Somin in USA Today: Running Amok With Eminent Domain
In a column appearing in USA Today, Professor Ilya Somin argues that the use of eminent domain to condemn hundreds of mortgages in Richmond, California, makes no sense and may actually harm consumers in the long run.
The city has threatened to condemn over 600 mortgages on homes that are now worth less than the outstanding debt on the mortgages. Its plan to write down the value of the mortgages and transfer most of the value to the current owners of the homes could have negative implications for homeowners, says Somin.
"Richmond's plan to condemn mortgages is unjust, unconstitutional, and unlikely to benefit the local economy in the long run," Somin writes. "If other jurisdictions imitate this policy, it will also make life harder for future home buyers and potential victims of eminent domain."
Richmond, Calif., runs amok with eminent domain: Column, USA Today, August 12, 2013. By Ilya Somin.
•Far from benefiting low-income people as intended, the plan will actually harm them. Much of the money to condemn the mortgages and pay litigation expenses will come from taxpayers, including the poor. Most of the poor are renters, not homeowners, so they cannot benefit from this program. But renters do indirectly pay property taxes through the property taxes paid by their landlords, a cost which is built into their rent.
•The program would also enrich those who took dangerous risks at the expense of the prudent. It isn't good policy to force more prudent taxpayers to subsidize the behavior of people who took the risk of purchasing high-priced real estate in the midst of a bubble. Doing so will predictably encourage dubious risk-taking in the future.
•Prudent Richmonders will also lose out from this policy in another way. If lenders believe that the city is likely to condemn mortgages whenever real estate prices fall significantly, they will either be unwilling to lend to future home purchasers in Richmond, or only do so at higher interest rates. That will hurt the local economy and make it more difficult for Richmonders to buy homes.
•We should also remember that eminent domain that transfers property to private parties is often used to benefit the politically powerful at the expense of the poor and the weak.