Public-Private “Land Exchanges” Could Help Resolve Property Rights Disputes

Government management of land has come under fire lately, in part because government owns far more property than it can effectively handle. Meanwhile, government regulations too often constrain the efficient use and development of private property as well. But the Oakland County city of Novi may have found a sound solution to these twin land-use policy challenges when it recently proposed a public-private “land exchange” to resolve a local property rights dispute.

Here’s what happened. In the mid-1990s, a company called Sandstone Associates began plans for an urban housing and business development project in Novi. Although the city originally encouraged the project, it soon took actions that harmed the development, such as refusing to grant road permits and otherwise making the property inaccessible to potential residents. As a result, in 1999 the Oakland Circuit Court awarded Sandstone $72 million for Novi’s interference with its property rights, stating that “municipal governments are not above the law.”

Regrettably, it took Sandstone four years of litigation to obtain the award, and another three to finally reach what appears to be a final settlement of the judgment against Novi.

The city agreed in June to a settlement that involves a combination of cash plus a land exchange. Sandstone will receive some surplus city-owned land in exchange for the original Sandstone parcel, which the city placed off-limits for private development. Novi was forced to compensate Sandstone for infringing the company’s property rights. Of course, a better solution would have been to allow Sandstone to develop the land it already owned.

But given the history of government takings of private property over the past few decades, Sandstone is fortunate to come out with any compensation at all. Typically, property owners have their development plans scuttled and property rights thwarted without any compensation from the community or the courts.

Many governments blithely block certain uses of private property, decreasing its value to the owner, and are not made to compensate the owner for the resulting economic loss.

When government is free to put up barriers to development and make property owners bear the cost, its ability to infringe on private property rights is unchecked. But when government is held accountable for actions that adversely affect private property rights, as Novi was, it is forced to act like a consumer with finite resources. In other words, now that Novi officials know there is a cost attached to depriving property owners of their rights, they may think twice in the future before deciding they can get away with it.

Three additional observations can be made about the Novi-Sandstone settlement. First, when private property owners are financially burdened for an ostensibly public benefit, justice demands that the burden fall on the public (i.e., the government), not solely on the owner. Second, governmental compensation given to property owners need not be limited to money. Finally, compensatory public-private land exchanges are a great way to kill two policy birds with one stone.

Think about it: Government—local, state, and federal—owns more land than it can properly manage. It owns millions of acres in Michigan, most of which have been placed off-limits to developers. Additionally, a large number of privately owned acres also have been rendered unusable, or nearly so, by various regulations. Why not offer compensation to property owners that grants them alternative sites on government-owned land when government sees fit to limit the possible uses for the owner’s land? This would help lighten the government’s land management load while, in many cases, appropriately compensating aggrieved property owners.

Best of all, if government paid a stiff price—by being required to pay in money or land—for decisions about which private property it can restrict for which public benefit, an important function of our Constitution’s just compensation principle would be served.

If the model offered by the Novi-Sandstone case were to become the model for settlements of property rights cases, it would raise the cost of regulating private property to the point that government officials would regulate property only when doing so truly serves an important public purpose. The government, like consumers, would be forced to choose where it wants to expend the public’s resources.

And that would be a significant victory for property rights, which are, after all, human rights.

(Donald J. Kochan is an assistant professor of law at George Mason University School of Law and an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. More information on property rights is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.)