The last entrepreneurial island called “housing” is still alive and thriving or is it?

As an overview, can we agree that in a free society property rights is a foundation in which to build upon our freedom, family and faith.

  
“In a country like the United States, where the right to property is placed above the law, where the sole function of the public police force is to safeguard this natural right, each person can in full confidence dedicate his capital and his labor to production. He does not have to fear that his plans and calculations will be upset from one instant to another by the legislature”. -Frederic Bastiat (1850)

Land Development Stakeholders - over the past four decades the list of real estate development stakeholders has grown and the result is an unwieldy process giving veto power to the minority while adding time and cost to every project.

For every real estate project, owners retain technical consultants to design, permit and construct a project. Today, the list of real estate stakeholders needed for a successful project has grown in numbers not because of land constraints or market considerations but more because of the municipality in which the project is located.

We unfortunately take property rights for granted. The shift from individual property rights to collective property rights has been transforming over the past 40 years.

Private Property and Government Under the Constitution

Modern Intellectuals Do Not Take Private Property Seriously

JANUARY 01, 1995 by GARY PECQUET (www.fee.org)

“The economic concept of private property refers to the rights owners have to the exclusive use and disposal of a physical object. Property is not a table, a chair, or an acre of land. It is the bundle of rights which the owner is entitled to employ those objects.

The alternative (collectivist) view is that private property consists merely of a legal deed to an object with the use and disposal of the object subject to the whims and mercies of the state. Under this latter view, the state retains ownership and may at any time regulate or even repossess the property it temporarily cedes to individuals…….

The electorate in key states insisted upon a “Bill of Rights” lest they would reject the proposed Constitution.

These amendments soon became incorporated into the new Constitution.

Six of these ten amendments pertain either directly or indirectly to private property rights.”

Amendment V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

I am including several statements from UN documentation for context on how the real estate process has changed due to outside influences:

According to the UN:

 “Private land ownership is also a principal instrument of accumulation and        concentration of wealth and therefore contributes to social injustice; if unchecked, it may become a major obstacle in the planning and implementation of development schemes.”

“The provision of decent dwellings and healthy conditions for the people can only be achieved if land is used in the interest of society as a whole

Over the past four decades we have experienced a subtle change in the way projects are approved by local municipalities. Many local municipalities have encouraged and then required neighborhood meetings, stakeholder participation, and/or charette’s which all entail developing land and making business decisions by committee.

The list of stakeholders has significantly expanded over the years and the regulatory process has changed our industry. The control and use of land has shifted from private property owner rights to community rights affecting the project business model.

This shift has been gradual and seemingly reasonable until you take two steps back and reflect on the basis of the change.

Defining Stakeholder:  

“Persons, groups or organizations that have direct or indirect stake in an organization because it can affect or be affected by the organization’s actions, objectives and policies” (Business Dictionary, 2007).

 

Defining Charrette
From Wikipedia, the free encyclopedia

Charrettes take place in many disciplines, including land use planning, or urban planning. In planning, the charrette has become a technique for consulting with all stakeholders. This type of charrette typically involves intense and possibly multi-day meetings, involving municipal officials, developers, and residents.

A successful charrette promotes joint ownership of solutions and attempts to defuse typical confrontational attitudes between residents and developers. 

Stakeholders
In the 1980’s, a meeting between a developer with adjacent neighbors to discuss a project was rare. Neighbors let alone community groups were made aware of a project through public notices and public meetings as part of the regulatory process.

In the 1990’s, it was in the best interest of the developer to hold meetings with adjacent property owners. Neighbors voiced their opinions and as a developer, decisions were made to either make plan changes based on their input or ignore their suggestions. Developers did not have to agree with the neighbors but in many cases, the demands were not outrageous or costly.

Sometime after 2000, all of the neighbors, community groups, and special interest groups turned into “stakeholders”. In 2014, developers would not only be required to hold neighborhood meetings, they will also have to meet and consider input from “indirect” stakeholders, i.e. environmental groups.

Special interest groups have become embolden by being allowed at the table with a voice without reason.

Majority right – minority rules -Political correctness gone a stray

The real estate industry has always reacted to the negative voice of stakeholders since those in need of affordable homes or reasonable lease rates are not represented at the table. The advocates for real estate projects do not show up voicing their approval. They ASSUME politicians will make the correct decision.

Unfortunately, in politics, the loudest voice prevails.

In real estate the loudest voices are typically negative.

Home buyers, renters or small business owners are represented by the perceived self interest voice of the builder/developer. The momentum is in the wrong direction especially when a project is designed and approved by a committee of self interest groups. 

It is always a good practice to invite neighboring citizens to an informational meeting held before a public hearing but not with special interest groups that have an agenda.. Unfortunately, many local jurisdictions require an open process to all in the community whether they are directly affected by the project or not.

It is important to stress stakeholders dynamics affect the profitability of a project and thus affects the willingness of a developer to move forward with a project..

Based on this truth, will builder/developers partner with industry stakeholders to reduce risk? Please let me know if I have missed a key stakeholder:

Civic organizations

Religious organizations

Recreation groups

Historical or cultural associations

Chamber of Commerce

Environmental groups

Financial institutions

Homeowner associations

Political organizations

Parent-teacher associations

Realtors®
Government Regulators
Urban Planners
Land Planners
Land Use Attorneys
Real Estate Attorneys
Surveyors
Land Development Engineers
Soils Engineers
Architects
Traffic Engineers
Investors
Builders
Developers
Land Owners
Economists
Marketing Professionals
Lenders
Recruiters
Water & Wastewater Engineers
Vendors
General Public
Community Associations
Academia
Contractors
Software Providers
Environmental Specialists
Government Officials
Planning and Zoning Board Members

Unions

Decade by decade review of the development process and the rise of the stakeholders.

1970 – 1980

Only a limited number of design professionals were needed on the project team. Real estate industry stakeholders were not a factor in most locations. This was a period of time stagflation was the norm when average inflation was at 8%, unemployment hit a peak of 9%, and mortgage interest rates were as high as 18%.

1980 – 1990

During this period, the ownership of public versus private infrastructure dictated the infrastructure design criteria. Variances, rezoning, and design waivers were easy to obtain from local government with the proper presentation and necessity.

Industry stakeholders had a voice during this period but not a strong voice. Regulations were not expanding and thus the need for specialized design professionals were not needed for a successful regulatory approval.

AGENDA 21 OVERVIEW

Since the early 1990’s, the United Nations has significantly influenced our real estate development industry. The last four Presidents have all supported the conclusions and initiatives outlined at The United Nations Conference on Environment and Development (UNCED), also called the Earth Summit, which took place in Rio de Janeiro, Brazil, in June 1992.  

Do your own research on UN’s Agenda 21 and ICLEI.

 

The Local Agenda 21 Planning Guide

International Council for Local Environmental Initiatives (ICLEI)

ICLEI-funded city projects promote “sustainability.” They draw their inspiration from the Rio Earth Summit, the 1992 United Nations environment conference held in Brazil. Communities that adopt Agenda 21 projects get ICLEI’s help in creating “sustainability inventories” and they pass resolutions affirming that they will pursue the “three E’s” of sustainable development:

Environment
Economy
Equality

Their explanation of each of these categories is much different than our real estate development approach which is controlled at the local level and unfortunately within a fragmented industry.

Next week, I will provide more information on Agenda 21 and ICLEI but in the meantime, do your own homework. Offer your comments to encourage debate.

1990 – 2000

“NIMBY” – not in my back yard

Neighborhood meetings

2000 – 2010

“CARE” – citizens against really everything

Charettes

2010 & Beyond

Costs increases

Shortage of materials

Lack of trained labor

Escalation of land prices

Regulatory pendulum not swinging back but further into the bureaucratic abyss

Financing hard to secure

Higher interest rates

Crushing of the entrepreneurial spirit

Lack of quality “land” in good locations resulting in gentrification

Escalation of adversarial stakeholders

Land development is a complex industry very much affected by local events. If you think the above paints a negative picture – it doesn’t!!

With the right design team of stakeholders, the industry will thrive even against all odds. Why? Population and demand! But, we need to be asking the question:

“Where will our children live?”

Housing – Next Phase:

Real estate development is and always has been a risk-reward business. Only those with an entrepreneurial spirit and fortitude to succeed will succeed with one other component; partnering.

It will become more important for stakeholders to partner together and become part of the real estate transaction. The most logical partnering arrangement is between the builder/developer and land owner. Add design professionals to the partnering and strengthen the project through vested interests.

We will not revert back to pre-bubble days because while the home building business went idle during the great recession, the development process continued changing at all regulatory levels.

We have to do what we do differently!