The Unbounded Home: Property Values Beyond Property Lines.

• Author: Garnett, Nicole Stelle
• Position: Book review

The Unbounded Home: Property Values Beyond Property Lines

BY LEE ANNE FENNELL

NEW HAVEN, CT: YALE UNIVERSITY PRESS, 2009, PP. 312. $45.00.

REVIEW CONTENTS INTRODUCTION I. PRICING PROPERTY REGULATION A. The "Leaky Bucket" Problem B. Enter Options II. PROPERTIZING THE METROPOLITAN COMMONS III. SLICING HOMEOWNERSHIP A. Structuring Owner-Investor Relationships 1. Shared Ownership 2. Derivative Markets and Housing Indices 3. A New Tenure Form B. Recalibrating "Voice" C. Avoiding Information Cost and Anticommons Problems IV. OPTIONS FOR PROMOTING URBAN HEALTH A. The Urban Option B. ESSMOs and Sublocal Governance CONCLUSION INTRODUCTION

Two seemingly intractable puzzles plague the American system of land use regulation. The first puzzle is how to encourage land use diversity while protecting owners from harmful spillovers. Historically, regulators have responded to the latter concern by essentially ignoring the former. The dominant form of public land use regulation in the United States--Euclidean zoning (1)--operates prophylactically. That is, zoning rules seek to prevent externalities by imposing ex ante inalienable limitations on owners' freedom to use their property as they please. And, it is worth noting, the dominant form of private land use regulation in the United States--covenants imposed by private developers--operates in essentially the same way. Since local governments (and private developers) can rarely calibrate the level of regulation to residents' true preferences, ex ante prohibitions frequently impose excessive "prevention costs." That is, the costs imposed by the regulations to prevent possible, future harms tend to exceed the benefits of actual harm prevention. But, because property owners--especially, homeowners--are extremely risk averse, they accept (even demand) high prevention costs as a means of shielding their investment. The result is the overprotection of property owners' investments and, many would argue, a monotonous, sterile, inefficient, and inconvenient suburban landscape.

Academic skeptics of zoning (and, to a far lesser extent, of covenants) have offered several alternatives to the traditional prohibitory model of land use regulation. Some-for example, Robert Ellickson-have suggested that ex post fines or nuisance remedies could address harmful spillovers while enabling a more efficient distribution of commercial and residential land uses. (2) Other commentators have suggested that land uses should be permitted if they satisfy certain regulatory goals or "performance standards." (3) More recently, the self-styled "new urbanists" have proffered an alternative to zoning that relies heavily on aesthetic controls. (4) For reasons that are elaborated in greater detail below, however, none of these alternatives satisfactorily addresses the puzzle of overprotection: ex post monetary remedies raise inevitable concerns about undercompensation--a problem present whenever entitlements are protected by liability rules; (5) performance standards have proven both difficult to articulate and to apply; (6) and new-urbanist-inspired aesthetic coding, which has supplemented or supplanted traditional land use regulations in some jurisdictions, generates exceptionally high compliance costs. (7)

The second land use puzzle is how to address the intrametropolitan inequalities resulting from the fragmented distribution of regulatory authority among multiple local jurisdictions without undercutting the beneficial effects of interjurisdictional competition. While this "local government boundary problem" extends beyond property law, (8) land use regulations are particularly problematic because they empower local jurisdictions to exclude unwanted residents by imposing what are, for all practical purposes, high entrance fees. Critics of metropolitan fragmentation generally offer one of two strategies for addressing interjurisdictional inequality: some propose new regional government structures that would supersede local government authority in problematic areas, including the authority to regulate land uses; (9) others advocate fiscal redistribution between rich and poor municipalities within a metropolitan area. (10) The difficulty with these strategies is that each threatens to undermine the efficiency gains that are produced when, as Charles Tiebout influentially predicted, (11) local governments compete for residents by structuring distinctive packages of taxation, regulation, and other publically provided amenities and services. (12) This competition for Tiebout's "consumer voters" is hardly fine grained; it is also a primary generator of the very inequities lamented in the local-government literature. But it does subject local governments to some approximation of market competition, and regional-government and regional-redistribution proponents struggle to demonstrate that the benefits of regionalization outweigh the costs of limiting intermunicipal competition.

In The Unbounded Home, (13) Professor Lee Anne Fennell proffers innovative solutions to both of these land use puzzles. The genius of Fennell's excellent book is that she treats these puzzles as property-entitlement problems, rather than regulatory-design problems. By resorting to property theory, Fennell is able to break free from the standard land use and local-government debates and offer novel insights into what generally seem intractable difficulties. This Review focuses on two of Fennell's recommendations that I believe hold the most promise for successfully addressing the land use puzzles identified above: first, the use of "entitlements subject to self-made options," or "ESSMOs," rather than prohibitory limitations or fines, to address local land use spillovers; and second, the reconfiguration of homeownership to minimize owners' incentives to demand exclusionary land use policies. I am less enthusiastic about her third suggestion--a "propertization" of associational rights within local jurisdictions--as the policy proposals flowing from it do not differ dramatically from the redistributional approaches to exclusion championed by regional government proponents.

Fennell's proposed use of options to efficiently calibrate local land use regulations to resident preferences ultimately is the most promising of her policy prescriptions. Fennell argues that, in lieu of the standard prohibitory land use regulations, local governments or private developers could give property owners the right to buy or sell certain land use entitlements at prices set by the entitlement holders themselves. That is, rather than prohibiting outright activities that might generate harmful spillovers, regulators could price the right to engage in, and to be free from, the potentially harm-producing activities. Fennell's proposed pricing system would rely on options, by entitling owners to purchase the right to engage in a land use activity, or to enjoin neighbors from the same, and would be "self-made" because it would use self-valuation devices to price land use entitlements. Fennell makes a strong case that self-priced options could better calibrate land use controls to residents' true preference than existing regulatory devices. But, they have the potential to do even more. Fennell arguably undersells the transformative power of this intriguing proposal by assuming that it primarily addresses intralocal regulatory spillovers and discounting the possibility that it might address regional inequalities as well. Yet this is not necessarily the case. Most proponents of regional government and growth control proceed on the assumption that poorer jurisdictions simply cannot compete with wealthier jurisdictions for the "right" kind of residents. According to this view, the exclusion of less-advantaged residents from richer jurisdictions is problematic because it denies lower-income individuals access to the amenities (safety, quality public schools, etc.) that wealthy residents demand and that wealthy jurisdictions provide. Of course, the relative status of poorer jurisdictions and their less-advantaged residents also would be improved if poorer jurisdictions (generally speaking, center cities and older, inner-ring suburbs) could compete successfully with wealthier jurisdictions. And, although the current housing crisis has placed a cloud of doubt over urban prospects, evidence from recent decades suggests that center cities in particular are getting better at competing with their suburban counterparts. (14)

As Edward Glaeser and Joshua Gottleib plausibly argue, this competition may have been driven by an increased affinity among elites for city life, especially for the social interactions and consumer amenities enabled by dense, mixed land use urban environments. (15) Unfortunately, as I have argued elsewhere, existing land use regulations frequently impose "suburban" land use patterns on city neighborhoods, arguably hamstringing urban officials' ability to capitalize on this advantage. (16) Yet even city officials who recognize this as a problem--and many do not--find it difficult to use land use policy to promote density and vitality because urban residents often are not appreciably less averse to spillover risk than the suburban homeowners that take center stage in The Unbounded Home. Neither of the common responses to this risk aversion--either to maintain a regulatory status quo that stifles urban vitality or to swap the current regulatory system for a new system of aesthetic controls that drives up housing costs--promotes urban competitiveness. But, for reasons explored in greater detail below, Fennell's ESSMO proposal might well enable cities to achieve greater land use diversity and thereby gain an edge vis-a-vis suburbs in the competition for residents with a taste for urban life. And, by reducing homeowner anxieties, it might also serve to open up wealthier suburbs to less-advantaged residents as well.

1. PRICING PROPERTY REGULATION

   Several years...