The blogosphere is abuzz with justifiably outraged reactions to the Supreme Court’s anti-property-rights ruling in Kelo v. New London. (See Julian Sanchez in particular.)

What will be the practical result of the decision? Expect more tales like these. (I don’t know about the other cases summarized there, but the summary is accurate regarding my neighboring town of Maplewood, MO.)

Instead of commercial real estate redevelopers doing the hard (but not impossible!) work of assembling large land parcels through voluntary transactions, they will increasingly ask local governments to assemble parcels for them through eminent domain, promising future tax revenues in return.

A commercial real estate report here in St. Louis made the following revealing comments before the ruling:

With so much of retail development occurring in inner cities or inner ring suburbs, developers and economic development agencies will be watching for a U.S. Supreme Court ruling on eminent domain. Most close-in retail development sites require land assemblage and demolition of existing buildings before proceeding with new construction. Eager for the sales tax revenue produced by new, and especially upscale retail development, economic development agencies employ local governments’ eminent domain authority to condemn and assemble land for projects that will produce jobs as well as taxes. Often just the threat of condemnation is enough to speed negotiations between developers and property owners.

Do you like that ring of efficiency? “Speed negotiations”. Sounds so much nicer than “get property owners to knuckle under and sell for less”. The report continues:

Depending on state statutes and local government ordinances, eminent domain can be used to acquire blighted areas for clearance and redevelopment. The definition of blight has been extended in some places to include underperforming economic yield as well as physical blight.

In other words: your land is now up for grabs whenever the town council imagines that a different use might generate more tax revenue for them. Town officials, always hungry for tax revenues, are empowered to project themselves into the role of finding the greatest-revenue-generating use for local real estate. How can they resist? Don’t we all love to play SimCity?

The result to be expected, contrary to well-meaning officials’ intentions, is misuse and waste of land (not to mention the hardships of involuntarily uprooted families). When private developers buy up land through voluntary transactions, they face a market test. If a shopping center or office complex flops, the developer loses his own money and will have trouble getting bank loans the next time. Wishful thinking is thereby constrained. The market ruthlessly weeds out incompetence. When town officials grab land through eminent domain, to assemble a parcel to sell to a developer (more cheaply than he could have managed without eminent domain, otherwise he wouldn’t have waited) whose shopping center flops, where is the personal penalty for the town officials? At most, if voters are informed enough to hold them accountable, they face a slightly higher chance of being voted out (if still in office), or a slightly reduced budget to play with (unless tax revenues can be enhanced somewhere else). Wishful thinking has almost free rein.

So my prediction: expect to see a few more half-empty shopping centers ten years from now.