuelto bastante expertos en hacer el seguimiento del tamaño de este agujero, que cada vez es más difícil de rellenar desde que el gobierno federal se comprometió a tratar el tema como una prioridad de política nacional a partir de la Ley de Vivienda de 1949, que fue parte de la legislación conocida como Fair Deal del expresidente Harry S. Truman.

Tal vez nuestro fracaso colectivo para resolver el déficit de viviendas sociales en los últimos 66 años tenga que ver con un análisis incorrecto del problema y con la conclusión de que pueden diseñarse soluciones basadas en el mercado con el fin de resolver la discordancia entre la oferta de viviendas sociales y la demanda de las mismas. En su discurso del Estado de la Unión de 1949, el presidente Truman resaltó que, para poder suplir las necesidades de millones de familias sin una vivienda adecuada, “la mayoría de las viviendas que necesitamos deberán ser construidas por el sector privado sin subsidios públicos”.

Para apoyar esta idea, me desviaré brevemente hacia la teoría del mercado. Partiendo del enfoque matemático para analizar la economía que predomina hoy en día, un mercado es, simplemente, un sistema de ecuaciones diferenciales parciales que se resuelve mediante un único precio. Las ecuaciones diferenciales parciales captan las decisiones complejas que toman los consumidores y los productores de bienes, y concilian los gustos, las preferencias y los presupuestos de los consumidores con las complejidades técnicas derivadas de producir un bien para así llegar a un precio que despeje el mercado mediante el acuerdo de todas las operaciones que los proveedores y consumidores de bienes están dispuestos a realizar.

Los prestigiosos economistas Arrow, Debreu y McKenzie demostraron la existencia teórica de un conjunto único de precios capaz de resolver simultáneamente la cuestión del “equilibrio general” de todos los mercados en una economía nacional o mundial. Un importante aspecto de esta contribución (que obtuvo el Premio Nobel) fue la observación de que un único precio despejaba cada mercado: un mercado, un precio. No se esperaba que un único precio mantuviera el equilibrio en dos mercados. Pero este es el defecto fundamental del mercado de la vivienda: en realidad, no es un mercado, sino dos. Los mercados de la vivienda proporcionan tanto lugares para vivir a los consumidores locales como bienes de inversión comercializables en todo el mundo, gracias a los grandes mercados de capital al servicio de los inversores a nivel mundial. Esta condición de mercado doble describía más al sector de viviendas ocupadas por sus propietarios; sin embargo, con la proliferación de los fideicomisos de inversión inmobiliaria (REIT, por su sigla en inglés), los mercados de alquiler se encuentran ahora en la misma situación.

Los mercados de bienes de consumo se comportan de manera muy diferente a los mercados de inversión, ya que responden a “reglas básicas” distintas. En lo que a la oferta se refiere, los precios de los bienes de consumo se derivan de los costos de producción, mientras que los precios de los mercados de inversión tienen que ver con los beneficios esperados. En relación con la demanda, factores tales como gustos y preferencias, ingresos de las familias y características demográficas determinan el precio de la vivienda como lugar donde residir. La demanda de vivienda con fines de inversión está relacionada con aspectos tales como la liquidez y las preferencias de liquidez de los inversores, las ganancias esperadas de inversiones alternativas, o las tasas de interés.

En los países desarrollados, los mercados de capitales mundiales y el mercado de la vivienda colisionan a nivel local, con pocas probabilidades de reconciliación. Los hogares a nivel local compiten con los inversores a nivel mundial para decidir el tipo y la cantidad de viviendas que se producen. En los mercados que atraen la inversión mundial se produce una gran cantidad de viviendas, aunque la falta de viviendas sociales es aguda y empeora con el paso del tiempo. Esto se debe a que una gran parte de las viviendas nuevas se produce para maximizar las ganancias de la inversión y no para suplir las necesidades de vivienda de la población local. Por ejemplo, no escasean los inversores mundiales dispuestos a participar en el desarrollo de apartamentos de US$100 millones en la Ciudad de Nueva York; sin embargo, escasean las viviendas sociales por la dificultad de conseguir fondos para desarrollarlas. En los mercados que han sido abandonados por el capital mundial, los precios de las viviendas caen por debajo de los costos de producción, por lo que existe un excedente de viviendas que se acumula y se deteriora. En casos extremos como el de Detroit, el orden del mercado sólo puede recuperarse mediante la demolición de miles de viviendas y edificios abandonados.

Tal vez sea este el momento de reconsiderar el análisis que llevó al presidente Truman (y a miles de gestores de políticas de vivienda después de él) a concluir que podemos forjar soluciones basadas en el mercado ante el desafío de proveer de vivienda a la población del país. Truman concluyó que “al producir pocas unidades de alquiler, frente a una proporción demasiado grande de viviendas de alto precio, la industria de la construcción se está excluyendo a sí misma rápidamente del mercado debido a los precios”. No obstante, Truman se refería al mercado de la vivienda para residir, no para invertir. Resulta importante destacar que la cantidad de unidades habitacionales en oferta en los países desarrollados como los Estados Unidos excede en mucho la cantidad de hogares. En el año 2010, el Censo de los EE.UU. calculó que en el país existían 131 millones de unidades habitacionales y 118 millones de hogares, y que una de cada siete unidades habitacionales se encontraba vacante. Resulta aún más impactante que, en los Estados Unidos, este excedente de la oferta de viviendas es una característica de todos los mercados metropolitanos del país, incluso de aquellos mercados metropolitanos con una escasez extrema de viviendas sociales. En 2010, el 8,5 por ciento de las unidades habitacionales se encontraban vacantes en el Gran Boston, un 9,1 por ciento en el área de la Bahía de San Francisco, y un 10,2 por ciento en Washington D.C. El problema radica en que muchas familias no tienen suficientes ingresos para acceder a las viviendas que están disponibles.

Al final, los bandidos del tiempo decidieron, en lugar de rellenar los agujeros que existían en el tejido de espacio y tiempo, aprovecharse de ellos para “hacerse indecentemente ricos”. Los bandidos querían capitalizar las imperfecciones celestiales de la misma manera que los inversores mundiales desean obtener rentabilidad de las dislocaciones del mercado a corto plazo. A fin de ilustrar los peligros de la especulación desmedida en los mercados no regulados, consideremos un relato apócrifo de un mercado muy diferente. En 1974 en Bangladesh, se sugirió que, debido a las copiosas lluvias que habían caído durante la temporada de siembra, era posible que existiera una escasez de arroz en la temporada de cosecha. Para anticiparse a dicha escasez, el precio del arroz comenzó a subir. Especuladores expertos en bienes comercializables se dieron cuenta de que obtendrían una buena rentabilidad del arroz que mantuvieran fuera de mercado. A pesar de que la cosecha real produjo abundante arroz, la interacción entre las expectativas del mercado y las manipulaciones del mercado por parte de los inversores en bienes comercializables generó una de las peores hambrunas del siglo XX, que causó aproximadamente un millón y medio de muertes relacionadas con el hambre. Esta hambruna no fue el resultado de una escasez real de alimentos. La colisión entre el mercado de bienes y el mercado de inversión especulativa causó tal aumento del precio del arroz que hizo que quedara fuera del alcance de las poblaciones locales, lo que dio como resultado que las familias sin tierras sufrieran una tasa de mortalidad tres veces más alta que las familias con tierras.

Tal vez la vivienda y el alimento sean aspectos demasiado importantes para ser administrados por los mercados no regulados. En vista de los daños que puede provocar el conflicto entre el mercado de bienes y el mercado de inversiones en las poblaciones locales, quizá las políticas públicas deberían concentrarse en proteger una parte del mercado —y del público— de los estragos de la especulación. En este número de la revista Land Lines, describimos algunas medidas incipientes para producir constantemente viviendas sociales, aislándolas de la especulación mediante fideicomisos de suelo comunitario, viviendas inclusivas y cooperativas de vivienda. Miriam Axel-Lute y Dana Hawkins-Simons examinan los mecanismos necesarios para organizar fideicomisos locales de suelo comunitario. Loren Berlin describe las medidas tomadas a fin de preservar la vivienda social en forma de viviendas prefabricadas y promover la accesibilidad permanente a dichas viviendas mediante la conversión de comunidades de viviendas prefabricadas en cooperativas de patrimonio limitado.

En artículos más admonitorios, Cynthia Goytia analiza las formas en que las comunidades de bajos ingresos en ciudades de toda América Latina eluden las regulaciones sobre vivienda que aumentan los costos de la misma, y producen sus propias viviendas accesibles pero por debajo de los estándares en asentamientos informales. Finalmente, el artículo de Li Sun y Zhi Liu trata de la precaria condición del 25 por ciento de los hogares urbanos en China que compraron viviendas sociales con derechos de propiedad inciertos en terrenos de propiedad colectiva ubicados en la periferia en rápido desarrollo de las ciudades y en “aldeas urbanas”, es decir, asentamientos que, anteriormente, eran rurales y en la actualidad están rodeados de construcciones modernas. A medida que los mercados de capital se intensifican en estos países, la rivalidad entre la vivienda como un bien de inversión y la vivienda como un lugar para vivir probablemente exacerbará la informalidad en las ciudades de América Latina y hará más precarios los derechos de propiedad de las familias chinas. Después de casi setenta años de medidas fallidas para lograr que los mercados privados suplan las necesidades de vivienda social de la población, tal vez sea el momento de desarrollar, y de exportar, otro enfoque que se fundamente en una comprensión más realista de la complejidad del mercado de la vivienda y del mercado del capital.

Una versión más actualizada de este artículo está disponible como parte del capítulo 5 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.

¿Es la segregación espacial urbana una consecuencia del funcionamiento normal de los mercados inmobiliarios urbanos, reflejo de las preferencias individuales acumulativas, o es más bien resultado del mal funcionamiento de mercados inmobiliarios urbanos que privatizan los beneficios sociales y socializan los costos privados? ¿Proviene quizás de prejuicios contra ciertas clases o razas? ¿Crean guettos las políticas de viviendas de interés social, o los crean las acciones de agentes y prestamistas inmobiliarios que ponen sus prejuicios personales por encima de toda objetividad, generando y alimentando estereotipos sobre conciudadanos y vecindades? ¿Podrían cambiar los patrones de asentamiento intrametropolitanos si se modifica la política del suelo, o para ello es imperativo que se produzcan transformaciones sociales profundas relacionadas con valores como tolerancia, oportunidad y derechos humanos?

Treinta y siete académicos y asesores de trece países se enfrentaron a éstas y otras preguntas afines en el “Seminario Internacional sobre Segregación en la Ciudad” organizado por el Instituto Lincoln en Cambridge, Massachusetts durante el pasado mes de julio. Los organizadores del seminario, Francisco Sabatini (Universidad Católica de Chile) Martim Smolka y Rosalind Greenstein (Instituto Lincoln) plantearon una amplia gama de aspectos para explorar las dimensiones teóricas, históricas y prácticas de la segregación. Los participantes, procedentes de países tan diversos como Brasil, Israel, Kenya, Países Bajos, Irlanda del Norte y los Estados Unidos, trajeron consigo su formación profesional como juristas, sociólogos, economistas, planificadores urbanos, científicos regionales y geógrafos. A medida que intentaban llegar a un acuerdo sobre el significado de la segregación, las fuerzas diversas que la crean y la refuerzan, y las respuestas políticas posibles, se fue haciendo obvio que no hay respuestas simples y que muchos puntos de vista contribuyen al debate interminable. Este breve informe sobre el seminario ofrece una muestra de esta discusión.

¿Qué es la segregación y por qué es tan importante?

El trabajo de Frederick Boal (Escuela de Geografía, Universidad de Queens, Belfast) es fruto del gran caudal de literatura sociológica sobre segregación y su propia experiencia de vida en medio de los conflictos entre católicos y protestantes en Irlanda del Norte. Boal sugirió que la segregación debe entenderse principalmente como parte de un espectro que abarca desde el movimiento extremista de limpieza étnica hasta el más idealista de asimilación (véase la fig. 1). Tal como pasa con tantos temas vinculados con políticas, para estudiar el problema de la segregación es preciso observarla, más que como una dicotomía, como un continuo de grados o niveles de separación, cada uno con diferentes manifestaciones espaciales.

Para Peter Marcuse (Escuela de Posgrado de Arquitectura, Conservación y Planificación, Universidad de Columbia, Nueva York), la segregación supone la imposibilidad para elegir o la presencia de coerción, o ambas. Marcuse llama “agrupaciones en enclaves” a grupos de diferentes razas o etnias que deciden vivir juntos por voluntad propia. Por otra parte, llama “segregación en guettos” cuando a los grupos se los obliga a vivir aparte, bien sea explícitamente o a través de mecanismos más sutiles. La clave que distingue a estos dos patrones—la imposibilidad para elegir—invita a una respuesta del orden público.

El significado y la importancia de la segregación varía según el contexto histórico. Para William Harris (Departamento de Planificación Urbana y Regional, Universidad Estatal de Jackson, Mississippi), escritor de temas de segregación espacial en el sur de los Estados Unidos, la segregación no puede entenderse ni tampoco enfrentarse sin un conocimiento profundo del papel que ha desempeñado y sigue desempeñando la raza en la historia de los Estados Unidos y del orden público. Flavio Villaça (Escuela de Arquitectura y Urbanismo, Universidad de São Paulo, Brasil) entiende la segregación dentro de un marco conceptual de clases, en donde los factores principales que influyen en los patrones residenciales son el nivel de ingresos y el estatus social, y no la raza. En Brasil y muchos otros países con larga historia de regímenes autoritarios, el estado suele encargarse de prestar los servicios urbanos. En estos países, los patrones residenciales urbanos determinan el acceso a agua y a instalaciones sanitarias (y por tanto, a la salud) así como a medios de transporte, infraestructuras de servicios públicos y otros servicios urbanos.

Según Villaça y otros, en muchos casos la actividad del mercado del suelo y las regulaciones y los códigos urbanos se han aplicado de maneras furtivas o incluso abiertamente para crear vecindades selectas bien dotadas de servicios que separan las clases superiores del resto de la sociedad, al cual prácticamente se le hace caso omiso. Este cuadro tiene paralelismos en los Estados Unidos, en donde el acceso a escuelas de alta calidad y a otras valiosas amenidades lo determinan fundamentalmente patrones residenciales que tienen estrecha relación con la segregación, ya sea por nivel de ingresos, raza u otras características demográficas. Igualmente, los participantes del seminario señalaron la correlación entre las comunidades precarias y la situación de los peligros ambientales. Las zonas de barrios o guettos pobres, habitadas generalmente por personas de raza negra, son el vertedero de los aspectos negativos del mundo urbano moderno, como lo son desechos peligrosos y otros usos indeseados del suelo.

Ariel Espino (Departamento de Antropología, Universidad de Rice, Texas) presentó un análisis del uso de la distancia para reforzar desigualdades sociales, políticas y económicas en la vivienda. Cuando las diferencias sociales y económicas están claramente especificadas y entendidas, las élites dominantes “toleran” la proximidad física. Por ejemplo, los sirvientes pueden vivir cerca de sus patrones, incluso en la misma casa, porque las relaciones económicas y las normas de comportamiento dictan la separación por clases.

¿Por qué persiste la segregación?

Una suposición que prevaleció a lo largo del seminario fue la de que todos los residentes de la ciudad (es decir, los ciudadanos) deberían tener acceso a los servicios urbanos, o al menos a un nivel mínimo de servicios. Sin embargo, Peter Marcuse lanzó al grupo la idea de pensar más allá de un nivel mínimo y de considerar el acceso a amenidades urbanas en el contexto de los derechos. Se cuestionó si la riqueza, la herencia familiar, el color de la piel o la identidad étnica deberían ser los factores determinantes en el acceso a los bienes públicos, no sólo educación, salud y abrigo, sino también a otras amenidades directamente relacionadas con la ubicación física. Expresándose en un lenguaje evocador de las ideas de Henry George sobre la propiedad común a finales del siglo XIX, Marcuse preguntó si era justo o correcto, por ejemplo, que los ricos disfrutaran de las mejores vistas de océanos, ríos u otras bellezas naturales, mientras que los pobres estuvieran relegados a zonas menos atractivas.

Robert Wassmer (Departamento de Orden Público y Administración Pública, Universidad Estatal de California) describió los procesos económicos involucrados en la ubicación residencial, tal como los entienden los economistas de la escuela del “public choice” (decisiones públicas). Según esta perspectiva, los compradores de viviendas eligen no sólo una casa y su terreno, sino también un diverso grupo de ventajas que varían según el sitio. Algunos compradores pueden optar por un paquete de conveniencias que ofrece más sistemas de transporte público y menos vistas panorámicas, mientras que otros pueden preferir mayor acceso a autopistas y a escuelas públicas de mejor calidad. Sin embargo, no todos los ciudadanos tienen las mismas oportunidades para hacer esas selecciones. Varios participantes añadieron que este debate forma parte de una discusión más amplia sobre acceso y selección en la sociedad, dado que casi todas las opciones están restringidas hasta cierto grado, y que muchas restricciones varían sistemáticamente entre los grupos sociales.

Otros participantes señalaron las maneras en que las políticas gubernamentales (p. ej., sistemas tributarios, legislación de vivienda) e instituciones privadas (p. ej., agentes de bienes raíces, instituciones prestamistas) actúan en conjunto para influir en el comportamiento de los mercados inmobiliarios, y por consiguiente, en el efecto de las políticas del suelo en acciones públicas y privadas. Greg Squires (Departamento de Sociología, Universidad de George Washington) informó de un estudio sobre el proceso de búsqueda de vivienda en Washington, DC. Sus hallazgos ponen en evidencia el papel que desempeñan los agentes de bienes raíces al “orientar” a compradores e inquilinos hacia vecindades de las mismas razas. Como resultado fundamental, los negros no disfrutan de las mismas oportunidades que tienen los blancos y sus posibilidades de obtener su solución habitacional preferida son menores, lo cual se contrapone al modelo de “public choice”. Entre los hallazgos de Squires está el hecho de que la selección de la vivienda está determinada por el estatus social o económico. Por ejemplo, en el proceso de búsqueda de vivienda, las amenidades más solicitadas por los clientes negros difirieron de aquéllas preferidas por los blancos, en parte porque aquéllos disponían de menos recursos particulares (tales como automóviles) y requerían viviendas situadas cerca de servicios centralizados tales como transporte público.

John Metzger (Programa de Planificación Urbana y Regional, Universidad del Estado de Michigan) examinó la influencia del mercado privado en la perpetuación de la segregación. Metzger presentó investigaciones sobre perfiles grupales demográficos usados por compañías como Claritas y CACI Marketing Systems para caracterizar los vecindarios. Dichos perfiles se venden a una amplia gama de industrias, entre ellas agencias inmobiliarias y financieras, como también a entidades públicas. La industria inmobiliaria se vale de los perfiles para alimentar el proceso decisorio de comercialización, planificación e inversión, y —señala Metzger— para propiciar enclaves de razas y la persistencia de la segregación. Las instituciones de préstamos hipotecarios se valen de los perfiles para determinar la demanda del consumidor. Los planificadores urbanos, tanto asesores privados y del sector público, usan los perfiles para la determinación de usos futuros del suelo, para la planificación a largo plazo y para guiar las actividades de planificación e inversión de distritos comerciales centrales, mientras que los promotores de bienes raíces los usan para definir sus mercados y demostrar las demandas aceleradas de sus productos. Los perfiles en sí suelen estar basados en estereotipos raciales y étnicos, y a su vez refuerzan la separación de grupos raciales y étnicos dentro de los mercados de bienes raíces regionales.

Xavier de Souza Briggs (Escuela de Gobierno John F. Kennedy, Universidad de Harvard) introdujo la idea de “capital social” en la discusión. El término “capital social”, tal como lo emplean actualmente sociólogos y expertos en teoría sociológica, encarna las redes y relaciones sociales dentro las comunidades, que pueden aprovecharse para el logro de metas individuales y comunes. Briggs argumentó que si bien el capital social es, al mismo tiempo, causa y efecto de la segregación en los Estados Unidos, también puede utilizarse para crear cambios positivos. Otros participantes cuestionaron la eficacia de la teoría y las investigaciones en capital social para resolver el problema de la segregación espacial urbana, señalando que éstas tendían a limitarse a la cuestión de “cómo mejorar la situación de los pobres” en vez de estudiar los mecanismos estructurales e institucionales que contribuyen a la segregación residencial y a la desigualdad de la renta. No obstante, los sociólogos opinan que el capital social es justamente lo que necesitan las comunidades para tener cierto control sobre sus ambientes inmediatos, en vez de ser simples receptoras de las consecuencias previstas e imprevistas de la economía política.

Justicia social y política del suelo

Durante el seminario, participantes de distintas partes del mundo dieron ejemplos de casos de segregación espacial utilizada como estrategia política por los poderes estatales:

• El gobierno colonial británico de Kenya instituyó leyes de planificación y de zonificación de exclusión para separar a los africanos nativos de los británicos. Esos patrones residenciales, establecidos hace casi un siglo, se reflejan en la Nairobi de hoy.
• Durante el régimen británico en Palestina, el gobierno militar forzó a los palestinos árabes a vivir en un solo sector de la ciudad de Lod, lo que facilitó la transformación de esta ciudad antiguamente árabe en lo que hoy en día se conoce oficialmente como Israel.
• El régimen militar de Augusto Pinochet desalojó a miles de chilenos de la clase trabajadora de ciertos sectores de sus ciudades para dar paso a pequeños enclaves exclusivos para familias de clase media y alta.
• El régimen del Apartheid de la República Sudafricana creó sectores residenciales separados por raza y mantuvo un aislamiento sistemático de grupos en prácticamente todos los aspectos de la sociedad.

Las conexiones entre estas formas extremas de segregación espacial y las fuerzas de mercados y políticas inmobiliarias de la mayoría de las ciudades modernas son complejas y difíciles de articular. Uno de esos vínculos se refleja en las maneras como se continúan aplicando las políticas inmobiliarias y las instituciones que apoyan los mercados inmobiliarios para brindar legitimidad a las prácticas discriminatorias.

Al imaginarse un mundo de ciudades cuyos habitantes tengan verdadera libertad para escoger dónde vivir, los planificadores del seminario se concentraron en políticas y programas gubernamentales que facilitan la integración, tales como el programa “Moving to Opportunity” del Departamento de Vivienda y Desarrollo Urbano de los Estados Unidos. Sin embargo, Stephen Ross (Departamento de Economía, Universidad de Connecticut) cuestionó los supuestos beneficios de las políticas de integración o repoblación lanzando esta pregunta: “¿Qué pasaría si dispersáramos personas de altos ingresos por toda la ciudad? ¿Qué cambiaría? ¿Nos ayuda esto a considerar con más detenimiento la importancia del espacio?”

Otra pregunta de Xavier Briggs obligó a los participantes a pensar en dónde se producen la mayoría de las interacciones sociales significativas. Específicamente, ¿qué debe pasar —y en qué circunstancias— para ir desde el movimiento extremo de limpieza étnica (según el espectro étnico urbano mencionado por Boal) al extremo opuesto de la asimilación? Briggs sugirió que es posible que instituciones como escuelas y lugares de trabajo estén en más capacidad de facilitar la diversidad en las interacciones sociales, que los vecindarios residenciales.

Al fin y al cabo, los planificadores urbanos desearían que se usen sus herramientas para formar ciudades que ofrezcan justicia para todos. Hablando de las condiciones de los ciudadanos árabes en la ciudad mixta de Lod, Haim Yacobi (Departamento de Geografía, Universidad de Ben-Gurion, Israel), tocó los cimientos de los ideales democráticos occidentales al preguntar lo siguiente: “Si una persona no tiene acceso total a la ciudad, si no puede participar de lleno en la vida de la ciudad, ¿está esa persona viviendo en una ciudad verdadera?”

William Fischel is professor of economics and the Patricia F. and William B. Hale ’44 Professor in Arts and Sciences at Dartmouth College in Hanover, New Hampshire. He was a member of the Hanover zoning board for 10 years, and has long served on the teaching and research faculty of the Lincoln Institute. He has written more than 50 articles and three books about the related topics of local government, land use controls, school finance and property taxation. Fischel’s most recent book pulls those themes together under the title The Homevoter Hypothesis (Harvard University Press 2001), and he will discuss them at a course at the Lincoln Institute on April 25.

Land Lines: The term homevoter doesn’t seem to be in any dictionary. What does it mean?

William Fischel: I coined the word to convey the theme of my book. My original title was Municipal Corporations and the Capitalization Principle, but when I tried it out on people their eyes glazed over. I had to think of something catchier, and homevoter popped into my head. In local government elections, residents tend to “vote their homes.” For example, if the school board proposes a tax increase to reduce class size, most homeowners will consider the impact of the taxes and the better school quality on the value of their homes as well as on their personal situations.

LL: What’s the difference between people voting their personal situations and voting their homes?

WF: If people voted only according to their immediate situation, almost every school referendum would be voted down. Since the last of the baby boomers graduated from high school in the late 1970s, only about a third of all American households have any children in public school. If people only cared about whether school expenditures benefited them directly, the two-thirds of voters without kids in school would vote down school referenda and save themselves some taxes. The reason they usually don’t is that they know that scuttling the local schools will drive their home values down. They may not like paying taxes, but most voters will not actively oppose a reasonable school budget.

LL: Why would home values override immediate concerns about taxes, since most homeowners plan to keep their houses for a long time?

WF: For the great majority of homeowners, the equity in their home is much larger than their holdings of stocks and bonds and savings accounts. An owner-occupied home is a huge asset, and it is nearly impossible to diversify the financial risk of holding on to it. People who own a lot of stocks can diversify their holdings by buying mutual funds. But you cannot diversify your homeownership portfolio by buying a tenth of a house in Cambridge, a tenth in Springfield, a tenth in Pittsburgh, and so forth. You are stuck with all your homeownership eggs in one local basket. If the schools are declining, so is much of your investment. You don’t have to plan to sell a home soon to be concerned about its value, just as you don’t have to be ready to retire to be concerned about your retirement investments.

LL: So even people who will never have kids are interested in the quality of public schools?

WF: They sure are, especially when they are buying a house. Many economic studies of housing values have found that the major determinant of house price differences among communities is the quality of public schools. Further, the difference in home values is not reflected in the cost of the structure but in the land value. If your home burned down and you decided to sell your lot instead of rebuilding, the price of the lot would reflect the value of the community’s public assets such as its schools. The structure itself would just reflect the cost of building it.

LL: What other community assets do homevoters pay attention to?

WF: Lots of things, including neighborhood traffic, local parks, good (or bad) views, local air quality, open space, crime rates and public libraries. Like school quality, all of these community characteristics are capitalized in home values if they are better or worse than average.

LL: Capitalized? As in the stock market?

WF: Yes, just as in the stock market. If Merck Pharmaceuticals develops an effective drug to treat cancer, the value of Merck stock will go up. That good news is quickly capitalized in (or reflected in) the price of the stock. If a particular city found a good way to control traffic noise and congestion, the value of homes there would rise. In both cases, the stockholders would be pleased.

LL: How is a city like Merck?

WF: They are both corporations. One is a municipality and the other is a business, but each has a corporate identity that is independent of its owners or residents. The main difference is that a city’s major stockholders, its homeowners, cannot diversify their assets. So unlike most business stockholders, residents pay close attention to what their corporation’s managers are doing. They make managers do their business in the open most of the time, and they make their board of directors—the city council—stand for election more frequently than business corporation boards.

LL: What about the role of other stakeholders, such as local business owners?

WF: Business people are usually behind development plans, and city councils pay attention to them. But in the municipalities where most people live—cities and towns of less than 120,000 population—homeowners have to be persuaded that the proposed development will do them some good. Just creating jobs and lowering taxes is not enough in most places. A job-creating, tax-paying factory whose traffic, noise and pollution devalue the homes of nearby residents will have a hard time getting permission to locate there. Homevoters may not be as active as developers, but they are usually more numerous and vocal, and few city councils can afford to ignore their concerns.

LL: And how do renters benefit from the system?

WF: Renters get the benefit of municipal services that are more consumer-oriented as a result of homevoters’ activism. But renters have a shorter time horizon because when they move they neither gain nor lose from the local improvements they leave behind. This may explain why renters tend to participate in local government less than homeowners. They don’t have the long-term financial stake that even the short-term homeowner has.

LL: What’s the downside of homevoters’ influence?

WF: The downside is exclusionary zoning. Zoning is a necessary tool for local governments to rationalize development. The problem is that homevoters can overuse this tool. Because homes are not a diversifiable asset, homeowners often become risk averse to any development that might reduce their home’s value. The NIMBY (Not In My Back Yard) syndrome is most often seen in homeowners, and my theory says they are rational to behave this way. But what is rational for the homeowners in a single community might not be rational for the larger region. Siting low-income housing, power plants, half-way houses and the other necessary but sometimes unlovely developments is impeded by having people too worried about their home values.

LL: Is there a way to control the bad side of homevoting and still keep the good side?

WF: Understanding where the problem comes from is a start. People who oppose low-income housing projects are not necessarily opposing low-income people. They may be mainly worried about their home values. One way to deal with that would be to offer home-value insurance for neighborhoods that feel threatened by proposed land use changes. An innovative program in Chicago offered home-value insurance to help forestall “panic selling” and thus stabilize neighborhoods with respect to both home values and socioeconomic composition. It might be worth extending home equity insurance to other situations in which neighborhood change raises the anxieties of homeowners.

LL: But people have lots of reasons to oppose neighborhood changes besides loss of property value.

WF: It is rare for people to mention property values in public discussions. It sounds too selfish to talk about in a public forum. But economists know that most of the things that people do talk about, such as traffic, noise, open space and service costs, clearly affect people’s home values. Whether owners are consciously relating these characteristics to home values or simply intuitively aware of this connection is hard to say. If developers could take home values off the table in such debates, it might go a long way to overcoming the NIMBY problem.

LL: You mentioned earlier that the quality of community life was reflected in land values. Would this argue for a tax on land rather than improvements in order to finance local services?

WF: I think it does, and in fact that’s what most property taxes really do tax. Local development is a highly regulated activity because of zoning laws, planning reviews and environmental impact statements. I believe that local land use regulation is tight enough to make buildings essentially indistinguishable from land as a tax base. Take the example of the home that burns down. The buyer of the lot typically has to put up another home of the same type, and the tax payment on land and structure will be the same as before. For the most part, owners of homes and businesses in zoned communities have only one allowable use for their land, so that increasing or decreasing local taxes is not going to affect that use. That’s exactly the same virtue as a tax on land. Beyond that, taxing property value gives voters cooperative incentives on the zoning front. Homevoters won’t want to trash another side of town with an unfriendly land use, because devaluing other people’s property would cause property taxes to be shifted to the remaining homeowners.

LL: A land tax is what Henry George advocated more than 100 years ago. Are you saying that the local property tax already is a land tax?

WF: Yes, within certain contexts. It is quite a bit like a land tax in largely residential communities and for most new development. Zoning limits a developer’s alternatives, so the tax rate will not alter his behavior. A general property tax would not be like a land tax, however, if it were administered by a large jurisdiction such as a state or national government, unless those governments also had local zoning controls in place. It is the combination of local zoning plus the property tax that approximates a land tax. Henry George’s ideas came in through the back door of suburban zoning and property taxation rather than through the front door of state and national taxation.