Affordable Housing Institute : US

[Continued from the previous Part 1 and Part 2.]

 

As we have seen in our saga of the sudsy personal washer, when a system becomes riddled with undocumented disobedience, market development slows and stalls. Additionally, policy makers find themselves making poor decisions because their information strays far from reality.

 

 

Now the policy makers now face a governance paradox. If they are to make good decisions, they need good information, and to get it, they have to negotiate with the evaders, and it is extremely difficult to ask people to volunteer for their own chastisement:

 

The board promised owners and their machines amnesty for cooperating with the survey,

Amnesty — a word we’ve been hearing in the news lately.

 

Dallas, Texas, April, 2006

 

In this case, ‘amnesty’ means ‘if you tell us you harbor an illegal washer, we will let you keep it.’

and it eventually decided to require that the appliances be removed upon the sale of the apartments.

As we’ll see below, I seriously doubt this rule will be enforced when the time comes. It’s a political fig leaf.

 

“We’ll enforce it when the time comes, won’t we?”

 

Thus an extra-legal groundswell can force laws to retreat, because those who did the extra-legal thing now have an economic interest to protect. This is exactly how real estate and property titles rationalize from informal to formal settlements and markets, as enunciated and investigated by Hernando de Soto, taking as his great example a study of the emergence of American property markets.

 

In The Mystery of Capital, de Soto devotes a whole chapter, The Missing Lessons of U. S. History, to it:

 

“Those who cannot remember the past are condemned to re-elect me.”

 

He begins with Colonial times, where the immigrant settlers moved into undefined space:

Amelia Ford’s [1900] study of the colonial precedents of the U. S. land system, “before the arrival of the Massachusetts Bay Company in New England, there were settlers without charter or grant living at various places within the limits of the Bay ….

 

They moved, as affordable housing seekers always do, to where land values were low, the exurbs.

The first Connecticut settlers were legally trespassers on their territory and could base their rights only in occupation and purchase from the Indians.” Page 113.

 

My home town of Marblehead was apocryphally founded in 1625, possibly by Joseph Doliber, who having been expelled from Salem for drunkenness, swam the half-mile across Salem Harbor and settled on Peach’s Point, where he lived in a hogshead.

The first mention of the name “Marblehead” in Colonial records occurs on July 2, 1633, when James White and John Bennet were fined for public drunkenness.

 

And there were other reasons to leave Salem too …

 

America was populated by squatting:

In 1727, Pennsylvania legislators protested against those “sorts [who] sitt frequently down on any spott of vacant Land they can find.” Page 113.

 

Birthplace of a president.

 

When the government factory first steamed into action, it took the invariable first step — enforcing prohibition:

As early as 1634 in Massachusetts, the General Court attempted to restrict squatting by ordering “that all land grants to freemen be recorded and a transcript be sent to it. Surveying was to be done in each town by a constable and four other freemen.” Page 114.

 

 

Nevertheless, just as with our high-rise washer-dryers, when people improved their property, they found means of informally entitling it, and then buying and selling these informal titles:

 

Squatters began inventing their own species of extralegal property titles known as ‘tomahawk rights,’ ‘cabin rights,’ and ‘corn rights.’ Page 116.

Rights were signified (and hence functionally established) by marking a boundary in trees, building a log cabin, or raising a crop of corn. All these rights involved physical inspection, physical possession and demarcation, and capital improvement — the critical purposes for which we invented title and property law.

 

Significantly, these extralegal rights were bought, sold, and transferred — just like official titles. Page 117.

Markets, even informal ones, add and create value because they animate (and therefore mobilize) capital, which in turn leads to reinvestment. (A New York CIty building with washers and dryers, and the plumbing to support them, is clearly more valuable than one without.) At some point courts and policymakers realize that, as the servants of government that itself derives its income from a healthy economy, they want to encourage this.

In seeking to balance the rights of the well-capitalized passive owner with those of the enterprising possessor/ improver, courts have found a way of distinguishing what value belongs to whom:

 

As early as 1642, the colony of Virginia allowed a wrongful possessor to recover the value of any improvements from the true owner. Page 119.

This is an excellent principle, of interest in the context of mobile home parks on leased land: even if the improver is to be displaced, he must be compensated for the added value that he cannot take away.

 

Further, if society generally has a favorite for whom it roots, it is the enterprising improver, who is augmenting the public fisc, as opposed to the rent-extracting aristocrat.

As a result, the improver — whom society wishes to encourage — also typically gains one right against the original landowner — if the owner will not buy out the improver, then the improver may buy out the owner:

 

Moreover, if the rightful owner was unwilling to reimburse the squatter for these improvements, the squatter could purchase the land at a price set by a local jury. Page 119.

 

Precisely the same approach applied three hundred and fifty years later in downtown Honolulu, when the legislature and courts crafted a right for condominium owners to buy their leased land at its fair market value.

The legal innovation of allowing a settler to buy the land he had improved before it was offered for public sale was known as ‘pre-emption’ — a principle that would be the key to the integration of extralegal property arrangements in American law over the next two hundred years. Page 120.

Once the principle of pre-emption is legitimized through judicial establishment, the juridical balance gradually tilts toward the everyman:

 

 

Politicians and jurists began to interpret ‘improvement’ in ways that heavily benefited squatters. By the time of the American Revolution, the corn rights of the itinerant squatter had been transformed, in many people’s minds, into the occupancy rights of the hardy pioneer.

 

Government had also discovered that enfranchising squatters was good government business:

For states with little money, pre-emption was also a source of revenue.

 

Land improved has a value multiply greater than land primeval, so if government is a business (a future post!), it is a passive investor in land development, which it thus incentivizes and shields.

Throughout history, when a behavior has become prevalent, license and tax has always proved superior to prohibit, confiscate, and punish.

 

“Yes, it is a noble experiment.”

 

They would charge squatters for surveying the land [the squatters] had improved and for issuing legal title. As a result, pre-emption laws proliferated both before and after the Revolution. Page 120.

During the very first session of the new Congress, in 1789, one member poignantly outlined the choices that squatters faced:

“There are, at this moment, a great number of people on the ground, who are willing to acquire by purchase a right to the soil they are seated upon. What will these men think, who have placed themselves on the vacant spot, anxiously waiting its disposition by the Government, to find their pre-emption right engrossed by the purchase of a million acres? They will do one of two things: either move into the Spanish territory, where they are not altogether uninvited, and become an accession of power to a foreign nation forming to us a dangerous frontier; or they will take this course, move on the United States territory, and take possession without your leave.”

 

Our early Member of Congress thus voices the same conundrum facing New York City co-op boards (and, for that matter, the City of New York more broadly): if our market is not competitive, competitive people — those whom we most want as city-dwellers — will leave, which hurts the city:

 

“What then will be the case? They will not pay you money. Will you then raise a force to drive them off?”

Page 123, quoting Henry W. Tatter, The Preferential Treatment of the Actual Settler in the Primary Disposition of the Vacant Lands in the United States to 1841, PhD dissertation, Northwestern University, 1933.

 

Closely related to the issue of sympathy for the common man is recognition of sustained investment; people demonstrate their good character by thrift and investment, and that good character causes us retrospectively to re-examine their original questionable conduct.

 

[By 1828] Members of Congress began drafting legislation that helped ease the way for settlers’ arrangements to be absorbed into the legal system. Page 135.

In 1862, when Congress passed the celebrated ‘Homestead Act’ that gave 160 free acres to any settler willing to live on the land for five years and develop it,

 

Observe the proof of virtue: residency (commitment) and investment (enterprise).

it was only sanctioning what settlers had already done by themselves. In spite of the legendary fame of the Homestead Act, most settlement took place before it was enacted. By ultimately embracing many of the extralegal arrangements of the settlers, formal law had legitimized itself, becoming the rule for most people in the United States rather than the exception. Pages 147-148.

 

So the journey from extralegal squatting to sanctified settlers’ right took at least a century — something we should bear in mind when we look at other countries trying to make the same legal journey in mere decades.

 

Gradually, Western nations became able to acknowledge that social contracts born outside of official law were a legitimate source of law and to find ways of absorbing these contracts. Law was thus made to serve popular capital formation and economic growth. Page 106.

What US politicians eventually learned, as Francis Philbrick put in (1938), was that the “forces that change the law in other than trivial ways lie outside it.” Americans had been settling — and improving — the land extralegally for decades. Their politicians gradually modified the law to integrate this reality into the official legal system and won some political points in the bargain. Page 110.

 

The same principles apply to a debate now playing on the national stage, that links our microcosm of the New York City high-rise with the historical macrocosm of American property rights law: what to do with illegal immigrants?

[Concluded tomorrow in Part 4.]

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