INSTEAD OF SUING OR APPEALING TO REGULATORS, THESE MANHATTANITES PAID MARKET PRICE FOR THEIR CONDO VIEWS.

AuthorBritschgi, Christian

FACED WITH THE prospect of a new apartment complex going up next door and blocking their view of the Empire State Building, a group of wealthy Manhattan condo owners in 2016 did something extraordinary: They decided to negotiate rather than litigate.

Together, the building's residents offered developer Gary Barnett, who was behind the neighboring construction project, $11 million for the air rights over his land.

Residents on the upper floors, whose views would be most severely impacted, kicked in up to $1 million to finance the deal. Lower-floor residents paid less, while those on the ground floor paid nothing. Folks that didn't have the cash right away relied on loans from neighbors. Without a single lawsuit or zoning board hearing, these condo owners got to keep their views, and Barnett got his money. It was a win-win.

Mutually beneficial trades over intangible views aren't unprecedented, but they're hardly common either, as Barnett himself told The New York Times. "Most of the time, they sue you and try and stop you somehow. These people stepped up to the plate and paid market value for the building rights," said Barnett.

The deal these parties worked out among themselves is also a textbook example of the Coase Theorem. Named after the late British economist Ronald Coase, it holds that so long as property rights are clear and transaction costs are low, different parties with competing claims will be able to produce an efficient outcome through negotiation, without the need for government intervention. Importantly for Coase, it doesn't matter which side holds the property rights.

In our example, the developer owned the air rights over his land, which he wanted to turn into new, profitable housing. If that were to happen, however, the existing condo owners next door would lose a view they also valued highly. Through their bargaining, we learned that the value the condo owners placed on their view exceeded what Barnett thought he could make from building apartments.

We would expect the same outcome even if the situation were flipped and the condo owners started with a right to their views of the Empire State Building. A developer could offer to buy that right from them. But unless he or she was willing to spend more than $11 million, the odds are that the building next door still wouldn't be getting built.

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