Once zoning or other politically imposed restrictions are placed on land, its value and the owner's wealth fall.
A well defined and legally enforceable system of private property rights is critical
for the smooth functioning of markets, real estate or otherwise. A free real estate market
is essential for determining what the highest and best social use of land is. Thus, a free
market is critical for maximizing social welfare for all Michigan residents.
The real estate market allocates land uses efficiently by providing signals to buyers
and sellers about the value and importance of land for different uses. For example, the
average per acre value of farm real estate in Michigan was $1,470 in 1996. Suppose a
family of four that wanted to move out of the city was willing to pay a farmer $20,000 for
one acre to build a modest 3-bedroom ranch house. The market value of that acre would be
its market price — $20,000 (not $1,470). The market, through the price system, is
"signaling" the farmer that someone else places a higher economic value on one
acre of his land than the appraised value. The sale will only take place if 1) the farmer
believes $20,000 is more valuable than holding on to his property and 2) the family
believes $20,000 is less important than their desire to build a home on the property. If
both are satisfied, the sale will take place. Both win; they experience gains through
This win-win outcome, however, can only take place if property rights — the
farmer’s right to own and sell his land and the family’s right to purchase the
land — are respected and enforced. When property rights are enforced, the farmer has
the protected right to sell or not sell his property to whomever he
wishes — whether it is a family of four, a developer, or a land trust. The real estate
market ensures that the land is put to its highest and best use by incorporating the
interest of both buyers and sellers.
The essential role of property rights in real estate markets is recognized by one of
the most important groups engaged in the urban sprawl debate: Michigan farmers. The
Michigan Farm Bureau has a tradition of supporting markets and private property rights.
Farmers recognize that property rights are important for constitutional protections of
civil liberties, but they also implicitly recognize their importance for facilitating
Note the following statement from the Michigan Farm Bureau’s official policy
statement on "takings," the process by which the government seizes private
property for a public purpose:
We believe any action by government that diminishes an owner’s right to use their
[sic] property constitutes a taking of that owner’s property. Therefore, government
should provide due process and compensation to the exact degree that an owner’s right
to use his property has been diminished by government action. Furthermore, we believe the
only just basis for compensation in such cases is fair market value at its highest
possible value and considering its potential, regardless of how it is currently utilized.
The true value of land is its market potential, not its current use. In order for the
full market potential of land to be realized, it must be available for sale. In other
words, it must be subject to real estate markets that allow buyers and sellers to
determine the value of land and its use.
Of course, the protection of property rights is particularly important to
Michigan’s farmers and other owners of undeveloped property because their land’s
potential use is an important source of wealth. Once zoning or other politically imposed
restrictions are placed on land, its value and the owner’s wealth fall.
While some farmers may desire this outcome, it comes at the price of restricting other
farmers, distorting real estate markets, and compromising citizens’ freedom and
welfare by restricting choices, increasing the cost of housing, and often forcing families
to remain in lower quality housing.