Policy must encourage redevelopment by private sector

While many potential problems plague the effort to be rebuild New Orleans, in part a result of heavy-handed government trying to negate the market’s superior, optimal decision-rendering, there is at least one way in which it can help sponsor a market-driven result to the city’s benefit.

A tug-of-war developed months ago regarding whether New Orleans out to give building permits to certain areas of the city regarded as likely to flood in the future. Proponents argued that the market should be left to determine how people wanted to use their property, with the warning that provision of city services may be left incomplete, while opponents claimed this would create patchwork redevelopment that would discourage rebuilding or, if it occurred, would make for inefficiency in service delivery, straining already sparse city resources.

Wisely, Mayor Ray Nagin chose not to limit rebuilding; however, the question of inefficient service delivery remains open. Yet a legal device, with state aid, may mitigate this potential problem.

The state could pass legislation encouraging property owners to form limited liability corporations regarding their blighted properties. Citizens would place their land in the hands of this corporation, for which they would receive shares commensurate to its actual appraised value. This would mean that, for those who wished not to rebuild, they could sell the land (shares) either to some other shareholder or to the corporation before outside parties could have the opportunity, while those who wished to rebuild could do so. If those who did later concluded that the lack of rebuilding reversed their desire to stay, they could sell their (more valuable now) shares back to other shareholders or the corporation.

Legislation could create simple, inexpensive ways for these corporations to form, and to create financial vehicles for these corporations to use to buy up land shareholders wished to sell. Setting up agencies to do so would create far less bureaucracy and cost than the existing Road Home program (already garnering its share of criticism for inefficiency), with a greater incentive for the land actually to be redeveloped, as incentives for combining ownership make it more easily marketable to larger developers.

The key, of course, is not to create large bureaucracy such as with the Road Home program, but to encourage private interests to organize themselves by elevating their potential profit, pecuniary or otherwise, from partaking of this regime with government-sponsored incentives. Such a plan would maximize redevelopment that occurs and increase the return to individuals whose lives were tremendously disrupted by Hurricane Katrina, either in getting on with their lives somewhere else, or, for those who return, in having greater control to shape their neighborhoods.