Privatizing The Inner City

Privatizing The Inner City

October 31, 1997

Suburbanites have long benefited from the control over their immediate surrounding environment that they get from the system of land use controls in their areas. The small municipality, with its own school system, zoning and public services, is for many practical purposes the equivalent of a private neighborhood.

In recent years, suburbanites have been formalizing this private status through contractual arrangements, as developers build condominiums, planned unit developments with homeowners associations, and other forms of private communities managed by private community associations.

In 1970, around 1 percent of Americans lived in private communities. Today, the figure is approaching 15 percent, involving more than 30 million Americans. An estimated 4 million Americans now live in "gated communities," where a private status also allows tight control over physical entry of individuals into the area.

Thus, many millions of Americans, most of them in the suburbs, have shown a strong desire to have tight control over the character of the neighborhood physical environment that surrounds them. It is ironic that Americans with fewer resources, living in inner city areas, who have an even greater need for environmental security, have been denied a similar opportunity.

The creation of a full private community has for practical purposes only been possible when the whole area could be built as a brand new development. That is possible in developing suburban areas where a builder can buy a farm, or otherwise assemble a large enough area of land to form a private community. However, in inner city areas, a private community would have to be formed after-the-fact. It would require negotiating a voluntary consent among potentially hundreds of property owners to become part of the private neighborhood. Since it would be necessary to get unanimous – or nearly unanimous – consent, there would be free rider problems, holdout problems and all kinds of other transactions costs. As a practical matter, negotiating a unanimous set of voluntary agreements to join an inner city private neighborhood would be virtually impossible in most situations.

This problem could be solved, however, if there were legislation providing for after-the-fact creation of an inner city private neighborhood by some alternative and more feasible procedure. One possibility would be to allow residents of a neighborhood to come forward and propose the creation of a private neighborhood within certain boundaries. They would have to set out the proposed terms of neighborhood governance, the proposed covenants to control land use in the area, and other details of the proposed private governance arrangement. This setup would replace whatever municipal zoning or other land-use controls are already in effect.

After allowing suitable time for presenting and discussing this information in the neighborhood, an election would be held. If a certain percentage of property owners (say 80 percent) voted in favor, a private neighborhood would be established – and every property owner in the neighborhood would be required as a matter of law to join. Although this system would in all likelihood be preferable to city-wide zoning controls, it may be important to provide some form of compensation or buy-out option for those who do not wish to be part of the new arrangement.

The newly formed private neighborhood would be similar to current condominium and homeowners associations in the suburbs. It would regulate land use in the neighborhood area, provide certain services such as street cleanup and garbage collection, and would generally control access. It would take possession of the ownership of public streets and parks within its boundaries.

The private neighborhood might, for example, close off the streets, creating the inner city equivalent of the cul de sacs that are so popular with suburbanities. The greatest single concern for many inner city neighborhoods is personal security. A private neighborhood could establish controls over individual entry into the neighborhood.

If necessary it would be able to establish physical barriers so that entry was controlled through a few access points, like suburban gated communities. If residents of inner city neighborhoods had this kind of ability to control the security and character of their surrounding environment, they would have much more motivation to improve neighborhood quality. At present, they face what might be described as yet another version of the "tragedy of the commons." Individual property owners and residents of inner city neighborhoods can make efforts to improve their own situation, but it will do little good unless they can ensure that their whole neighborhood will follow suit. All it takes is a few people to undermine all the good efforts of others. The controls of a private neighborhood would give the neighborhood residents the necessary collective powers to deal with any troublemakers.

There are some existing precedents for this kind of an approach to inner city areas. Some historic districts have similar features and stimulated the revitalization of big city neighborhoods. The move to establish "business improvement districts" in New York and many other American cities reflects an awareness that the proper geographic scope for effective revitalization is the local neighborhood and that a good way to do this is to empower the property owners in the area.

Unusual among American cities, St. Louis has long allowed the creation of "private streets." Researchers have found that St. Louis neighborhoods formed around the ownership of private streets have shown greater stability and been more able to maintain a high character of neighborhood environment, as compared with surrounding areas without ownership of private streets.

There are a number of policy issues that would have to be resolved if enabling legislation for creation of private neighborhoods in inner city areas were to be passed. The treatment of renters in suburban private communities has been controversial, because they have no vote in community governance (only property owners vote). This would potentially be even more troublesome in inner city neighborhoods, where in some cases the majority of units might be occupied by renters. The scope of common services delivered by an inner city neighborhood would be an important issue, with possibilities ranging from minor maintenance activities to almost the full range of public services (including potentially, say, a neighborhood elementary school). Finally, even if a new private neighborhood is created through a supermajority vote, some accommodation would have to be made to the minority of property owners that would prefer not to go along.

The possible sources of revenue for the private neighborhood would have to be considered. At present, suburban private communities impose assessments on property owners, somewhat like a property tax. If an inner city neighborhood provided a wide range of services privately, and thus lifted the public burden of service provision from the broader city substantially, there would be a strong case for some form of city property tax rebate to the private neighborhood.

These and other details could be worked out. The real question is whether inner city neighborhoods should be able to get tight control over the surrounding quality of their environment, without having to work through municipal governments and city-wide zoning boards. Neighborhood control would give them a much stronger incentive to improve their neighborhood environment. In the best case, there would be a flowering of neighborhood revitalization throughout many inner city areas of the United States. Private neighborhoods would extend to inner city areas the kinds of control over local immediate environmental quality that the suburbs have long had. It is time to redress this substantial inequity in the current land use legal regime of American urban areas.

Robert H. Nelson (rnelson@puafmail.umd.edu) is senior fellow in environmental studies at CEI and the author of Public Lands and Private Rights (Rowman & Littlefield).