Affordable Housing Institute : US

[Hat tip: faithful reader Dan Gaulin]

 

Although they’ve muted somewhat, the reverberations from Kelo v. New London’s decision on eminent domain for economic development (ED4ED) continue to reflect throughout the urban development ecosystem, as illustrated by this damned-if-you-don’t tragicomedy from Riviera Beach, Florida and the South Florida Sun-Sentinel:

 

RIVIERA BEACH — The builders of a multibillion-dollar redevelopment project are considering legal action against the state and city after being told eminent domain powers will not be used to seize property to make way for the plan.

Although I’ve previously expressed the view that ED4ED is a useful and beneficial tool — necessary, even, in complex urban environments — there’s also no doubt that with that great flexibility comes great political temptation.

 

I can resist anything but temptation. — Oscar Wilde

 

In terms of political calculus, ED4ED is the philosopher’s stone — the costless benefit.

 

People always think it will go of itself …

 

The government factory can pass a law, spending no public money, flip all the risk to the private sector, and reap economic benefit (through higher property taxes, inclusionary-zoning housing affordability, or otherwise).  Spend nothing, make something — who’d be against that?

 

But there is a price, councilor Faustus —

 

Isn’t eminent domain appealing, councilor?

 

 — for if the government has the power to assemble private land economically on behalf of another private party, and government expresses its intention to use this power, then private parties seeking to profit from the updraft in values may come to rely on government, to their chagrin:

 

Viking Inlet Harbor Properties, a joint venture between Viking Yacht Co. and resort-development firm Portfolio Group, has already spent more than $50 million acquiring property in the redevelopment zone, said Mike Clark, president of Viking Associates, the real estate arm of the company.

“Now I’m stuck with these properties but can’t develop them because I can’t fill in the puzzle pieces,” Clark said.

 

What are the white ones worth without the red one?

 

“The city spent millions of dollars putting together its comprehensive plan, and we spent well over $1 million in engineering, architectural and planning fees. Our plan now becomes virtually worthless.”

 

The legal term Mr. Clark is brandishing is ‘detrimental reliance’ … but Mr. Clark, when you bought these properties, presumably you paid fair market value for them, right?  In other words, if you did not overpay based on the current facts, then you have not been harmed.  And if you did overpay based on expected profit-making as an economic abutter to the blighted areas to be redeveloped, do you really have a cause of action?

 

A developer speaks

 

“We’re certainly considering joining with other developers and perhaps a group of municipalities about the changing of the rules in midstream,” Clark added.

The $2.4 billion project is planned for an area that encompasses about 1,700 homes and businesses in an effort to revamp the marina district with high-end condominiums, houses, shops, offices and yacht slips in one of Palm Beach County’s poorest cities.

Riviera Beach is certainly very poor. 

 

So near to Palm Beach … and so far

 

Roughly twenty years ago, when I was acquiring existing affordable properties for my old firm (Boston Financial, since acquired by LendLease and then spun out to MMA), I remember visiting some extremely basic two-story motel-style square-courtyard walkups in Riviera Beach, any vestiges of grass long obliterated by sand, kids, and pets. 

 

Yet despite its grinding inland poverty, Riviera Beach also fronts on the Lake Worth Lagoon and the Intracoastal Waterway, meaning it has a huge untapped resource of potentially valuable land:

 

RIVIERA BEACH — Mayor Michael Brown calls Riviera Beach’s waterfront “a bunch of gold that’s unmined” — 400 acres fronting the Intracoastal Waterway, plus one of the finest beaches on Florida’s east coast.

 

“It’s the only place in the state” like it, developer Bob Healey says.  From a demographic standpoint alone, he is right:

 

Riviera Beach is a rare mix of rich and poor, black and white, oceanfront splendor and inner-city squalor — all within 8 square miles.

 

It is thus entirely reasonable and responsible for the city, on behalf of all of its citizens, to explore and even aggressively promote redevelopment, and it’s understandable that the city wants to remake the entire waterfront.  But how many displacements is ‘not too many’?

 

Last week [October, 2005 — Ed.], the Riviera Beach City Council tapped the New Jersey-based Viking Inlet Harbor Properties LLC to oversee the mammoth 400-acre redevelopment project.

“More than 2,000 homes could be eligible for confiscation,” said H. Adams Weaver, a local lawyer who is assisting protesting homeowners.

 

[Mayor Mike] Brown and others said this could be one of the biggest eminent-domain actions ever.  A report in the Palm Beach Post said it is the biggest since 1954, when 5,000 residents of Washington were displaced for eventual development of the Southwest D.C. waterfront, L’Enfant Plaza, and the less-than-successful Waterside Mall.

215 years later, still recognizable, still appealing

 

There’s probably an irony somewhere in that L’Enfant Plaza is (a) named for Pierre L’Enfant, whose 1791 master plan for Washington DC contributes much to that city’s livability and charm, and (b) the headquarters of the great gray behemoth HUD.

 

Featureless and gray inside, too

 

The fact that Riviera Beach is so financially downtrodden may seem ironic because as Mr. Brown notes “it sits right across the inlet from Palm Beach,” one of the nation’s wealthiest areas.

“Palm Beach County is the largest county east of the Mississippi, and we have the second-highest rate of poverty in the county,” the mayor said.

 

But even though Kelo upheld ED4ED, the political backlash certainly softened local elected backbones:

 

The city was moving ahead with the plans over the objections of some residents who refused to move out of their homes to make way for the project in potentially one of the nation’s largest eminent domain seizures.

 

But after the U.S. Supreme Court ruled last year that local governments could use the power of eminent domain to obtain property for such private development, Florida and 30 other states passed laws restricting the seizures.

 

Thus the state, responding to its political winds, has trumped the city.  Now the city cannot do what it said it would.  The situation is suddenly extremely messy:

Brown still said the plan would move forward because it was already in the works when the law was enacted this year.  However, Floyd Johnson, executive director of Riviera Beach’s redevelopment agency, said the city now has no choice but to follow the law. It cannot force residents out of their homes against their will, Johnson said.

 

Is there a way out of the impasse?

 

We were doing fine until that wall showed up

 

Actually, the dead end may next week become even deader:

Florida voters have a chance to put the state law restrictions into the constitution if they pass Amendment 8 on the Nov. 7 ballot. It would ban the use of eminent domain to transfer property, such as homes or businesses, to private developers unless an exemption is approved by three-fifths of both houses of the Legislature.

 

If ED4ED is ruled completely out of bounds, what then?

 

The new law and the resolution being considered would effectively stop a large portion of the Riviera Beach project. The developers would then have to negotiate for much higher prices to buy residents’ properties if the project were to move forward.

 

Is that result so bad?  It depends. 

 

1. If the holdout residents do get higher prices for their properties, that’s manageable.  There will have been a shifting of the benefits of urban improvements, but the neighborhood will indeed improve.
2. If the holdouts in fact hold out indefinitely, and the scheme cannot be developed around them (very doubtful), then everybody suffers.

 Classical ‘rational actor’ economics says of course the holdouts will find a price at which they will sell, and the market will clear.  But homeowners, of all financial actors, are the most emotional, the least rational — at least in isolated cases — and there’s no guarantee whatsoever that reason will prevail.

 

Hence we return to where we began in this little story:

 

The builders of a multibillion-dollar redevelopment project are considering legal action.

 

‘Consider’ does not mean ‘do.’ 

 

To sue or not to sue … is that the question?

 

What we have just read, therefore, is a press release and a threat masquerading as news.  News it is, for in politics, perception is reality.   And its purpose, evidently enough, is to push some Florida voters to reject Amendment 8.

 

Will it work?  We’ll know about Florida (and also about the frighteningly badly designed California initiative) Wednesday morning.

 

Will it be the sounds of silence, or a bridge over troubled water?

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