For Susette Kelo, owning a waterfront home was her dream. She realized her dream by purchasing a pink house in the Fort Trumbull area of New London, Connecticut in 1997. The house had a fantastic waterfront view, something most Americans would break their backs just to have.
What Kelo enjoyed here was part and parcel of the American Dream. However, the City of New London had other nefarious plans in mind that would turn Kelo’s dream come true into a virtual nightmare. Pharmaceutical titan Pfizer set up a plant next to Fort Trumbull. Due to Pfizer’s economic prowess, the city was salivating at the prospect of the revenue it could extract from this plant or from other big businesses.
In turn, the city deemed that entities like Pfizer could put the land in Fort Trumbull to better use than its residents.
The city transferred its power of eminent domain — the power of a government to seize private property for public use — to the New London Development Corporation (NLDC). The NLDC, a private entity, would then be allowed to privately develop the entire neighborhood. Fort Trumbull residents would soon learn the hard way about the power of eminent domain. The NDLC used this government-bestowed power under the pretext of “economic development” to take Fort Trumbull resident’s property.
Naturally, the homeowners of Fort Trumbull pushed back against the NLDC’s efforts to seize their property. This struggle eventually turned into a legal dispute which made its way up to the United States Supreme Court in 2005. In the controversial Kelo vs. City of New London decision, the Supreme Court ruled that the economic development rationale New London used to take private property constituted a “public use” as spelled out by the Constitution’s Fifth Amendment.
Basically, if an existing property had the potential of generating additional tax dollars or creating new jobs, then eminent domain could be used to replace the current owner with a far more lucrative development that allegedly serves the “public good.”
The precedent established by the Kelo decision essentially said that everyday property owners in America could lose their homes and businesses to a private developer. The Supreme Court ruled 5–4 against Kelo. After this decision, local governments felt greatly empowered.
In the year following the Kelo decision, local governments threatened to use eminent domain or condemn roughly 5,800 homes, businesses, churches, and other private facilities in order to be transferred to another private entity that would supposedly put the land to better use. However, there was backlash to the Kelo decision. 11 state supreme courts and 47 state legislatures were prompted to curtail eminent domain abuse.
After the decision, Susette Kelo moved from New London to a different town close by. Kelo’s famous little pink house was salvaged and later moved to a new spot in downtown New London. In the present, she works several jobs as a nurse.
For almost 20 years following the ruling, the Fort Trumbull neighborhood languished as an empty lot after the city bulldozed the neighborhood. The economic development the Supreme Court claimed would emerge through the use of eminent domain never came about. As of the summer of 2022, a private developer is now building 100 apartments and a 100-unit extended stay hotel. On top of that, it’s building a community center that won’t generate any tax revenues.
In sum, humble homeowners and residents were booted from their homes so that a private developer could construct more housing units. Weird times we live in….
The Kelo vs. City of New London case should serve as a major wake up call for many Americans that property rights in the country are not 100% secure. In certain jurisdictions, property rights and productive economic activity can be subject to arbitrary regulations. This is most apparent in many coastal states and prominent urban centers.
This dynamic has a lot of relevance to income property investors. The areas that are often friendly to business activity tend to also be friendly to real estate investors and landlords.
As an Empowered Investor, you should be constantly paying attention to housing policies being implemented in the areas you’re investing in. Just like there is no monolithic housing market in the US, there’s also no monolithic housing policy in the country. So, it’s up to you to figure out which states and cities are most friendly towards income property investing.
Understanding these jurisdictional differences can be the difference between you going though a ton of bureaucratic rigmarole or you cruising along just fine with your investing activities.
During the Recession-Proof Investing Summit, which will be held on October 7 to October 8, Jason Hartman and his trusty team of investment counselors will talk about this and other important real estate information.
They’ll be answering your most pressing questions about income properties. On top of that, they’ll give you actionable advice that you can implement right after the summit so that you have greater control of your income properties and increase your cash flows.
This summit will also give you the keys to build your income property portfolio to serve as a hedge against the not-so “transitory” inflation we’re all being subjected to.
By participating in this summit, you’ll be well on your way to attaining economic sovereignty and laying the foundations for a comfortable retirement.
The Recession-Proof Investing Summit is less than a month away, so get a move on and secure your spot at this game-changing event.
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