‘Eminent domain is an absolute necessity,” said Donald Trump during Saturday’s Republican presidential debate. “Without it,” he claimed, “you wouldn’t have roads, you wouldn’t have hospitals, you wouldn’t have anything. You wouldn’t have schools, you wouldn’t have bridges. You need eminent domain.” In fact, though, we would still have roads, bridges, schools, and hospitals.
It’s a relatively new phenomenon for the government to seize property on behalf of private development projects. And yet, so very many of these projects somehow used to get done. Only one thing is certain when it comes to eminent domain: Those who have their property seized don’t get paid enough for it.
Admittedly, trying to clear out all the homes from a certain area can be a seemingly insurmountable challenge. But there are free-market solutions.
Suppose that Trump wants to build a skyscraper and has to tear down the houses on an entire block. The obvious approach is to buy everyone‘s house, but this doesn’t always work. Because of sentimental attachment, some homeowners will refuse even offers that far exceed the fair market value.
Other homeowners might act strategically, refusing early offers in the hopes of enticing much higher bids. This presents a complex problem, for a single holdout could stop the project in its tracks. Eminent domain seeks to solve this problem by forcing owners to accept a “fair market value” price. The government determines this price by seeing how much similar houses in the neighborhood have sold for. If the homeowner refuses, the government can pay this price anyway and seize the property.
Until 2005, eminent domain was usually invoked only for government projects such as highways and railroads. But in that year, the U.S. Supreme Court decreed, in Kelo v. New London, that eminent domain can be enforced for private development projects. So long as local authorities believe that the project will benefit the wider community, there is no problem.
Unfortunately, the “fair market value” price is typically too low. If people only valued their homes at the market price, they would have already sold them before receiving the developer’s offer. The fact that they haven’t means that they value their abodes more than what is being offered on the free market. The real difficulty lies in figuring out how much more. If the government takes the property of someone who values the property more than does the person who is getting it, society is poorer.
#share#Fortunately, there is a solution — one that businesses used for years before they gained access to eminent domain. Whether they seek to build a pipeline, a road, or a building, companies almost always consider multiple possible locations. For decades, Koch Industries, the largest privately owned company in the United States, built natural-gas and oil pipelines, just like the Keystone Pipeline, across many thousands of miles without using eminent domain.
Trump’s claim that “The Keystone Pipeline, without eminent domain, it wouldn’t go ten feet” is just wrong.
Their approach was to offer a contract to property owners along different possible routes; the deal would go to whichever complete set of property owners signed the contract first. The owners might be offered, for example, 25 percent above the fair market value. If they value their property more than that, they don’t have to sell. But the Kochs’ approach discourages people from indefinitely holding out for better offers. If the homeowners wait, they risk losing this 25 percent profit. This is clearly a better alternative to forced sales at prices that, in reality, are anything but “fair.”
Trump’s claim that “The Keystone Pipeline, without eminent domain, it wouldn’t go ten feet” is just wrong. Nor was Jeb Bush right that eminent domain is necessary for the government, which faces the same alternatives.
#related#During the Saturday debate, Trump was asked about his attempt to seize the house of an elderly woman in Atlantic City, N.J., because he wanted a place to park limousines for his casino.
Trump claimed: “The woman ultimately didn’t want to do that. I walked away.” In fact, Trump didn’t simply accept the woman’s decision not to sell him her property. Trump neglected to mention that the Superior Court of New Jersey upheld the woman’s right to keep her home.
Once again, the Atlantic City case raises the important point that there are almost always different places that a parking lot or a building or a pipeline can be built.
Trump should follow the Kochs’ example. For that matter, the government itself would be well advised to use this market-based approach.