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Estimating the holdout problem in land assembly

Listed author(s):
  • Cunningham, Chris

    ()

    (Federal Reserve Bank of Atlanta)

The Supreme Court’s recent decision in Kelo v. New London allows the use of eminent domain to facilitate private economic development. While the court’s condition for allowing takings was highly expansive, there may be a market failure that warrants state intervention when parcels of land need to be combined for redevelopment. The collective action or strategic holdout problem associated with land assembly may limit redevelopment of older communities when one or more existing owners seek to capture a disproportionate share of the potential surplus. The problem may be compounded by landowners’ uncertainty as to the true value of the expected surplus to be divided (Eckart, 1985; Strange, 1995). At the same time, developers may attempt to disguise the assemblage through the use of straw purchasers. This paper employs administrative Geographic Information System and assessor data from Seattle, Washington, to identify lots that were ultimately assembled. The paper then matches them to their pre-assembly sales. Controlling for lot and existing structure characteristics and census tract-year fixed effects, I find that land bought in the process of a successful assembly commands an 18 percent premium. Consistent with theory, this premium falls with a parcel’s relative size in the assemblage. I also find some evidence that parcels toward the center of the development may command a larger premium than those at the edge, suggesting that developers retain or are perceived to retain some design flexibility.

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File URL: http://www.frbatlanta.org/documents/pubs/wp/wp1319.pdf
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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 2013-19.

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Length: 22 pages
Date of creation: 01 Dec 2013
Handle: RePEc:fip:fedawp:2013-19
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  1. Ron Cheung & Keith Ihlanfeldt & Tom Mayock, 2009. "The Incidence of the Land Use Regulatory Tax," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 675-704.
  2. Ed Nosal, 2007. "Private takings," Working Paper 0713, Federal Reserve Bank of Cleveland.
  3. Menezes, Flavio & Pitchford, Rohan, 2004. "The land assembly problem revisited," Regional Science and Urban Economics, Elsevier, vol. 34(2), pages 155-162, March.
  4. Strange, William, 1992. "Overlapping neighborhoods and housing externalities," Journal of Urban Economics, Elsevier, vol. 32(1), pages 17-39, July.
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