Property Rights Research Paper

There are various types of property over which property rights can be exercised: water (e.g., extracting water from a river), intellectual property (e.g., authorship of a book), moveable property (‘chattels’), and immovable property (land and buildings). For this research paper (property rights in connection with urban studies and planning), we restrict ourselves to immovable property (alternatively called landed property, real estate, or real property).

It is customary to classify the various types of rights in immovable property which can be attached to one item:

(a) according to the type of use (e.g., easements);

(b) according to the division of the space (i.e., special purpose boundaries within the general purpose boundaries of the item of property, such as an office in an office block);

(c) according to the time (temporary, such as usufructs or leases, or in perpetuity).

There are some other classifications of property rights which cut across those given above:

(a) superior inferior (the owner of the superior right is entitled to acquire the inferior rights under certain circumstances);

(b) alienable inalienable (the owner of an alienable right is entitled to transfer it to someone else of their own choosing);

(c) material contractual (this distinction is derived from Roman law. Material rights, or ‘rights in rem,’ are attached to the property irrespective of the (legal) person exercising the right and can therefore be freely traded. Contractual rights, or ‘rights in persona,’ are attached to the property but may be exercised only by the (legal) person specifically named in connection with that right: they cannot, therefore, be traded).

2. Separate Property Rights

It follows from this that it is not an item of property which is owned or exchanged but rights in property and, because there can be many different rights attached to one item, it is possible that one right is owned separately from other rights in the same item (e.g., owning a lease to use a building ‘owned’ by another).

Where the property right may be traded (and this does not apply to rights which are inalienable and ‘rights in persona’), this will have a market value equal to the ‘present worth of rights to future benefits arising from ownership’ (Jaffe and Sirmans 1989). The owner of more than one right over an item of property might have the choice between selling those rights to one person (keeping the bundle of rights intact) or to several persons (splitting or decomposing the rights). If the total value is greater undivided than divided, the seller will probably decide not to split the rights. Conversely, if the rights over one item are divided and if the total value of all the rights would be greater if they were amalgamated (there is a ‘marriage value’), then one person will try to gain possession of as many rights as possible.

3. The Right(S) Of Property Ownership

Because it is a right in property rather than property itself which is owned, it is possible to conceive of a situation in which rights over one item of property were so dispersed that no one person could direct or manage the way in which the item was used. This is not found often: there are inferior and superior rights and there are temporary rights which revert to the owner of perpetual rights. Clearly, it is found to be socially (and economically) desirable that one (legal) person should be able to act as owner of the property (and for this purpose it does not matter whether the legal person is a private or a public entity).

In countries where the law on property is still strongly influenced by the feudal past, property ownership is regarded as being ownership of a full ‘bundle of property rights’ (fee simple, in Anglo-Saxon legal terms): the starting point is many rights in one item of property, which have been bundled and are in possession of one person. In countries where the Napoleonic legal code shapes the present system, the starting point is that property ownership is complete and that partial rights can then be split off from it. For example, in Dutch law, which is based on that code, ownership is defined as ‘the most comprehensive right that a person can have over an object’ (Civil Code, article 5.1).

The particular set of rights which constitute ‘property ownership’ varies from society to society. Nevertheless, it has been suggested that ownership of a property item always includes:

– the right to exclude others from that property;

– the right to dispose of (to alienate) that property;

– the right to derive income from that property.

4. Restrictions On The Exercise Of Property Rights

There are many restrictions on the exercise of property rights, most of them accepted voluntarily by the owner when entering into a contract (e.g., someone acquires a building lease from the owner of the fee simple). In addition, there are restrictions imposed by the public administration. These latter can be politically very contentious, when the right(s) of property ownership are constrained.

The owner of an item of property might wish that, ‘It is my land and I can do what I like with it’ but in practice the legislature always restricts the right of ownership. Again we take the example of Dutch law (Civil Code, article 5.1) where the definition of ownership quoted above is followed by:

– ‘the owner is entitled freely to use the object and to exclude others from that object, as long as this use does not infringe the rights of others, nor the constraints imposed by written and unwritten law’;

– ‘the owner of the object is owner also of the benefits arising from that object, apart from any rights that others may have.’

A restriction on property rights commonly found is expropriation (the state may acquire the ownership against the wishes of the owner). Another restriction is land-use planning by a public authority (see Sect. 7). It is interesting to note that although, under the US Constitution (5th amendment), ‘nor shall private property be taken for public use, without just compensation,’ the courts have ruled that public actions which restrict the rights of property owners, as long as this does not take 100 percent of the economic value of the property, falls under ‘police powers’ which allow regulation in the interests of ‘public health, safety and morals.’ Such ‘taking’ does not need to be compensated.

5. Property Rights As A Social Creation

In order that a property right can be exercised, it is necessary to delineate the right (define the limits of the property item and the limits of the particular property right), to register who is entitled to dispose of the right, and to determine how the right can be enforced or defended. Establishing those regulations is a matter for the legislature, enforcing them a matter for the courts. It follows from this that property rights are a ‘social creation’: there can be no property rights without agreement on what they entail and without the possibility of enforcing them legally. It is not that something is protected because it is a property right, but that something becomes a property right by being protected (Bromley 1998, p. 25).

From this it follows that property rights can be changed by act of the legislature. This can take the form of restricting an existing right. Introducing a law on noise zones provides an example: henceforth, the owner of land may build upon it only if noise levels on that land are lower than a certain level. Property rights can also be changed by identifying a use which was previously included in a wider right, and making of it a separate right. A well-known example is the nationalization of development rights in Britain. The right to develop property was part of the right to own property: in 1947 the British parliament separated the right to development from the right to ownership, nationalized the right to development (which became ownership of the state), and compensated owners of the ownership right for the loss of the right to development. Yet another way of changing property rights is to establish private rights over something which previously could not be owned. It has been suggested, for example (and see Sect. 7), that the owner of a right to use land in a particular location should have also the right to clean air at that location, whereby that is a right which could be traded.

6. Property Rights Regimes

The statement that property rights are a social creation does not mean that they can be created only by the formal legislature (the law-making institutions). Many societies had property rights before they had such a legislature. The Dutch, for example, set up water boards with legislative powers over rights to use land and water long before they had a general purpose government at any level.

Moreover, a society has often developed its formal legal systems in close connection with its system of property rights: the wish to define and enforce property rights has influenced the legal system. Alternatively, a society may reform its legal system deliberately in order to change the existing system of property rights (as happened after the French Revolution and in the United States after the declaration of independence).

It is for such reasons that it is common to talk about a society having a ‘property rights regime’ (or a land regime), an amalgam of law and custom as distinct from the formal law on property. A regime can be characterised by the way in which it regulates three aspects of property rights:

– who may exercise the right (and may exclude others from exercising it);

– how the right may be used (including restrictions on that use); and,

– how the right may be transferred.

(It will be seen that these are the same three aspects used to define the minimum set of rights that constitute property ownership—see Sect. 1.) Two sorts of regime have already been mentioned: the Anglo-Saxon and the Napoleonic. Others have distinguished in addition (‘legal families’ in Europe, see Newman and Thornley 1996): the Germanic, the Scandinavian, and the East European regimes.

It is sometimes claimed that there are social laws which explain the creation of property rights regimes and changes in them (that is, the regimes do not arise accidentally). These laws have the form of a ‘positive’ theory which can be tested empirically. In an influential article, Ellickson (1992/3) put forward an ‘efficiency thesis’ that ‘land rules within a close-knit group evolve as to minimise its members’ costs.’ The costs he identifies as ‘deadweight’ (net external costs of individual actions) and transaction costs. A change in land rules is efficient when it reduces the sum of these two sets of costs.

7. The Politics Of Property Rights

Because a property rights regime is a social creation, it can then be evaluated socially, with a view to changing it in some desired way. That is not new: property rights have always attracted intense political attention.

One strand in the political argument may be called the dyadic view of property rights: private versus public. At one level, the issue is: who should own property rights (in particular, who should own land), the individual (or the family unit) or some collectivity such as the state? Some regard private ownership of property as a bulwark against state despotism, at the other extreme are those who claim (with Proudhon, 1809–1865) that ‘property is theft’ and that it should be owned collectively.

At a more refined level, the issue in most present-day Western societies is: to what extent and in what ways should the state intervene in the exercise of private property rights? Most Western societies agree that the private exercise of property rights cannot be unconstrained (see Sect. 4) and even the most fervent defenders of private property rights usually want the state (or some collectivity) to own land and build roads upon it if this gives access to their land.

Another strand in the political argument about property rights regimes can be called triadic. Then there are not two parties—a private person versus the state—but three—one person who, in the exercise of their property rights can affect another person, and the state as an arbiter in that private/private relationship. Most property law and custom is, in fact, civil law: a collectivity regulates the relationships between (private) legal persons in the use of their property.

Much of the current debate about property rights and land-use planning can be interpreted in terms of dyadic/triadic. To the extent that land-use planning by a public body is justified in terms of welfare economics, it is usually the arguments of Pigou (1932) which are invoked. The market in which private persons exchange property rights has certain characteristics which mean that a welfare optimum (in a Paretian sense) will not necessarily be reached. There are ‘market failures.’ This is seen as a problem, which is resolved when a public body intervenes in the market for property rights. Examples include: restricting the right to use a plot of land in the way that the land owner wants, expropriating the ownership right, public ownership to provide ‘public goods.’

In 1960, Coase argued that market failures arise mainly because of transaction costs and because property rights are not clearly delineated. Examples of this latter are the right to clean air (see Sect. 5) and the right to graze cattle on common land. Incomplete separation of rights creates common property, i.e., in the public domain (Barzel 1898) and, if these rights are valued, resources are spent on capturing them. This can lead to rent-seeking and ‘common-property dissipation’ (of which the best known description is Hardin’s (1968) ‘tragedy of the commons’). According to this argument, the problem of market failures can be tackled not only by government intervention to restrict property rights (Pigovian measures: moreover, these can make matters worse by creating ‘public failures,’ see Wolf 1979) but alternatively by public measures to enable markets in property rights to function well, to reduce transaction costs and to delineate exclusive property rights.

The economic argument is that helping the market in private property rights to work better will reduce risks, which will stimulate investment, which will achieve a better allocation of resources than through public land-use planning. The political argument is that a property rights regime should be created in which—in dyadic terms—most property rights are held privately and in which—in triadic terms—the role of the public administration is to regulate private transactions in property rights in ways described above. If this is not possible (because, for example transaction costs are high and cannot be reduced, as is the case with roads in urban areas) then ‘Pigovian’ measures can be justified. This approach to land-use planning is called the ‘property rights model’ (see e.g., Lai 1997).

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