How Much Is Your Property Worth?

RALEIGH – How much is your property worth?

I ask the question that way for a reason. The value you place on your own property might well differ from the value I would place on it, as well as from the value I place on my property, if the size and location of our two properties appear to be similar. It is a fundamental fact of life, and indispensable for a proper understanding of economics, to observe that value is subjective. Despite centuries of blather to the contrary, you cannot compute the “right” value of something objectively based on elements such as the time and effort put into making or purchasing it. Michelangelo’s “David” is valuable because the artist put a lot of time and effort into fashioning it. Indeed, the sculpture is highly valued by some and of little interest to others based on their knowledge and preferences. The same can be said for goods readily available on the market, ranging from homes and cars to musical tracks and massages.

In a free society, the insight that prices are subjective should interest policymakers only to the extent that it helps explain why they should not seek to set price floors, price ceilings, or other impediments to voluntary exchange in the market. However, the problem of pricing is unavoidable when governments acquire private property for even a legitimate public purpose.

Consider an ongoing dispute in Greensboro about the valuation of some parcels of land along South Elm Street. The city government wants to purchase about 20 properties as part of a redevelopment plan. While everyone admits that some of the properties are blighted by a fair definition of the term, there are thriving businesses there, too. The News & Record cites the example of Chris Dwiggins, who runs an auto shop catering to downtown customers. The city has offered him $122,000 for his land, an amount that Dwiggins says would not be nearly enough to move his business and maintain the value of its customer base. “I’m all for them cleaning up Elm and Eugene street. I’ve been here 16 years,” Dwiggins said. “But I don’t think I should pay for it out of my pocket.” (Nor should his customers have to bear the cost of an unwise approach to redevelopment, as Sam Hieb observed over at the Piedmont Publius blog.)

Even if the amount was far higher, though – enough to cover the full cost of moving his shop and advertising it to restore his preexisting revenue stream – it might well fall short of the full value Dwiggins would place in a location where he has worked for 16 years. Similarly, a portion of the rural land where my siblings and I grew up in Mecklenburg County was taken some years ago to complete the loop around Charlotte. While it was possible to estimate the average price of land in the area, and even to estimate the potential value if it had been developed, there was obviously no way to make the government quantify the value we Hoods placed on the property as a fondly remembered playground, a site of woodland adventures and target practice for our slingshots.

As my JLF colleagues have previously argued, North Carolina should enact comprehensive reforms to protect private-property rights against encroachment. Eminent domain should be redistricted to legitimate public purposes. Property owners should have more ability to challenge valuations. Localities should avoid archaic and costly approaches to land-use planning that rigidly separate industrial, commercial, and residential uses and substitute clumsy zoning codes for flexible, common-sense policies to address true nuisances.

But even if policymakers got all these things right, there would still be cases in which government would end up paying less for land than its owners think the land is worth. In may view, this is an argument for minimizing government’s role as land developer – as if we needed another argument.

Hood is president of the John Locke Foundation.