Private Neighborhoods and the Transformation of Local Government

Urban Institute Press • 2005 • 494 pages • $32.50 paperback

In Private Neighborhoods and the Transformation of Local Government, Robert H. Nelson effectively frames the discussion of what minimal government might look like in terms of personal choices based on local knowledge. He looks at the issue from the ground up rather than the top down.

Nelson argues that while all levels of American government have been expanding since World War II, people have responded with a spontaneous and massive movement toward local governance. This has taken two main forms.

The first is what he calls the “privatization of municipal zoning,” in which city zoning boards grant changes or exemptions to developers in exchange for cash payments or infrastructure improvements. “Zoning has steadily evolved in practice toward a collective private property right. Many municipalities now make zoning a saleable item by imposing large fees for approving zoning changes,” Nelson writes.

In one sense, of course, this is simply developers openly buying back property rights that government had previously taken from the free market, and “privatization” may be the wrong word for it. For Nelson, however, it is superior to rigid land-use controls that would prevent investors from using property in the most productive way. Following Ronald Coase, Nelson evidently believes it is more important that a tradable property right exists than who owns it initially.

The second spontaneous force toward local governance has been the expansion of private neighborhood associations and the like. According to the author, “By 2004, 18 percent—about 52 million Americans—lived in housing within a homeowner’s association, a condominium, or a cooperative, and very often these private communities were of neighborhood size.”

Nelson views both as positive developments on the whole. They are, he argues, a manifestation of a growing disenchantment with the “scientific management” of the Progressive Era. He thinks the devolution of governance below the municipal level to the neighborhood should be supported through statutory and state constitutional changes.

Although about one-third of all new housing since 1970 has been built within some form of neighborhood association, the majority of older neighborhoods fall outside this trend. Establishing neighborhood associations in these areas is difficult because the requirement for a homeowner to join is typically written into the deed, and this would be extremely costly to do for every home in an older neighborhood.

Nelson proposes a six-step solution that involves (1) a petition by property owners in a neighborhood to form an association, (2) state review of the proposal, (3) negotiations between the city and the neighborhood, (4) a neighborhood vote on the proposal, (5) a required supermajority, perhaps 70 percent, for passage, and (6) a transfer from the municipality of legal responsibility for regulating land use in the neighborhood to the unit owners of the association.

The sticky point from a classical-liberal perspective, of course, is what happens to the rights of the minority of residents who might oppose the proposal. For Nelson this would be a cost of creating a more liberal society in the long run. But many will object to his advocacy of political means to transform established neighborhoods into private ones.

Others may find overstated his claim that “the rise of private neighborhood associations in the United States has probably resulted in a greater reduction in individual freedom of action than any other social development of the second half of the 20th century,” calling it “private socialism.” Nelson’s point, however, is that these trends have tended to constrain the daily choices of Americans even as they have decentralized governance. On the other hand, he correctly points out, invoking F. A. Hayek, that local governance is apt to be more responsive to local concerns than traditional centralized municipal government.

Nelson’s vision extends far beyond a nation in which all residences are part of a homeowners association. First, private governance will not be limited to residential communities, but will extend to business and community-improvement districts as well. Second, he sees these private neighborhoods as mostly self-financing—with the city and county rebating taxes for those services funded and provided by the associations themselves—and empowered to decide the mix of land uses that accord with their own residents’ demands.

There is some concern that private neighborhoods would permit objectionable discriminatory practices. Nelson responds that this not only reveals a tendency to regard ordinary people as bigots, but more important, it also ignores the role of “exit,” or competition among communities, in constraining the powers of local authorities. “Other things equal, citizens will prefer more and smaller local governments to fewer and larger governments,” he says. Widespread and effective local governance will, on the whole, offer a wider range of choice to individuals, as the lower cost of moving from one private neighborhood to another increases any inhabitant’s threat of competitive exit. Nelson further argues that imposing a uniform ideology or moral code is no solution, except for the broadest strictures against aggression and fraud, because this would make the attempt to form individualized neighborhood governance pointless.

Nelson seems to be proposing a kind of minimalist polyarchy—the Greek polis in modern form. With the exception of certain macro-services such as regional defense, governance would consist mostly of choices made by the inhabitants of one’s own neighborhood. Governance and centralized government are not the same thing.