The Undercover Economist (I've read the book and my "review" is forthcoming this week or next [maybe]) tells a story about development (The Preservation Paradox*):
The view from my upstairs window in London has changed a little now that the beautiful old neighborhood church has been flattened. The church disappeared almost overnight despite attempts to preserve it—or, more accurately, because of attempts to preserve it. No surprise to an economist, but what's going on?
The story is simple. The neighborhood council was discussing the possibility of extending a conservation area to include the church. Once that happened, it would be difficult to get permission to demolish the church and build something else. The developers weren't stupid and knocked the old building down while they still could.
The "simple story" is then applied to the Endangered Species Act:
The Endangered Species Act, which gives federal agencies broad powers to restrict development in order to protect species, can produce the same perverse incentives. Economists Dean Lueck and Jeffrey Michael studied what happened when the rare red-cockaded woodpecker was discovered in commercially valuable forests in North Carolina. Forest owners who were unwilling landlords to the woodpecker were, of course, not allowed to cut lumber. But woodpeckers tend to move about, so there are no prizes for guessing that forest near the woodpecker but outside the restricted zone was cleared immediately.
...
A better idea is for governments to preserve land or buildings not by regulating but by buying them. That sounds expensive but in fact simply transfers the expense from the property owner to the government that wishes to take away his property rights. It might persuade governments to be a little more selective with their regulations: Before deciding whether to preserve old churches or rare woodpeckers, we should be willing to pay the going rate to do so.
Right on. If the value of the preserve land is greater than the cost (the value of the developed land), then the government should raise the money via taxes, purchase the land and protect the preserved land benefits from development. "Takings" via regulation don't seem the right approach to me.
*Hat tip to Tim Perri.
