REAL ESTATE GRIDLOCK IS BAD FOR ALL.

Nimbys, Nimtos, Banana Republics

When a resource is owned by many, the rights-holders often prevent others from developing the resource, causing its value to deplete.

Michael Heller, a professor of real estate law at Columbia University, has dubbed such a situation “the tragedy of the anticommons.”

The paradox applies increasingly to real estate markets where not just the real assets are often held simultaneously by many, but other non-property assets, such as data archived on the Multiple Listing Service (MLS), could have numerous rights-holders.

Unlike the tragedy of the commons, which results in overuse of a jointly held asset resulting in its depletion or destruction, the tragedy of the anticommons results in underuse or underdevelopment. This is a familiar theme in property markets, where Nimbys, Nimtos, and Banana Republics often make development difficult or impossible.

Most readers of this column are familiar with Nimbys, whose mantra is Not In My Backyard. Nimbys resist any construction in their neighbourhood — they are not against development per se, they just don’t want it near them.

The residents of Marpole neighbourhood in Vancouver, who opposed the plan to build a homeless shelter near them, can be considered Nimbys. They resisted the planned shelter because they believed it would result in higher crime and drug use. Marpole residents were not against the shelter, they just didn’t want it near them.

The citizens of Banana Republics have one big goal: Build Absolutely Nothing Anywhere Near Anyone. They are the poster children for preserving the status quo. Land parcels that fall within their zones of influence stand little chance of ever being developed.

Nimtos are the politicians who might see the value in a proposed development but are likely to stand against it fearing backlash by constituent Nimbys and Banana Republics. (The acronym stands for ‘Not In My Term in Office’.)

The Nimbys, Nimtos, and Banana Republics either individually or collectively erect barriers against new developments. Thus, undeveloped or underdeveloped land fails to reach its true potential.

The naysayers to development are amazingly effective as they often can influence development outcomes on land parcels they don’t even own. To them, the entire neighbourhood is their easement.

Changes in planning regulations can help empower like-minded owners to develop a real asset at a higher intensity. In Vancouver, owners of contiguous lots in a predominantly single-family detached neighbourhood can sell their “assembled” units to a builder who would then develop the site at a higher density.

In the absence of such enabling regulations, other homeowners in the neighbourhood could thwart attempts to densify citing an increase in noise, traffic, parking, and demand for public services, such as schools.

Real estate data is a valuable resource whose ownership is highly atomized. Millions of dwellings are listed each year on MLS in Canada. The data are collected from individual homeowners by listing brokers who archive it on the MLS.

The MLS data is an example where one would need a consensus among many stakeholders to decide upon the scope of its use. The Toronto Real Estate Board (TREB), for instance, prohibits real estate agents,

THE TRAGEDY OF THE ANTICOMMONS RESULTS IN UNDERUSE.

brokers, and others from analyzing (mining) data or using it to sell “derivative products or marketing reports.”

For innovation to take root in real estate, data must be analyzed using advanced analytics, including deep learning algorithms. But such a socially desirable outcome is unlikely if those who “own” real estate data continue to restrict its innovative use.

One response to real estate gridlock is the use of eminent domain that allows governments to seize property for public use. The New York Times building in Manhattan, completed in 2007, became possible because of eminent domain. Otherwise, numerous owners of the assembled parcels would not have voluntarily sold their properties.

A consensus-seeking process in which rights-holders are educated on the benefits of a better use of real assets or data is better than forcing people into compliance.

The Nimbys, Nimtos, and Banana Republics should know that gridlocked economies are bad for all in the long run.