New Community Associations for Established Neighborhoods
Robert H. Nelson
Paper prepared for presentation to the 27th Annual Research Conference of the
Association for Public Policy Analysis and Management, Washington, D.C.,
November 3-5, 2005
Given the option, most purchasers of new housing are choosing to live under a
private neighborhood government. Between 1980 and 2000, fully half the new
housing units built in the United States were subject to the governance of a
homeowners association, a condominium association, or a cooperative – the three
types of collective housing ownership included within the category of “private
community association.” The Community Associations Institute estimates that in
2005 there were 54 million Americans – 18 percent of the population – living in
275,000 community associations.1 At a regional level, water, sewer, and arterial
highways are still provided publicly but at the neighborhood level the regulation of
land and the provision of common services is increasingly becoming a private
government responsibility in America.2
Organizationally and legally, a community association might be described as a
hybrid between a private business corporation and a traditional local government.3 It
resembles a business corporation in that the governing responsibility lies with a board
of directors elected by the ownership. Just as an individual can own stock in multiple
corporations, a person can own units in – and vote in – multiple community
associations. Thus, unlike traditional local government, someone who lives in a
community association in Ohio in the summer and Florida in the winter can vote for
the board of directors in both places. An investor in rental housing can vote even
though he or she does not live in the neighborhood, appropriately reflecting the
substantial economic interest of this person. Like a business corporation, a main goal
of a community association is to maximize total investment value – in this case the
value of the homes in the association.4
A community association more resembles a traditional local government in
other respects. It has the ability to levy private taxes (“assessments”) on the unit
2
owners, as these payments are set by the board of directors. A community association
regulates the quality of the neighborhood environment and provides common
services. A resident unit owner thus resembles a business stock holder in owning a
share of the total property investment, but resembles a customer of a business in
receiving services delivered by the community association.
This hybrid mixture of business corporation and local government is today
transforming the character of local government in the United States. The spread of
private community associations, one legal authority writes, is achieving “a largescale, but piecemeal and incremental, privatization of local government.”5 An expert
on homeowner association and condominium law declares that the new forms of
housing ownership are creating “a revolution in American housing patterns.”6
Another states more broadly that there is today an ongoing “massive social
transformation represented by restricted-access living” across the United States.
Although originally oriented to higher income groups, private communities are now
“found throughout the country and cater to all income levels, including working class
citizens.”7
The rise of the private community association follows after the emergence in
the late nineteenth century of corporate ownership of private businesses. Both
represented fundamental turns away from individual ownership of property and
towards new collective forms. Indeed, the rise of the private community association
is the most important property right development in the United States since the
creation of the modern business corporation. By 1994 the California Supreme Court
would declare that “common interest developments are a more intensive and efficient
form of land use that greatly benefits society and expands opportunities for home
ownership.”8 In the modern age, new forms of property ownership had to be devised
3
to coordinate private economic activity within large organizations – private business
organizations more than 100 years ago, and private residential neighborhoods in the
last decades of the twentieth century.
A private community association is created in conjunction with the
construction of a new housing development. Each new home buyer is required as an
initial condition of purchase to agree to abide by the terms of the private government
– technically, the “Covenants, Conditions, and Restrictions (CC&Rs)” of the
community association. If a neighborhood of separately owned homes already exists,
however, it will generally be impossible to create a community association. It would
require unanimous consent of the owners but that is usually a practical impossibility
among any significant number of people. As Michael Sarbanes and Kathleen
Skullney comment, at present “a deed-based remedy to quality of life issues obviously
bypasses older communities, whose deeds were created before this technique was
widespread. Even if it made legal sense, the amending of every deed would be a
daunting logistical task.”9
Where they have the choice, home buyers across America are voting with their
feet to replace public zoning and public service provision with the private
neighborhood governance of community associations. Given this popularity of
community associations in newly developing areas, I propose that state legislatures
enact legislation that would enable established neighborhoods as well to create their
private community associations. Rather than unanimous consent, a high
supermajority vote of the property owners would be required. In this way, the
opportunity for private governance would be extended to established neighborhoods.
To be sure, no neighborhood would be required to take this step; it would be an action
4
that reflected the wishes of the large majority of neighborhood property owners as
recorded in a formal vote.
The benefits of newly private governance of neighborhoods might be greatest
in deteriorated inner city areas.10 . The problems of America’s urban core have
defied a whole generation of reformers. Crime, drugs, and other social dysfunctions
still beset many urban neighborhoods. The services provided by distant bureaucracies
at city hall are often poorly suited to the needs of the residents. The government
providers are often more concerned with their own job prospects than the welfare of
the service recipients. New private governments in inner city neighborhoods would
sharply decentralize many of the functions of city government and thus allow the
property owners there to take charge of their own affairs. If necessary, the
neighborhood might follow the example of suburban gated communities and establish
tight controls over entry into the neighborhood, thereby creating a newly secure
environment for the benefit of the residents.
New community associations in older neighborhoods would extend further a
trend towards sublocal governance already seen in many urban jurisdictions.11 The
historic districts created in many cities provide tight controls over even minor details
of neighborhood architecture, similar to community associations. Business
improvement districts can tax property owners within a limited neighborhood area. In
St. Louis, it has long been possible to privatize city streets, creating a close equivalent
to a private community association. Similarly, in some public housing projects, the
streets have recently been privatized as part of efforts to gain tighter control over
access to the project neighborhood. Several commentators have suggested taking
these steps further to create new private governments for urban neighborhoods.12 The
proposal of this paper builds on these and other previous developments.
5
A Proposal
For the purposes of discussion, the following six-step process is proposed as
an approval procedure for a new community association in an established
neighborhood, recognizing that many variations in the specific details are possible.
1. A Petition Request -- A group of individual property owners in an older
established neighborhood could petition the state to form a private community
association. The petition should describe the boundaries of the proposed community
association and the instruments of collective private governance intended for it. The
petition should state the common services expected to be performed by the
community association and an estimate of the monthly assessments required. The
petitioning owners should include cumulatively more than 40 percent of the
neighborhood property owners, representing at least 60 percent of the total value of
existing neighborhood properties.
2. State Review -- The state would then have to certify that the proposed area
of private neighborhood government met certain standards of reasonableness,
including having a contiguous area; boundaries of a regular shape; an appropriate
relationship to major streets, streams, valleys and other geographic features; and other
relevant considerations. The state would also verify that the proposed private
constitution met state standards for community associations.
3. Municipal-Neighborhood Negotiations -- If the application met the state
requirements, a neighborhood committee would be formed to negotiate a service
transfer agreement with the municipal (or other local) government that had
jurisdiction over the neighborhood. The agreement would specify the future possible
transfer of ownership of municipal streets, parks, swimming pools, tennis courts, and
other existing municipal lands and facilities located within the proposed private
community association, possibly including some compensation to the municipality. It
would specify the future private assumption of garbage collection, snow removal,
policing, fire protection, and other services -- to the degree that the private
neighborhood government would assume responsibility for such common services.
The transfer agreement would also specify future tax arrangements, including any
property or other tax credits that the community association might receive in
compensation for assuming existing municipal service burdens. Other matters of
importance to the municipality and to the proposed community association would also
be addressed. As needed, the state government would serve as an overseer and
mediator in this negotiation process.
4. A Neighborhood Vote -- Once state certification of the neighborhood
proposal to create a new private community association was received, and a
municipal transfer agreement had been negotiated, a neighborhood election would be
called for a future date. The election would occur no less than one year after the
submission of a complete description of the neighborhood proposal, including the
founding documents for the community association, the municipal transfer agreement,
estimates of assessment burdens, a comprehensive appraisal of the values of
individual neighborhood properties, and other relevant information. During the one-
6
year waiting period, the state would oversee a process to inform property owners and
other residents of the neighborhood of the details of the proposal and to facilitate
public discussion and debate.
5. Required Percentages of Voter Approval -- In the actual election,
approval of the creation of a private community association would require both of the
following: (1) an affirmative vote by 70 percent or more of the individual unit owners
in the neighborhood; and (2) these affirmative voters must cumulatively represent 80
percent or more of the total value of neighborhood property. If these conditions were
met, all property owners in the neighborhood would be required to join the
community association and would be subject to the full terms and conditions laid out
in the community association founding documents (the "declaration," or as it would
amount to in practice, the community association “constitution”).
6. A New Private Right -- Following the establishment of a new private
community association, the municipal government would transfer the legal
responsibility for regulating land use in the neighborhood to the unit owners in the
community association, acting through their instruments of collective decision
making. The municipal zoning authority within the boundaries of the community
association would be abolished -- except in so far as such zoning regulated significant
adverse impacts on other property owners in other places outside the boundaries of
the community association. (The activities within a community association would not
be permitted to create a nuisance for other neighborhoods outside the association.)
The Benefits of Private Governance
Many of the governing roles of a private community association are already
being performed in older neighborhoods by existing municipal institutions. Public
zoning, for example, already regulates many of the interactions among property
owners that determine the quality of a neighborhood environment. Why, then, go to
the trouble of creating a new private neighborhood government? The explanation is
found in a number of advantages at the neighborhood level of private government
over the traditional system of local government. These include the following:
More Complete Control -- Except in an historic or other special district,
municipal zoning does not provide for fine control over the details of neighborhood
architecture, placement of trees and shrubbery, yard maintenance, and other matters
that can have a significant impact on the environmental quality of a neighborhood.
As dean Gerald Korngold of the Case Western Reserve Law School comments,
neighborhood associations “can modify covenants more quickly and cheaply than
7
public government can amend zoning, resulting in lowered transaction costs and
efficiencies for the community. Moreover, governing boards of homeowners
associations can develop an extensive regulatory scheme and system of rules,
providing for a more controlled – and desirable from the owner’s perspective – living
environment.”13
Neighborhood Self-Determination -- The administration of neighborhood
functions by a wider municipal government removes final decision making from the
neighborhood. In a big city, the responsible authority for neighborhood decisions
may even be a distant mayor and city council. Yet, in matters such as the fine details
of neighborhood architectural controls, there is no need for wider municipal
involvement. Indeed, under public zoning today, the potential involvement of
municipal outsiders leaves the neighborhood exposed to regulatory actions that it does
not want. Law professor Clayton Gillette thus notes that community associations
make possible “private zoning by those who, for instance, consider living next to an
ostentatious house or a multistory dwelling to be an undesirable externality.
Individuals who wish to opt out of public lawmaking because they find it too
imprecise or—with respect to nuisances – underinclusive, may also desire to opt out
of public enforcement mechanisms for fear that those arbiters (courts) would bring to
any dispute the perceptions created in litigation borne of the very public law
principles that the residents are attempting to elude.”14
Private Sales of Rights -- Because zoning is regarded as a form of public
regulation, the direct sale of zoning controls in a neighborhood would be an act of
“bribery” or “corruption.” Even when the revenues from the sale of zoning (such as
“development impact fees”) are deposited in the public treasury, rather than individual
private pockets, courts remain skeptical. However, if the admission of a new land use
8
into a neighborhood were regarded as the ordinary exercise of a private property right
-- as in a private community association – neighborhoods would be free to sell rights
of entry (say for a new convenience store). They could also sell rights to make
broader changes in land use within the neighborhood, or even sell the whole set of
neighborhood properties in a single package for comprehensive redevelopment in an
altogether new type of land use. Most neighborhood owners might be happy to move
away in exchange for a buy-out possibly equal to two or three times the existing value
of their homes.
Better Provision of Common Services -- A private community association
can also serve as a vehicle for more effective and efficient provision of neighborhood
services. The substitution of private provision might particularly benefit many urban
neighborhoods in big cities now receiving inferior services outside their control. One
testimony to such potential improvements is offered by Linda Morrison, a former top
official in the Philadelphia government who was charged with implementing the
“Competitive Contracting Program” there in the early 1990s. By contracting out a
limited number of “targeted services” to the private sector, as Morrison reported,
“hundreds of millions were saved on these few targeted services since 1993. The
savings ranged from 28 percent for the city’s warehouse operation to 53 percent for
the Philadelphia Nursing Home to 46 percent for turf maintenance in parks. In every
case, service was improved.” 15 Yet, opposition from labor unions and other interests
to Philadephia’s privatization program soon mounted, and the initiative ground to a
halt within three years, leaving the old system of inefficient public delivery remaining
in place for most city services.
Neighborhood Social Capital -- The creation of a community association
can promote and sustain a strong spirit of community and sense of identity within a
9
neighborhood. As smaller and more cohesive bodies, private neighborhood
governments can stimulate residents to become more involved in public affairs,
creating “social capital” within a neighborhood itself and perhaps even greater
democratic involvement in the metropolitan region or, indeed, the nation. As Jason
Mazzone reports, “a large body of research in the social sciences demonstrates that
the ability of high social capital groups to choose their own members, free of any
compulsion, is often a vital condition for the cohesiveness, and effectiveness, of the
groups, as well as for the commitment of members to a group and their trust in each
other.” An action that works “to undermine the association’s social capital” is also
likely to diminish “the associations contribution to popular sovereignty.”16
Local Constitutional Experimentation -- Because a community association
would have wide flexibility in its constitutional design for private governance,
competition in the marketplace would extend to the structures of neighborhood
government. Not only states and cities but local neighborhoods as well could be the
“laboratories of democracy.” Private neighborhoods could more easily merge, or
perhaps break apart, as compared with current municipal annexations and deannexations. The degree of horizontal and vertical integration in the governing
institutions of a metropolitan area could be shaped in greater degree by market forces
in the real estate industry.17
Real Decentralization – A neighborhood movement in the United States has
long advocated the sharp decentralization of governing powers to the neighborhood
level. However, little decentralization has occurred in the public sector. Existing
public governments have been unwilling to surrender significant authority to
neighborhood bodies. By contrast, the rise of private community associations has
represented a “private neighborhood movement” on a large scale in the outer suburbs.
10
With new legislation, this movement could be extended to established neighborhoods
in inner cities and close-in suburbs as well.
Market Economic Coordination -- There is no possibility that the
neighborhoods of today will become small autarkies. A neighborhood must fit within
a broader social and economic framework and be accountable to it. If the
neighborhood is a “political” creation – i.e., a small local government – it will be
accountable to higher orders of political authority.
The alternative is accountability
to the market which also imposes a higher order social disciple. Indeed, the forces of
the market are capable of coordinating activities on a worldwide basis. Private
community associations put the determination of the uses of neighborhood land
within the framework of a market system.
“Unitization” Precedents
There are precedents in other areas of the law for the state to assist a group of
property owners to pool their assets for collective management. Such an assembly
process takes place in the oil and gas industry, for example, under the legal
procedures for “unitization” of oil and gas holdings. A single oil pool may underlie
the land parcels of many individual owners. If each owner were to develop the oil
individually, it could create a potential “tragedy of the commons,” each owner
drilling a well as soon as possible to drain off as much of the total oil pool ahead of
other land owners. In the resulting rush to drill, oil reserves would be depleted at an
excessive rate and other significant economic losses would result.
One might argue that private markets will solve the oil and gas problem. The
land owners collectively could benefit by joining together in a cooperative manner
under a single management plan. However, the transaction costs of assembling
numerous owners are likely to be prohibitive. Holdouts may frustrate the assembly
11
process, especially if misinformed about the relative contribution of their own
property to the total value of the oil pool. Recognizing such problems, the major oil
producing states (except Texas, where statewide regulation of individual oil well
production instead limits individual incentives to overproduce) provide a legal
mechanism by which an oil pool can be “unitized” with less than unanimous consent
of the rights owners.
These state laws vary in a number of details such as the percentage of owners
required to approve a unitization. In Oklahoma, the voting requirement for a
compulsory unitization is 63 percent. The vote of each individual owner is weighted
by his or her relative share of the total acreage of the oil and gas owners above the
pool. One study finds that there was less than unanimous consent in more than half
the cases of successful unitizations in Oklahoma.18
Another precedent for the proposal developed in this paper can be found in
labor law. It would be difficult to obtain the voluntary agreement of 100 percent of
the work force of a business – to say nothing of an industry as a whole -- to support a
single bargaining agent. However, if a subgroup of workers negotiates a better wage
rate, all the workers benefit. To address this free-rider problem, Congress enacted the
Wagner Act in 1935 to provide that, if a simple majority of workers vote to join a
union, the union by law becomes the sole collective bargaining agent, and individual
workers must accept the bargaining outcome. The passage of this labor union
"unitization" law, setting up a system of government supervised union elections,
provided a charter that helped establish the current role of labor unions in American
industrial relations. A new “Wagner Act” for private neighborhood associations – if
now with a supermajority requirement for approval -- could have a large impact on
the future workings of urban land development in the United States.
12
The Tragedy of the “Anticommons”
The familiar “tragedy of the commons” involves a large number of individuals
who possess an equal access to use a resource, thus leading to overexploitation of
open rangelands and many other commons. In several recent law journal articles,
Columbia University law professor Michael Heller has described a “tragedy of the
anticommons.”19 In this situation, a large number of individuals possess the rights to
the use of a resource, but these rights may be useless individually when each holder
possesses a veto on the coordinated use of the rights. The tragedy then is not the
overexploitation but the underexploitation of the common resource. To use the
resource, many individual rights would have to be assembled – but it would be at a
prohibitive cost. Heller offers the example of a new technological innovation that
requires the accumulation of many patents held by diverse private parties. The usual
holdout and other transaction costs may easily frustrate the assembly of the full set of
patent rights and thus prevent the development or use of an important new
technology. As Heller explains,
The danger with fragmentation is that it may operate as a one-way ratchet:
Because of high transaction costs, strategic behaviors, and cognitive biases,
people may find it easier to divide property than to recombine it. If too many
people gain rights to use or exclude, then bargaining among owners may break
down. With too many owners of property fragments, resources become prone to
waste either through over use in a commons or underuse in an anticommons.20
One solution historically to this problem has been to limit the ability to divide the
rights to property in the first place. Historically, primogeniture laws had this purpose,
preventing property division equally among siblings. The ability to create indefinite
easements to land, and other divisions of property into many separate “sticks” of rights,
has long been limited by the legal “Rule against Perpetuities.”21 If the individual rights
have become so divided as to be useless at present, the reassembly process might even
be undertaken without compensating the owners of the rights. As Heller explains,
13
“when resources are so fragmented that internal governance mechanisms predictably fail
and multiple owners cannot productively manage the resource with respect to the
external world, then the ownership fragments are no longer usefully protected as private
property” – and it may no longer be appropriate to apply the constitutional protection
against “takings.”22
In other cases, the separate rights might be worth much more in total as part of
the development of a common unit, but each right still has some value individually. In
such cases, a government plan for consolidating rights will necessarily include
compensation for the individual rights holders. In many cases that compensation might
well consist of an individual ownership share in the future common property. In effect,
the role of government will be to employ its powers to transform the management of the
resource from a decision rule of unanimity to a rule of less than unanimity. Whatever
the specific institutional mechanism, as Heller observes, there is a long tradition in “the
private law of property [that] routinely develops anti-fragmentation mechanisms that
prevent, and sometimes abolish, valuable [individual] privately-held interests” for the
social purpose of promoting a more valuable coordinated use of the newly combined
land and property holdings.23
The anticommons issues raised by Heller bear directly on the possibility of
creating private community associations in older neighborhoods. The circumstance of
an established neighborhood in current diverse ownership represents an anticommons in
Heller’s language. In an inner city area, for example, a given neighborhood may be run
down at present but have a high location value. If the full neighborhood properties could
be assembled in one collective unit for joint management, the development value of the
consolidated neighborhood properties might greatly exceed the sum of the individual
properties in their current uses.
14
In seeking collective management, it will be essential to devise a fair and
reasonable formula of compensation for current users. In a new private community
association, as proposed in this paper, new individual rights in the resulting common
property would be granted, meeting the compensation requirement in this way. The
urban renewal programs of the 1950s and 1960s took a much less satisfactory approach
that placed decision making authority outside the neighborhood and failed to provide
adequate compensation to affected property owners. As a result of its inequities and
inefficiencies, this assembly process was soon discredited. Other nations, however, have
been more imaginative in this regard and have provided legal mechanisms for pooling
land areas and granting new rights to the old owners.24 The United States perhaps
should follow these examples.
Business Improvement Districts
A “business improvement district” (BID) is not a full fledged private
government but it represents an incremental step –mainly applied to neighborhoods of
business properties -- in the directions proposed in this paper. BIDs were first
authorized by state and local legislation for New York City in the early 1980s.25 The
14th Street-Union Square District in New York City in 1984 was the first BID in the
United States and there are now more than 50 BIDs in New York City alone.
A BID consists of an association mostly of business owners of property who
have banded together to improve their surrounding neighborhood environment.26 To
create a BID in New York, an application must be filed with the City government -typically by an organization of businessmen in the area -- and the City must give its
approval. In New York, the creation of a BID can be blocked by an opposing petition
from 51 percent of the owners in the area. BIDs are authorized to assess the property
owners in the neighborhood for fees to pay for improvements. In 1994 the Grand
15
Central District, for example, collected a fee of 11.5 cents per square foot from
businesses in the neighborhood. BID revenues have been used to install better street
lighting, clean up litter, add more trash cans, put up clearer signs and hire private
security guards.
Following their introduction in New York City, BIDs spread rapidly to other
parts of the country. By 1997 there were about 1,000 BIDs in the United States. A
1999 survey found 73 BIDs in California, 54 in Wisconsin, and 32 in North Carolina.
Sixty percent had been created since 1990 and 28 percent since 1995. The average
size of a BID was 20 blocks, though they ranged from a single block to 300 blocks.
The BIDs were managed by governing boards that on average had 16 members. The
median annual budget of a BID was $200,000, although ranging from $8,000 to $15
million.27
Outside of New York City, the typical process for establishing a BID requires
an affirmative vote of the area’s property owners. This vote often takes the form of a
petition submitted to the city government. The required vote for approval of a BID
has ranged from 50 percent to 70 percent of those eligible to vote. BID’s are given
credit for improving urban conditions where they have been created. In a 1999 survey
of the impacts of BIDs, Jerry Mitchell finds that,
BIDs have definitely become an integral part of the service delivery system of
municipalities across the country. They are engaged with a diverse set of
programs and projects, and even though the evidence is limited, they seem to
be doing very well. It is obvious when walking around these districts that
most of them are more visually appealing. No longer plagued by trash and
grime, garish facades, deteriorating sidewalks, rundown parks, and nefarious
individuals, there is a sense that the commercial centers of small, medium and
large size communities have come back to life.28
BIDs represent a further evolution of city governance towards the
empowerment of neighborhoods in the manner of a private community association.
A BID in an older city performs some of the same service functions as a private
16
community association in the suburbs. Indeed, a BID that happened to coincide with
the boundaries of an historic district would for practical purposes almost be a private
community association. This “super-BID” would regulate the fine details of
neighborhood architecture and land use and would also have the authority to levy
assessments to pay for common services.
Residential Improvement Districts
The favorable results of BIDs have led to similar proposals for rejuvenating
residential areas in older cities. Perhaps there should be new laws for “residential
improvement districts” which would in fact resemble a new private community
association. Indeed, Yale law professor Robert Ellickson has proposed a plan for “new
institutions for old neighborhoods” of typically a few city blocks – to be called “Block
Improvement Districts,” or “BLIDs.” As he says, the basic concept would be “to enable
the retrofitting of the residential community association – an institution commonly found
in new housing developments [in the suburbs] – to a previously subdivided block [in the
city].” Since it would require the creation of new legal authority by state government, the
“legislative drafters could pattern these statutes after the ones that many states have
enacted during the past decade to authorize the establishment of mandatory-membership
Business Improvement Districts (BIDs).”29
Currently, as Ellickson explains, efforts to improve many residential inner-city
areas face the normal problems of collective action, including a large free-rider problem.
A decision by one property owner “to paint facades or trim shrubbery” creates
significant external benefits for nearby property owners. But if BLIDs could provide a
way to surmount the collective action problems, they might facilitate the transformation
of run-down neighborhoods into bright, attractive environments. For this purpose, as
17
Ellickson thinks, it will be necessary to go beyond “voluntary coordination” to create
instead new neighborhood institutions that should have “coercive powers.”30
As in a private community association in the suburbs (and a BID), the voting
rights in BLIDs would be assigned to the property owners. Ellickson proposes that the
formation of a BLID should begin with a petition sent to the city authorities. There
might be a minimum size (say, two acres of land) involving at least 10 different
ownerships. To win approval for a new BLID, perhaps two-thirds of the owners in the
area would have to vote in its favor. Ellickson also suggests that perhaps a simple
majority of current residents (including renters) should have to vote to approve the
action. The BLID should have the authority to levy taxes (or impose assessments)
within the neighborhood. There should also be provision for terminating a BLID that
works poorly or has outlived its usefulness.
Ellickson recognizes that any such proposal -- in essence, his own version of a
retroactive community association -- is likely to be seen as a privatization of the inner
city, potentially extending the workings of private government into further areas of
American life. Yet, as he concludes, the rapid spread of private community associations
in the suburbs actually demonstrates “the merits of enabling the stakeholders in innercity neighborhoods to mimic – at the block level – the micro-institutions commonly
found in the suburbs.” It is precisely the “poor people living in inner cities [who] would
benefit” the most from the establishment of a new institutional mechanism for creating
BLIDs.31 It would give them the institutional means and the incentives to take command
of their own surroundings and to improve significantly the quality of their existing
neighborhood environments. They would no longer have to rely on well meaning but
often ineffective outsiders or out-of-touch city bureaucracies to try to do the job.
18
Fair Treatment for Renters
If a private community association is created in an inner-city neighborhood,
the property values in the area might rise significantly as the neighborhood
environment improves. The owners of property would directly benefit, either by the
higher quality of the neighborhood where they live or by selling out at a high price
and moving elsewhere. Renters in the neighborhood, however, might be losers. They
might face a choice of either moving out or paying much higher rents. Lacking
ownership rights in neighborhood properties, they would not directly gain from the
rise in neighborhood values. Yet, it is possible to accommodate renters’ interests as
well. Indeed, the political viability of a policy proposal for creating inner city private
community associations may depend on achieving a “win-win” outcome all around,
including the renters in the neighborhood.
A solution in this case would be to recognize new “rights” of renters in
addition to rights of neighborhood property owners. As a condition for establishing a
new community association in an older neighborhood, the law governing this process
might require that all renters be allowed to remain where they are for a certain period
of time and without rent increases (beyond inflation). Similar provisions are
contained in the existing rules in many cities for conversion of individual rental
buildings to a condominium status. When rental buildings are converted today,
renters in the buildings are frequently given some rights to remain in the building after
the conversion. (They also often receive a right to purchase their own rental unit at a
significantly discounted price.)
There are many alternative ways of giving renters a share in the bundle of
rights of a new private community association created in an older neighborhood.
There should probably be a relationship between the amount of time a renter has lived
19
in the neighborhood and the extent of the renter rights granted. One option would
give each renter the right to stay in their existing unit at a rent-controlled price for the
same number of years that they have been living in that unit (or perhaps in any
building in the neighborhood). A renter who had been there for twenty years would
thus be given a right to twenty additional years in the same housing facility; a renter
of one year would be given a right to one additional year.
If given such rights, many of these renters might end up selling the rights to
investors, preferring cash in the short run to a longer run higher level of neighborhood
amenities. Like the neighborhood’s property owners, renters might make different
choices, some choosing to stay and others to capture a financial windfall gain
immediately. Some renters might bargain with land developers for a new unit in a
rebuilt neighborhood, as their particular price of moving out for a transitional period
of neighborhood reconstruction.
The St. Louis Experiment
There is one American city that has conducted an experiment on a limited
scale in neighborhood privatization. In 1867, the first "private street," Benton Place,
went on the market in St. Louis.32 Subsequently, and with the strong encouragement
of the prominent architect, Julius Pitzman, many other private streets were formed.
The streets were managed by associations of property owners responsible for
maintenance and other improvements. As recently as the 1950s, the residents along
sections of two public streets, Pershing and Westminster Avenues, petitioned the city
and won approval to privatize their portions of the streets. As of 1986, there were
more than 400 private streets in the St. Louis area, most of them located in St. Louis
County (outside the City of St. Louis).
20
A 1989 study of these private streets, undertaken for the U.S. Advisory
Commission on Intergovernmental Relations (ACIR), reported that "one of the major
services provided by subdivisions that control their own streets is access restriction.
Throughout much of University City and Clayton, streets that would otherwise
provide access to subdivisions from city streets are chained off or barricaded."33 Such
private streets could also “accommodate diversity in [service] preferences among
neighborhoods." Some neighborhoods exceeded the municipal standards for street
lighting, while others did not think the greater illumination was worth the expense.
Overall, based on the experience of the St. Louis private streets, the ACIR study
concluded that the private collective ownership of streets could "offer a number of
advantages that their members value highly."34
Another study of these streets by community planner Oscar Newman found
that in the opinion of the residents themselves "the physical closure of streets and
their legal association together act to create social cohesion, stability and security."35
Newman summarizes his findings concerning the St. Louis experiment in street
privatization:
For many students of the dilemma of American cities, the decline of St.
Louis, Missouri, has come to epitomize the impotence of federal, state,
and local resources in coping with the consequences of large-scale
population change. Yet buried within those very areas of St. Louis
which have been experiencing the most rapid turnover of population
are a series of streets where residents have adopted a program to
stabilize their communities, to deter crime, and to guarantee the
necessities of a middle-class lifestyle. These residents have been able
to create and maintain for themselves what their city was no longer
able to provide: low crime rates, stable property values, and a sense of
community. Even though the areas surrounding them are experiencing
significant socio-economic change, high crime rates, physical
deterioration, and abandonment, these streets are still characterized by
middle-class ownership -- both black and white. The distinguishing
characteristic of these streets is that they have been deeded back from
the city to the residents and are now legally owned and maintained by
the residents themselves.36
21
Fencing Off Public Housing
In most areas of the inner city, it would require the assembly of a number of
individually owned properties in order to put together the full rights to sustain a more
desirable neighborhood environment. However, there are some inner-city
consolidated ownerships of full neighborhood size. A whole neighborhood can often
be found, for example, in a public housing project. Because the ownership rights are
already assembled, it is possible now to fence off such neighborhoods. Indeed, that is
precisely what several public housing projects in the United States are now doing.
In Richmond, Virginia, the local public housing authority in 1997 acted to
exclude non-residents from entering the Whitcom Court project.37 However, the legal
authority to take this action was challenged in court by Kevin Hicks, who received a
summons (he was a frequent offender) in 1999 for trespass in Whitcomb Court. In
denying entry to Hicks, the Virginia Supreme Court explained that the Housing
Authority was acting “in its capacity as [the new] owner of the private streets” within
the project area. The Richmond Police Department was directed “to serve notice …
to any person who is found on [Whitcomb Court] property when such person is not a
resident, employee, or such person cannot demonstrate a legitimate business or social
purpose for being on the [newly private] premises.”38
As the Virginia court explained the housing authority purpose, closing off the
streets was designed to “eradicate illegal drug activity in Whitcomb Court, which was
described as an ‘open-air drug market.’” Even so, in a 2002 decision, the Virginia
Supreme Court overturned the housing authority’s actions, ruling that they infringed
on Hick’s constitutional rights of free speech.39 On appeal to the U.S. Supreme Court,
however, the Virginia court was overruled in June 2003.40 The U.S. Supreme Court
ruled that, since Hicks was not involved in an exercise of speech, he could not bring a
22
constitutional claim on these grounds. Moreover, as Justice Ruth Bader Ginsburg
observed in oral arguments before the Court, the actions of the Richmond housing
authority were the practical equivalent of creating a "gated community" at Whitcomb
Court. As Justice Ginsburg further commented, "you're saying the public housing
authority can't create for people in the projects a gated community," even while
"people who live outside can have it, but poor people can't have it."41
The public housing authority in Knoxville, Tennessee also took over and
privatised the streets and instituted similar tight trespass rules. In Tampa, Florida and
El Paso, Texas, public housing authorities have asserted control over entry of people
without permission, although they have not taken legal possession of streets.
Reviewing these efforts in the Notre Dame Law Review, Peter Flanagan finds that
there has been a “demonstrated success of [the new] trespass policies in reducing
crime within public housing developments.”
Flanagan suggests that this model
might be extended to other inner city neighborhoods outside public housing projects.
It would require “the conveyance of public streets and sidewalks of logically and well
defined areas to neighborhood property owners. Whether they be public housing
authorities or private associations, such thoroughfare conveyances promise the most
circumspect eradication of drug crime, and crime in general, in those most severely
distressed areas.” The creation of new private governments as community
associations would be a “means to enable preexisting and distressed communities to
reap the advantages long enjoyed by newer and often suburban developments.”42
Related Neighborhood Proposals
Similar proposals for the creation of private community associations in
established neighborhoods have been offered by other commentators, including a
practicing land use lawyer, George Liebmann. In The Urban Lawyer in 1993, he
23
proposed a substantial "devolution of power to community and block associations."43
Such associations, Liebmann suggested, could assume a greater role in providing
service functions, such as day care, traffic regulation, zoning adjustments, schooling,
and law enforcement in neighborhoods. Liebmann proposed that state governments
should enact new legislation to authorize the formation of a community association in
an existing neighborhood. To establish such an association, he recommended that
two-thirds of the neighborhood residents be required to sign a petition giving their
approval.44 Once this petition had been reviewed and verified by a government body,
membership in the association would be mandatory for all residents of the
neighborhood.
As proposed by Liebmann, the new community associations would possess the
legal authority to provide many services in the neighborhood. The associations would
have a greater flexibility than zoning in administering controls over the entry of new
land uses. Specific governing responsibilities suggested by Liebmann for his
proposed local associations included:
1. [The community association could] operate or permit the operation
of family day care centers.
2. Operate or permit the operation of convenience stores, of not more
than 1,000 square feet in area, whose signage is not visible from a
public road.
3. Permit the creation of accessory apartments where a principal
residence continues to be owner occupied.
4. Cooperatively acquire building materials and services for the benefit
of its members.
5. Partially close roads and streets, impose right of way regulations,
and enhance safety barriers, except where local government finds that
the closure, regulation, or obstruction interferes with a street necessary
to through traffic.
6. Petition local government for imposition of a juvenile curfew on
association property.
24
7. Contract with local government to assume responsibility for street
paving, trash collection, street lighting, snow removal, and other
services.
8. Acquire from local government contiguous or nearby public lands.
9. Petition local government for realignment of election precinct and
voting district boundaries to conform to association boundaries.
10. Maintain an unarmed security force and appropriate
communications facilities.
11. Issue newsletters, which may contain paid advertising.
12. Operate a credit union, to the extent otherwise permissible under
state or federal law.45
In Liebmann’s view, a neighborhood government with such responsibilities
and with a wider flexibility in their administration would promote a happier blend of
activities traditionally divided artificially into public and private realms. In 2001,
another proponent of new methods of urban governance, Randal O’Toole, offered a
neighborhood privatization plan for “the American Dream Alternative.”46 O’Toole
argues that many recent “smart-growth” proposals in metropolitan areas would not
work as expected and might well entail undesirable social consequences. He suggests
instead that new property rights institutions would be a better – a truly “smarter” –
approach to urban reform.47
In older established neighborhoods O’Toole would provide for the substitution
of an initial endowment of private collective rights in place of the current zoning; in
essence, he is recommending that a newly created community association should take
over the existing zoning controls. Since the regulatory regime would change little,
O’Toole considers that a vote of 60 percent should be high enough to approve a new
community association in an older neighborhood. Any subsequent tightening of the
regulatory regime beyond the existing zoning would then require an association
25
constitutional amendment – requiring a higher vote of 66 percent or 75 percent in a
typical community association.
With such a new private governance system in place in an older neighborhood,
a normal market process could control entry into the neighborhood. O’Toole offers
the following example:
Suppose a city has a surplus of areas with single-family homes and a shortage of
apartments. Developers could approach neighborhood associations and offer to
pay money or provide services in exchange for building apartments in the
neighborhoods. No doubt the developers would also provide assurance that the
apartments did not reduce property values. Some associations would accept,
others would not. In this way, a city could evolve in response to changing
conditions on a more voluntary basis than used by current planning and zoning.48
O’Toole sees this plan as a method to “completely replace zoning.” By turning
over land-use controls to private neighborhood associations, it would protect property
owners from wider municipal “imposition of developments that the neighborhood does
not want.” Admittedly, existing zoning has protected many neighborhoods well enough.
When the time for major land-use change has come, however, municipal zoning almost
everywhere has lacked the flexibility to accommodate brand new uses without great
stresses and strains. A private neighborhood government, in contrast, would provide for
more “orderly neighborhood transitions.” When a neighborhood has to make way for a
new use, the neighborhood association could sell the development rights and the
residents would not feel “that their land had been devalued” by an incompatible use and
yet they had received no “compensation,” monetary or otherwise.49
Finally, O’Toole proposes that a significant part of existing federal and state
funds for acquiring land for open spaces could be turned over to his proposed private
neighborhood associations. They could make more effective use of these funds for open
space, for instance, creating new parks and improving existing parks within the
neighborhood. Several neighborhoods might join together to purchase land outside of
26
their own boundaries to form perhaps a regional private park. It might supplement the
efforts of current organizations such as the Nature Conservancy that seek to protect
valuable ecosystems and biodiversity through private land acquisitions.50
Conclusion
State governments should provide a new legal mechanism by which an older
established neighborhood could act to create its own private community association.
Under this proposal, the creation of a new community association would be
achievable with less than unanimous consent. Neighborhood property owners would
be authorized to vote – with some high supermajority required for approval – to ratify
a private constitution for a new community association.
Robert Ellickson observes that in most times and places property rights have
been in a constant state of evolution. A system of rights appropriate to the technology
and other circumstances of today may not work nearly as well 50 years from now.
One problem is that property rights may become “excessively decomposed,” making
it hard to aggregate rights into functional economic units. In general, “when a group
is stymied by large-number coordination problems, it is possible that a state or other
higher authority may usefully interfere to facilitate” a new property-right solution.51
From this perspective, the proposal in this paper to authorize the creation of private
community associations in established neighborhoods offers a specific new solution to
a wider problem.
One might think that, ideally, private parties should be able to work out new
private property right arrangements without the involvement of government – except
for the legal enforcement of any resulting private contracts. In practice, however,
property rights have to be defined by governments. When the private property rights
assume a collective character, governments become involved in setting the property
27
framework for the resulting collective decisions. The American business corporation
emerged in the late nineteenth century as the legal property instrument – recognized
by and many of its features specified by state governments -- for making collective
business decisions. In the late twentieth century, a similar development has occurred
with respect to collective decisions involving the private regulation and management
of neighborhood residential property.
If established neighborhoods could create their own community association, it
would facilitate private regulation and private provision of common services within
these neighborhoods. Given the past common failures of the public sector in these
areas of responsibility, private assumption offers great promise.52 There would not
only be the benefits of privatization but also of a sharp decentralization of local
government to the neighborhood level. There have been many advocates of
neighborhood government that would put the authority for common “micro” services
at the same level where the services are received. In the suburbs the spread of private
community associations across the United States is realizing this goal on a wide scale.
The same opportunity should now be extended to enable the wide creation of private
community associations in older established neighborhoods as well.
28
Endnotes
1
See www.caionline.org/about/facts.cfm .
2
See Robert H. Nelson, Private Neighborhoods and the Transformation of Local
Government (Washington, D.C.: The Urban Institute Press, 2005).
3
See Wayne S. Hyatt and Susan E. French, Community Association Law (Durham,
NC: Carolina Academic Press, 1998).
4
On the economic grounds for the creation of private community associations, see
Donald J. Boudreaux and Randall G. Holcombe, “Government by Contract,” 17
Public Finance Quarterly (No. 3, 1989); Yoram Barzel and T. R. Sass, “The
Allocation of Resources by Voting,” 105 Quarterly Journal of Economics (No. 3,
1990); Fred Foldvary, Public Goods and Private Communities: The Market Provision of
Social Services (Brookfield, VT: Edward Elgar, 1994; and Donald J. Boudreaux and
Randall G. Holcombe, “Contractual Governments in Theory and Practice,” in David
T. Beito, Peter Gordon and Alexander Tabarrok, eds. The Voluntary City: Choice,
Community and Civil Society (Ann Arbor: University of Michigan Press, 2002).
5
Steven Siegel, “The Constitution and Private Government: Toward the Recognition
of Constitutional Rights in Private Residential Communities Fifty Years after Marsh
v. Alabama,” 6 William & Mary Bill of Rights Journal (Spring 1998), p. 560-561.
6
Robert G. Natelson, “Consent, Coercion and ‘Reasonableness’ in Private Law: The
Special Case of the Property Owners Association,” 51 Ohio State Law Journal
(Winter 1990), p. 42.
7
Richard Damstra, “Don’t Fence Us Out: The Municipal Power to Ban Gated
Communities and the Federal Takings Clause,” 35 Valparaiso University Law Review
(Summer 2001), pp. 542, 530.
29
8
Nahrstedt v. Lakeside Village Condominium Association (1994), cited in Katharine
N. Rosenberry, “Home Business, Llamas and Aluminum Siding: Trends in Covenant
Enforcement,” 31 John Marshall Law Review (Winter 1998), p. 453.
9
Michael Sarbanes and Kathleen Skullney, “Taking Communities Seriously: Should
Community Associations Have Standing in Maryland?,” 6 Maryland Journal of
Contemporary Legal Issues (Spring/Summer 1995), p. 305
10
See Nelson, Private Neighborhoods and the Transformation of Local Government,
Ch. 14.
11
Richard Briffault, “The Rise of Sublocal Structures of Urban Governance,” 82
Minnesota Law Review (December 1997).
12
Robert C. Ellickson, “New Institutions for Old Neighborhoods,” 48 Duke Law
Journal (October 1998); George W. Liebmann, “Devolution of Power to Community
and Block Associations,” 25 The Urban Lawyer (Spring 1993); Randal O’Toole, The
Vanishing Automobile and Other Urban Myths: How Smart Growth Will Harm
American Cities (Bandon, Oregon: The Thoreau Institute, 2001), pp. 486-490; Peter
M. Flanagan, “Trespass-Zoning: Ensuring Neighborhoods a Safer Future by
Excluding Those with a Criminal Past,” 79 Notre Dame Law Review (December
2003).
13
Gerald Korngold, “The Emergence of Private Land Use Controls in Large-Scale
Subdivisions: The Companion Story to Village of Euclid v. Ambler Realty Co.,” 51
Case Western Reserve Law Review (Summer 2001), p. 642.
14
Clayton P. Gillette, “Mediating Institutions: Beyond the Public/Private Distinction:
Courts, Covenants, and Communities,” 61 University of Chicago Law Review (Fall
1994), pp. 1401-1402.
30
15
Linda Morrison, “Confessions of a City Budget Cutter,” Philadelphia Inquirer,
March 6, 2002. See also Reason Public Policy Foundation, Annual Privatization
Report 2003 (Santa Monica, CA: May 2003); and similar reports from earlier years.
16
Jason Mazzone, “Freedom’s Associations,” 77 Washington Law Review (July
2002), p. 762.
17
See Ronald J. Oakerson, Governing Local Public Economies: Creating the Civic
Metropolis (Oakland, CA: Institute for Contemporary Studies, 1999).
18
Gary D. Libecap and Steven N. Wiggins, “The Influence of Private Contractual
Failure on Regulation: The Case of Oil Field Unitization,” 93 Journal of Political
Economy (No.4, 1985), pp. 701, 706.
19
Michael A. Heller, “The Tragedy of the Anticommons: Property in the Transition
from Marx to Markets,” 111 Harvard Law Review (January 1998); and Michael A.
Heller, “The Boundaries of Private Property,” 108 Yale Law Journal (April 1999).
20
21
Heller, “The Boundaries of Private Property,” p. 1165-1166.
Angela M. Vallario, “Death by a Thousand Cuts: The Rule Against Perpetuities,”
25 Journal of Legislation (1999).
22
Heller, “The Boundaries of Private Property,” p. 1201.
23
Ibid., p. 1217.
24
See William A. Doebele, Land Readjustment: A Different Approach to Financing
Urbanization (Lexington, MA: Lexington Books, 1982).
25
Douglas Martin, “Districts to Improve Business Proliferate,” New York Times
(March 25, 1994), p. B3.
26
Richard Briffault, “A Government for Our Time?: Business Improvement
Districts and Urban Governance,” 99 Columbia Law Review (March 1999).
31
27
Jerry Mitchell, Business Improvement Districts and Innovative Service Delivery, a
report prepared for the PricewaterhouseCooper’s Endowment for the Business of
Government (Arlington, VA: November 1999). Available at
www.endowment.pwcglobal.com .
28
Ibid, p. 27.
29
Ellickson, “New Institutions for Old Neighborhoods,” pp. 77-78.
30
Ibid., p. 79.
31
Ibid., p. 109.
32
David T. Beito, “The Formation of Urban Infrastructure Through
Nongovernmental Planning: The Private Places of St. Louis, 1869-1920,” 16 Journal
of Urban History
(May 1990), p. 265; also David T. Beito, Owning the
“Commanding Heights:” Historical Perspectives on Private Streets (Public Works
Historical Society, Chicago, Ill., December 1989); Ronald J. Oakerson, “Private Street
Associations in St. Louis County: Subdivisions as Service Providers,” in U.S.
Advisory Commission on Intergovernmental Relations, Residential Community
Associations: Private Governments in the Intergovernmental System (Washington,
D.C.: May 1989).
33
Oakerson, “Private Street Associations in St. Louis County,” p. 58.
34
Ibid., p. 60.
35
Oscar Newman, Community of Interest (New York: Doubleday, 1980), p. 126.
36
Ibid., p. 124.
37
Charles Lane, “High Court to Review Anti-Drug Policy: Rules Intended to Strictly
Control Visitors to Richmond Public Housing Project,” Washington Post, January 25,
2003, p. A8.
38
Commonwealth of Virginia v. Kevin Lamont Hicks, 264 Va. 48 (June 2002).
32
39
Ibid.
40
Virginia v. Hicks, 539 U. S. 113 (2003).
41
Quoted in Charles Lane, “High Court Debates Trespassing Issue,” The Washington
Post (April 30, 2003).
42
Peter M. Flanagan, “Trespass-Zoning: Ensuring Neighborhoods a Safer Future by
Excluding Those with a Criminal Past,” 79 Notre Dame Law Review (December
2003), pp. 375, 387, 386.
43
Liebmann, “Devolution of Power to Community and Block Associations,” p. 335.
See also George W. Liebmann, The Little Platoons: Sub-Local Governments in
Modern History (Westport, Connecticut: Praeger, 1995).
44
Liebmann, “Devolution of Power to Community and Block Associations,” pp.
382-83.
45
Ibid., pp. 381-82.
46
O’Toole, The Vanishing Automobile and Other Urban Myths, pp. 486-490.
47
See also Randall G. Holcombe and Samuel R. Staley, eds., Smarter Growth:
Market-Based Strategies for Land-Use Planning in the 21st Century (Westport, CN:
Greenwood Press, 2001).
48
O’Toole, The Vanishing Automobile and Other Urban Myths, p. 488.
49
Ibid., p. 489.
50
Ibid., p. 489.
51
Robert C. Ellickson, “Property in Land,” 102 Yale Law Journal (April 1993), p.
1392.
52
The failures of public regulation are described in the writings of William Fischel.
See William A. Fischel, The Economics of Zoning Laws (Baltimore: Johns Hopkins
University Press, 1985); William A. Fischel, Regulatory Takings (Cambridge:
33
Harvard University Press, 1995); and William A. Fischel, The Homevoter Hypothesis
(Cambridge: Harvard University Press, 2001).
34