Controversy over the public taking of land through eminent domain intensified after the Supreme Court backed a 2000 New London taking. In contrast, an approach practiced abroad can help all stakeholders share in the benefits of economic development projects.Eminent domain

Yu-Hung Hong

English

Research Papers in Economics

Communities & Banking    3
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  Eminent 
       Domain
SHARING SHARING
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by Yu-Hung Hong 
Lincoln Institute of Land Policy
nvoking eminent domain 
to take private property 
for public use (while pay-
ing owners only what the 
government deems “just 
compensation”) can be 
controversial, as the ﬁ  re-
storm following the U.S. 
Supreme Court’s Kelo deci-
sion demonstrates. An ap-
proach practiced outside 
the United States offers a 
possible alternative. 
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The Kelo discord resulted from a deci-
sion by New London, Connecticut, to seize 
private homes and transfer the properties to 
other private entities.1 The goal was to boost 
economic development by providing land 
for a Pﬁ  zer Inc. project. Although the Court 
afﬁ   rmed the legitimacy of New London’s 
taking, the ruling motivated 28 states to pass 
laws restricting government exercise of emi-
nent domain.2 As a result, eminent domain 
is now less tenable in cases where it is not 
clear that exercising state power to take pri-
vate property will beneﬁ  t the public (as op-
posed to beneﬁ  ting a company like Pﬁ  zer). 
The necessity of assembling pieces of 
land for public purposes has not gone away, 
however: roads still need to be built; eco-
nomically depressed areas need revitaliza-
tion. That is why policymakers may want 
to consider land readjustment (LR), which 
balances the public interest with private 
property rights.3
Land Readjustment
Countries including France, Germany, 
Japan, and South Korea use LR instead of 
eminent domain to assemble privately held 
land parcels for public projects. Typically, 
LR features four components: project ini-
tiation; community support development; 
land resubdivision and servicing; and land 
reallocation.4 
Project Initiation
First, a municipality or a group of landown-
ers initiates the idea of rearranging land par-
cels in a neighborhood and forms an agency. 
Members of the agency may include local 
residents, government ofﬁ  cials, and outside 
developers. For example, in the Netherlands 
private developers frequently pool their 
properties and ask the local government to 
redevelop the land. The group then presents 
the local planning authority with a readjust-
ment plan that includes new boundaries 
and proposed land uses. If the plan seems 
feasible, the initiators reach out to the pub-
lic seeking broad political and community 
support.  
Community Support Development
Second, after the local government has 
approved the initiative, the agency proclaims 
the targeted area an LR district and organiz-
es public hearings to enlist the participation 
of affected property owners. The organiz-
ing committee presents a detailed plan. All 
landowners and leaseholders are invited to 
join the project by contributing their real 
properties to the agency as investment capi-
tal. (Sometimes the property exchanges will 
require early termination of rental arrange-
ments, in which case, the landlord must 
compensate the tenant.) 
Returns on investment will take the 
form of a piece of serviced land or anoth-
er housing unit at the end of project. The 
agency gathers preliminary data (on how 
the area will be redeveloped, the cost of 
construction, the availability of government 
subsidies) to esti-
mate how the prop-
erty exchanges will 
affect participating 
owners. 
With a reason-
able approximation 
of the before-and-
after values of land 
involved, owners can 
calculate how much 
land they must 
contribute to the 
project to become 
participating mem-
bers. Generally, the 
guiding principle 
is to keep the net 
worth of owners’ 
equity unchanged—
often by giving own-
ers a smaller plot of 
serviced land with 
a higher value than 
the original piece. An assessment of future 
land value can never be exact, so one popu-
lar allocation method maintains the propor-
tionate value of each owner’s landholding 
relative to the total value of all lots. Public 
hearings facilitate land-allocation negotia-
tions between the agency and property own-
ers. Hearings also address ways to handle 
any contingencies, such as compensation 
for opposing landowners and additional 
land (or cash) contributions if unexpected 
ﬁ  nancial shortfalls emerge. 
In most countries, a supermajority vote 
from owners is required to approve the plan. 
For instance, consent from more than two-
thirds of all property owners owning more 
than 66 percent of private landholdings in 
a district is needed to approve a land read-
justment proposal in Japan. In Taiwan, the 
consent requirement is 50 percent.5 
Dissenting owners have the right to 
withdraw by selling their interest in the 
land to the LR agency. If they refuse to sell, 
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the agency may ask the government to ex-
ercise its authority to take their property, 
with compensation generally decided not 
by the courts or outside experts (as with 
eminent domain) but by the stakeholders 
at the public hearings. With the consent 
of the majority of property owners, taking 
land for community beneﬁ  t can be justiﬁ  ed, 
but public participation in the decision is 
essential. Community organizing must be 
center stage. 
Land Resubdivision and Servicing
In the third step, the land readjustment 
agency draws up a master plan for the 
district in consultation with the planning 
department. Again, public hearings are 
held to solicit comments from participating 
owners. After the master plan is reviewed 
and approved by local planning authorities, 
the agency combines all land parcels for a 
new subdivision. Because readjusting land 
for an entire district may take a long time, 
this procedure can be done with the help 
of a map or a computer simulation model. 
Through a virtual process, the agency resub-
divides the area and speciﬁ  es exchanges of 
land. Owners get to see the locations and 
sizes of their future land lots.
The LR agency holds the title during 
the project period. Participants do not need 
to leave their property until work begins. In 
large LR schemes, participants in one lo-
cale can temporarily relocate to an adjacent 
area and return to their original sites after 
readjustment is completed. That way, the op-
erations can be rotated within the district.  
Fewer public funds are needed than 
with eminent domain because parts of the 
assembled land get devoted to local infra-
structure—roads, parks, schools, hospitals, 
and the like. The infrastructure land gets 
deducted from the land reallocated to the 
participating owners on completion of the 
project. Alternatively, a few reserved parcels 
may be sold to raise funds for infrastructure. 
Such land reductions are a way of making 
owners contribute to the services that ben-
eﬁ  t them. In a carefully planned LR project, 
local infrastructure investment could, in 
theory, be self-ﬁ  nancing. 
Land Reallocation
The ﬁ  nal stage is to give improved property 
to the original owners. After site boundar-
ies are readjusted and local infrastructure 
is provided, qualiﬁ  ed appraisers assess the 
market value of all newly subdivided lots. 
Each owner receives a new land parcel with 
a market value that is at least the same as the 
value of the original land, albeit of smaller 
size. Swapping property has an advantage 
over eminent domain compensation in that 
it allows the original owners to partake in 
the redevelopment and to enjoy the ﬁ  nan-
cial gains the project generates. 
Numerous versions of LR exist. In Leb-
anon, for example, property owners receive 
stock in an LR-like company known as Soli-
dere in return for selling the  company their 
land.6 The amount of stock depends on the 
value of the land in proportion to the mar-
ket value of the company’s total equity. The 
company can raise investment capital from 
both property owners and nonowners. On 
the completion of project, parts of the avail-
able serviced land is returned to sharehold-
ers according to prior agreements. Alterna-
tively, shareholders can sell their holdings 
in the stock market and use the proceeds to 
buy back land from the company or else-
where. That gives ﬂ   exibility to property 
owners who are interested in participating 
as investors but do not necessarily want to 
return to their neighborhood.
A similar method involves exchanging 
existing property for the future right to pur-
chase an equivalent housing unit. In Hong 
Kong, the right to purchase is tradable in 
the open market. 
Implications
In short, LR can engender community-based 
decision making in land assembly, can allow 
redevelopment projects to be self-ﬁ  nancing, 
and can encourage public participation in 
neighborhood revitalization. The downside 
is that its reliance on persuasion rather than 
coercion means it often takes a long time to 
implement.
Nevertheless, LR is a tested alterna-
tive to eminent domain. U.S. policymak-
ers would do well to consider using LR and 
its democratic decision-making approach. 
Communities will continue to have revital-
ization needs and other public exigencies, so 
all tools should be considered. 
Yu-Hung Hong is a fellow at the Lin-
coln Institute of Land Policy in Cambridge, 
Massachusetts.
Endnotes
1 Kelo et al. v. City of New London, 545 U.S. 469 
(2005).
2 See the web site of National Conference of State Leg-
islatures, http://www.ncsl.org/programs/natres/EM-
INDOMAIN.htm, May 2007.
3 See William A Doebele, Land readjustment. A differ-
ent approach to ﬁ  nance urbanization (Lexington, Mas-
sachusetts: Lexington Books, 1982); Yu-Hung Hong 
and Barrie Needham, Analyzing Land Readjsutment: 
Economic, Law, and Collective Action (Cambridge, 
Massachusetts: Lincoln Institute of Land Policy, 2007); 
and G. Larsson, Land readjustment. A modern approach 
to urbanization (Avebury: Newcastle, 1993).  
4 As the practice of land readjustment is country spe-
ciﬁ  c, only a stylized approach is presented and may not 
reﬂ  ect the speciﬁ  city of individual systems.    
5 In the United States, a 2007 Utah law prohibits the 
use of eminent domain without consent from the 
majority of owners—80 percent for owner-occupied 
homes and 75 percent for commercial property.
6 Solidere is a Lebanese joint-stock company in charge 
of planning and redeveloping Beirut Central District 
following the end of the country’s civil war in 1990.
Policymakers may 
want to consider land 
readjustment (LR), 
which balances the 
public interest with 
private property 
rights.
932FRBB.indd   5 932FRBB.indd   5 11/7/07   9:35:49 PM 11/7/07   9:35:49 PM

Sharing vs. eminent domain

http://www.bostonfed.org/commdev/c&b/2008/winter/Hong_eminent_domain.pdf

Sharing vs. eminent domain

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