Why Don't People Buy And Sell Cities?

Cal-Nev-Ari, a town in Nevada in the United States of America, is up for sale for $8 million -- Nancy Kidwell, the owner of the town, has been trying to sell it for many years now. Spread over 500 acres and inhabited by 350-odd residents, this sleepy town has a voluntary fire station, sewerage system, a utility company, deep-water wells, and a vast expanse of vacant land. But not many are willing to buy this town, especially in the absence of proper infrastructure. The businesses in the city, meanwhile, have started breaking even.

It is, however, interesting that cities and towns are not usually sold. If corporations are allowed to bid for cities, urban governance will improve significantly. But land-use policy in Indian cities is quite inefficient, as expensive land parcels are often kept idle. At the same time, the land where high-rises are allowed are not very valuable. Mixed use is often not encouraged. If urban local authorities paid the price for such decisions, they probably would not make such decisions.

If a real estate company, for example, owns a city for 10 years, and then sells it to someone, it will have strong incentives to make sure that the property value rises in that decade. The company could repeal harmful regulations, and build proper infrastructure.

Economist Robin Hanson has some interesting observations on why this does not happen.

1. It is true that it may not be possible to buy an entire city that is fully functioning. For example, it is possible that even the largest corporations are not wealthy enough to buy a large city.

2. If a corporation wants to buy a city by buying large chunks of property one by one, news may leak, and people may jack up the price of their properties. There may be many holdouts. (In such a case, the real estate company in our example won't be able to gain much from the sale of the city 10 years from now.)

3. It may be true that private cities will exclude people or people will be hesitant to leave. But, such things are already happening in all parts of the world. For example, is a Delhiite has to migrate to New York, he either has to get a job in the US city or get into a university there. This is beyond most Indians.

4. Residents of a city may oppose the move. This is the most likely scenario of all concerns that can be raised against cities being sold in the market. If a large corporate house wants to buy a city like Mumbai, for example, most people in the city will probably oppose the move, even if they know they will gain from it.