Book ’em, Danno!

We highly recommend that you read Debra Pogrund Stark, How Do You Solve a Problem Like in Kelo? 40 John Marshall L. Rev. 609, particularly the part at 624-630 (2007). Unlike most academics who confine themselves to expounding on  what the law would be if they ran the zoo, Prof. Stark tells the factual story of what the situation was like on the ground when the U.S. Supreme Court decided the notorious Hawaiian land redistribution case, Hawaii Housing Authority v. Midkiff (1984) 467 U.S. 229.

It turns out that the big, bad lessor trust whose land was taken in that case for redistribution to its downtrodden residential tenants, was the Bishop Estate, a charitable entity that used the land rents for support of the Kamehameha schools that provide a quality education to underprivileged Hawaiian children. The tenants who owned homes on the leased land were the beneficiaries of low land rents but were not satisfied with that and wanted their lessor’s title too. Hawaiian politicians obliged by passing the Land Reform Act authorizing the condemnation of the lessors’ title and its conveyance to the lessees. Thus, the beneficiaries of this land grab were upper middle-class and wealthy haoles who got a good deal by ripping off a charitable trust, at the expense of native Hawaiian children.

Moreover, contrary to what the Court said, there was no “oligopoly” in buildable land on the Island of Oahu. The market in fee simple residential land consisted of over 70 participants and according to what we were taught by our kindly Econ 101 professor, a market like that is no oligopoly. An example of oligopoly was the American car business around 1960 — you had GM, Ford, Chrysler, American Motors, and Studebaker and that was that. That was an oligopoly. Anyway, originally the Hawaiian legislation required that there be a showing of land scarcity before the condemnation of the lessor’s titles could proceed, but that requirement was dropped from the statute in 1976.

Moreover, the Hawaiian legislation authorizing this taking in no way prevented the tenants from acquiring their landlords’ titles and then becoming land lessors themselves, thus effecting no change whatever. Originally, there had been a requirement in the law that to gain fee simple title the erstwhile tenants would have to reside in the homes acquired by them in the redistribution, but that provision was dropped in 1978. So the upshot was that under the statutory scheme used in justification of the Midkiff condemnation, nothing would change, except that the favored lessees would gain fee simple title with no beneficial effect on the Island land economy. And, to state the obvious, the legislation-cum-condemnation added not a square inch to the available supply of buildable land on Oahu, so it could not achieve the stated legislative purpose of lowering housing prices. Adding insult to injury, the state and federal governments owned the majority of land on Oahu, but they had no intention of allowing any of it to be developed for needed housing. On the contrary, Hawaiian government land-use regulations have been notoriously restrictive and they limited severely new construction of housing.

Prof. Stark rightly concludes that “Through a [closer] scrutiny of the facts in Midkiff, the Court would have discovered that the alleged public benefit from the forced takings of private property under the [Hawaiian] Land Reform Act as amended and as in operation in 1984 when the case was argued before the Court did not exist in reality. A powerful argument could be made that the public was more harmed by the Land Reform Act as amended than benefitted by it.” 40 John Marshall L. Rev. at 630. Right on, Professor.

And was that the end of that sorry saga? Not on your life. For a summary of what happened after the Midkiff condemnation, and how its aftermath benefitted Japanese investors who snapped up newly minted fee simple titles to the best residential properties in Oahu, and made fortunes reselling them to Japanese corporate executives as vacation homes, thus adding to the housing shortage, see Gideon Kanner, Kelo v. New London, Bad Law, Bad Policy and Bad Judgment, 38 The Urban Lawyer 201, 212-215 (2006). The net effect of Midkiff was a sharp rise, not  a decline, in prices of housing on Oahu. And who cleaned up on this deal? Apart from the Japanese, none other than the erstwhile lessees who made fortunes selling their newly minted fee simple titles to those Japanese investors for seven figures, thus adding to the housing shortage on Oahu. See Tom Furlong, Yen for Paradise: Hawaii Hit by Wave of Speculation, L.A. Times, Apr. 26, 1988, at A1 (“Though some [Japanese ] buyers want vacation homes, many are speculators looking for fast profits. In either case, many of the properties they buy are left vacant much of the time, a painful condition in a city where housing is already in short supply.”) The champion of this activity was a Japanese investor named Genshiro Kawamoto who snapped up some 100 East Oahu homes without leaving the back seat of his limousine. Check it out.

So much for “public benefit,” and so much for the government fixing the “malfunctioning” residential land market in Hawaii.

One thought on “Book ’em, Danno!

  1. Robert Thomas

    The Hawaii Legislature’s “wisdom” knows no bounds: for a more recent example of a statute that would, by all accounts, have the opposite effect of that which was intended, see Lingle v. Chevron USA, 544 US 528 (2005), regulatory takings’ version of Midkiff.

    There, the legislature was concerned with the rising price of gasoline, and to address that, placed a cap on how much the lessors of gas stations could charge their lessees. Lower commercial rents would be passed on to the consumer, you see. The US Supreme Court, like Midkiff, deferred to the legislature’s “weird science.”

    Maybe the Honolulu City Council is more attuned to the downsides of A to B transfers — after Midkiff, it enacted an ordinance modeled on the Land Reform Act, regarding condominium leases. However, a couple of years ago, the Council, after an upswell of public opposition to the unfairness of using eminent domain to take private property for such uses, repealed the ordinance, even though it had been upheld in federal and state courts under the Midkiff rationale.

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