NIMBY Insurance

So as is to be expected, there are some firebreathing opponents of the Brookland small area plan calling for blood today. They’re really ticked, and they’re certain that the DC Council’s decision yesterday has condemned their properties to significant depreciation (that’s depreciation on top of the depreciation everyone is facing these days).

I obviously think this is absurd. One only has to look at the rowhouses on Kenyon Street in NW between 13th and 14th (immediately adjacent to the DC USA development), or at the single-family Arlington homes a block or two away from Clarendon to see that these folks have just struck it rich. They have big beautiful houses that are about to be steps away from quality retail. In ten years or so, they’ll be counting their money when they sell, if they can bear to walk away from their newly vibrant, pedestrian friendly neighborhood.

Which makes me wonder, is there a market for NIMBY insurance? That is, I’d love to collect tiny premiums from residents looking at potential development near their homes, in exchange for which I’d take responsibility for the change in value of their home relative to homes outside of the directly affected area. If their property does poorly relative to other homes, then I’d shell out for the difference, either at an agreed upon time after development or upon sale. If it does better, well, the gain would accrue to me.

A city that was confident that it was developing well could even offer this kind of service at a deep discount relative to what the private market would likely ask. It might help combat knee-jerk opposition to development plans, and since NIMBYs seem, to me, to be bad at gauging the effect of development on their property values, it would be a nice source of revenue. And of course, if the government ended up being totally wrong, homeowners would be protected.

What’s wrong with my scheme? Tell me in comments.


  1. Alex B. says:

    Seems there are an a lot of factors other than just the project the NIMBYs are opposed to that might impact property values. How would you determine the impacts of any one factor?

    Also, this was the first thing that came to my mind when reading the title:

  2. Doug says:

    Mortgage-backed insecurities?

  3. BeyondDC says:

    Yeah, outside factors. You don’t want to end up shilling out cash if property values go way down due to a recession, for example.

    You’d need a control group against which to compare the NIMBY neighborhood. Peg the insurance pay out (or pay in) to how values in the that neighborhood perform relative to the citywide average or something.

  4. ryan says:

    You guys, I said relative to other homes outside the immediate area. You could have price indexes for each ward in the District, for example, then you’d compare the performance of the value of the home, net of improvements, to the performance of other homes in the ward, as measured by the ward’s index.

  5. Alex B. says:

    Yeah, but what about if I buy a fixer-upper with good bones and put a lot of sweat equity into it? Sand the hardwood floors, fresh paint, a little work here and there, etc – stuff that’s entirely independent of the neighborhood factors in terms of property value.

    Also, what if I owned a house near a redevelopment site, got NIMBY insurance to cover a feared loss of value, and then proceed to trash the house. Not like destroy it, but say I rip out the historic woodwork in favor of shag carpeting and mirrored ceilings. The value then goes down. How would you be able to control for those kinds of fluctuations? My value has decreased – how would you go about proving that the decrease was due to my crappy renovations and not the adjacent development? How would that translate into a legally binding contract?

  6. Alex B. says:

    Oh, I saw you said net of improvements.

    Still, how would that be calculated and appraised?

    There seem to be an awful lot of other factors involved with actual insurance.

    What about something (since you mentioned the government doing this) related to property tax relief in the event that values go down? Seems like that would be easier to implement.

  7. ryan says:

    You just require the homeowner to account for the value of the improvements with an appraisal provided by a government-approved appraiser. Sure, it’s a pain, but if the amount you think you’ll be saving is large, then it’s worth it. And if the amount you think you’ll be saving is small, well, then why are you arguing that the development is going to be bad for your property value?

  8. Alex B. says:

    Don’t get me wrong, I love the concept. Anything to shut those folks up. I just think the administration of it would be a pain.

  9. Pat says:

    Most of these old farts care about how it’s harder to find parking… or how they have to put up with people walking down THEIR sidewalks. I’m not sure any monetary offer you could make them would get them to shut up.

  10. PJ says:

    I’d like to just buy their properties and become a developer. Cut out the middle man.

  11. a different a.c. says:

    If I’m understanding you right, you mean something like Chicago’s home equity assurance program. William Fischel mentions it towards the end of this article:

    Southwest Home Equity Assurance is an example:

  12. a different a.c. says:

    Drat. I see the Austin Contrarian got there first.

  13. NAB says:

    Kind of a raw deal for renters though. Homeowners would have no financial incentive to keep the neighborhood nice, if fact, they might be happy to see it fall so they can get a payout. No such compensation for renters. Not that it’s a totally bad idea, just something to consider.

  14. Maia says:

    The solution is easy. Have NIMBYs place a bond when they oppose something. The bond covers the increased cost of construction caused by months or years (or decades) of delays.

    Look at the Wisconsin Avenue Giant. The same band of opponents have been delaying and opposing that proposal for almost a decade. Now they have splintered into 7 opposition groups before the Zoning Commission.

    Make them secure a bond like other places require.

  15. Ryan not Avent says:

    I think the way to judge performance is to compare the appreciation (or depreciation) of the land value of the properties covered relative to the city, or even metropolitan area. And I would argue for a set time-frame on the payout.

    Say you’ve got a house in Brookland, and the value of the land is 90% of the city-wide average, and has been gaining on the average by 1% a year. If, 5 years after the construction, the land values have gone up 2% a year faster than the city-wide average, you can be pretty sure the house has appreciated because of the new development. Looking at the land value instead of the property value automatically rules out all the other factors like new kitchens or poor home maintenance. The land value is is almost entirely locational.

    I also think the comparison here should be to larger areas – city, not ward. The smaller the benchmark, the more likely big non-local developments can overwhelm the effects of small local developments. Say you own a house in ward 1 and your land value grows along at the same rate as the ward average. You buy this insurance against a small project just down the street, but in the 5 years it matures, they also build the much bigger DC USA project. That might have a big enough impact on the ward average to make its growth over those 5 years exceed the growth at your home. Even if your much smaller local development is a net positive.

    And I say fixed timeframe because the major price reorientation that results from a new development will happen in just a few years. That initial swing will tell you the value of the new development, and waiting longer only dilutes that effect while allowing room for other factors to creep in.

    A major exception not controlled for that I’m not sure how to deal with is crime. Gentrifying neighborhoods are usually at peak growth, but also often see a spike in crime, which slows that growth a bit. Maybe not controlling for crime is actually a good thing, though, since if a development bring so much crime to my neighborhood it negates the underlying property growth, I’d still be pretty pissed…