IN DEFENSE OF THE FEE SIMPLE.

Author:Wyman, Katrina M.
 
FREE EXCERPT

INTRODUCTION 2 I. WHAT IS THE FEE SIMPLE? 6 II. THE CHICAGO CRITIQUE AND ITS SIGNIFICANCE 13 A. The Critique 13 B. Reform Proposals 15 C. Why the Chicago Critique Matters 18 III. THE ECONOMICS OF THE FEE SIMPLE 25 A. The Allocative Inefficiency Claim 26 B. The Economic Benefits of the Fee Simple 33 IV. THE FREEDOM-ENHANCING DIMENSION OF THE FEE SIMPLE 38 A. The Importance of the Right to Decide Whether to Transfer 39 B. Why Protect Individuals Against the Whims of Others 42 C. Examples 45 CONCLUSION 49 INTRODUCTION

There is an emerging critique of the dominant legal form of private land ownership in the United States from a small number of economically oriented academics associated with the University of Chicago. According to this "Chicago critique," the fee simple is problematic because it allows landowners to block, or raise the cost of, transferring land to higher value uses, since fee simple owners have a perpetual "monopoly" on specific parcels of land that enables them to "hold out" forever. (1) Professor Lee Anne Fennell's article Fee Simple Obsolete offers the most forceful exposition of the critique. (2) She maintains that the fee simple, the main way of owning land privately in the United States, is out of date and a barrier to efficient land use in the urban areas where most people now live. (3) This is so, she argues, because the fee simple gives owners a perpetual veto over selling their land, and using this veto, landowners can block or increase the costs of transferring land to higher value uses. (4) In an intellectually sympathetic article, Professor Eric Posner and E. Glen Weyl (Posner & Weyl) similarly argue that "[t]he existing system of private property" writ large impedes transfers of private property to higher value uses, by giving owners "a monopoly" that they can use to thwart or increase the cost of transfers. (5) The ambit of Posner & Weyl's argument is broader than Fennell's. They argue that private property generally gives rise to the holdout problem, whether the object of property is land, cars, the spectrum, or something else. (6) But the ability of landowners specifically to block or raise the cost of transfers to higher value users is one of their central examples. (7) As Fennell illustrates, for land, the fee simple is the root legal cause of the holdout problem that preoccupies Posner & Weyl, and so fundamentally, they too are critics of the fee simple. (8)

There is an ambitious reform agenda attached to the Chicago critique. With the goal of promoting the reallocation of property through markets, Fennell and Posner & Weyl recommend redesigning property rights. (9) Although the details of their reform proposals differ greatly, both recommend redesigning property rights to enable private buyers to acquire property from existing owners without obtaining the owners' consent or their agreement on price. Enabling private buyers to acquire property in this way would straightforwardly reduce the transaction costs of land purchases by entirely eliminating the need to bargain to transfer land. In effect, Fennell and Posner & Weyl would privatize eminent domain by transferring to private parties a version of the authority of compulsory purchase that historically has been the purview of public actors using eminent domain. (10)

The Chicago critique of the fee simple is theoretically significant because it runs counter to recent property scholarship affirming the importance of a robust conception of private property. (11) The critique is also timely because there is considerable concern about rising housing prices and a lack of affordable housing in many cities in the United States, especially along the coasts. A standard explanation for these rising housing prices among economists is that local governments are constraining the supply of land available for housing through excessively stringent public land use regulation such as zoning and historic preservation laws. (12) The Chicago critics have not extensively applied their critique to the problem of housing affordability. But their critique raises the prospect that part of the blame for high housing prices may lie with the predominant form of land ownership in this country, and that it is not only the public law of land use regulation that needs to be reformed, but also the private law of property. (13) By granting private landowners the right to refuse to sell their land, the fee simple, like land use regulation, may curtail the supply of land available for redevelopment into affordable housing.

This Article offers a defense of the fee simple. I make two main points.

First, addressing the critique on its own economic terms, I argue that the critics have not proven that there is a strong economic argument for replacing the fee simple. The critique that the fee simple results in inefficient allocation rests on three empirical premises. It assumes (1) that land currently is misallocated on a sufficiently large scale to warrant the attention of policymakers, (2) that the misallocation of land is attributable to the fee simple as opposed to other causes, and (3) that the benefits of replacing the fee simple with any realistic version of the critics' proposals will exceed the costs. (14) But the critics have yet to provide any meaningful empirical evidence for these three propositions, and there are reasons for doubting whether any of them hold up. Moreover, the critique tends to discount, or ignore, several potential economic benefits of the fee simple. As the critics mention, but tend to downplay, the fee simple incentivizes investment. It also promotes the transfer of land, because it is comparatively straightforward to value, and it decentralizes decisionmaking to landowners with easy access to the information necessary to manage the land. Furthermore, it may promote respect for property rights if we think of perpetual landowners as analogous to players in an indefinitely repeated game. (15)

However, the benefits of the fee simple are not fully captured by economic analysis and so my second line of defense of the fee simple departs from the economic discourse of the Chicago critique. In addition to its economic advantages, the fee simple allows landowners to decide whether to transfer their land to others and if so whether to sell it and at what price. There are different ways of understanding why this right to choose whether to transfer land to others is valuable. One is that the right to choose whether to engage with others protects us from the whims of others. Another is that it protects our ability to author our own lives, in turn protecting our autonomy. To return to the economic language of the Chicago critics, the buyer of a fee simple pays something like a "control premium [ ]" to obtain a legal interest that leaves them as independent and autonomous as common law, statutory law, and constitutional law allow. (16)

This Article proceeds as follows. Part I explains what the fee simple is and distinguishes it from other legal forms of landholding. Part II analyzes the Chicago critique and the critics' reform proposals, and underscores the significance of the Chicago critique for theory and public policy. Part III argues that the critics have yet to provide robust evidence for their largely theoretical economic critique of the fee simple. In addition, it emphasizes that the fee simple has important economic benefits that the critics tend to downplay or ignore. Part IV argues that the fee simple increases the range of choices available to owners, and that systematically abandoning the fee simple therefore would undermine individual independence and autonomy. The Article then briefly concludes.

It is important to take note of the Chicago critique, even if it is not ultimately persuasive. The critique correctly draws attention to the urgent need today in many urban areas to repurpose land. This is an important public policy challenge, given that over eighty percent of the U.S. population, and fifty percent of the global population, resides in urban areas. (17) But the onus is on the proponents of overhauling the fee simple to show that the fee simple needs to be rethought because it leads to a costly misallocation of land that dwarfs the numerous other economic benefits of the fee simple. Moreover, even if there were empirical evidence that fee simple ownership results in a massive misallocation of land, I would still be concerned about abandoning this form of ownership because of the protection that the fee simple provides against the whims of others. Landownership is not only about the efficient use of land, but also about individual freedom.

  1. WHAT Is THE FEE SIMPLE?

    I begin by analyzing what the fee simple is--and is not. By fee simple, I mean what is technically called the fee simple absolute. This is a legal interest in land that the United States inherited from England, where it developed over hundreds of years after the Norman Conquest. (18)

    The fee simple is the most important form of private land ownership in the United States, with "[o]ver 99%" of privately owned land in the country owned in fee simple. (19) Like other legal interests in land, the fee simple provides a bundle of rights over a specific parcel of land. The content of the bundle of rights is defined by common law, privately agreed covenants between landowners, community customs, and statutory, regulatory, and constitutional law--and varies depending on the time and place. The bundle that any owner enjoys, whether they own in fee simple or not, typically includes the right to exclude others from the land, the right to possess it, the right to use and enjoy it, the right to sell the interest, the right to devise it, and the right to pass it by inheritance. (20)

    What distinguishes the fee simple from other interests in land is that the fee simple is a legal interest of "potentially infinite duration." (21) A fee simple can last forever because there...

To continue reading

FREE SIGN UP