Property owners beware. If an owner does not make maximum productive use of his property, government is now empowered to transfer the property to another person. This is the essence of the Supreme Court’s ruling last week in Kelo v. City of New London (No. 04-108).

The Fifth Amendment to the Constitution only permits government to take property for “public use” upon paying “just compensation” to the owner. Via the Kelo decision, the Court has deleted the words “public use” from the Bill of Rights and made property ownership less secure.

Kelo arose out of an economic development plan in New London, Connecticut. The New London Development Corporation (“NLDC”), a private corporation charted to assist city council, created a plan to revitalize 90 acres of New London in connection with a proposed Pfizer pharmaceutical facility. Among other things, the plan called for the building of a waterfront conference hotel, restaurants, shopping centers, and parking.

The city approved the plan in January 2000 and authorized the NLDC to acquire the property through purchases or the power of eminent domain exercised in the city’s name. Some residents entered into voluntary transactions with the NLDC, but other residents refused. One such resident was Wilhelmina Dery. Ms. Dery has lived in the same house since her birth in 1918. Her home has been in the family for over 100 years, is in good repair, and provides a view of the waterfront. The subjective value of this home to Ms. Dery was far more than the NLDC’s offer; therefore, she filed a lawsuit arguing that government cannot take property for the private use of other owners simply because the new owners may make more productive use of the property.

In the years after ratification of the Bill of Rights, Supreme Court justices viewed the preservation of property as a primary object of American law. Justice William Paterson in Vanhorne’s Lessee v. Dorrance (1795) averred, “the right of acquiring and possessing private property, and having it protected, is one of the natural, inherent and inalienable rights of man.” Justice Samuel Chase declared in Calder v. Bull (1798) that an act taking property from A and giving it to B “is against all reason and justice” and is thus prohibited by the Constitution.

State judges agreed with their federal colleagues. For example, in Bowman v. Middleton (1792), the South Carolina Supreme Court held that legislative acts transferring property from one person to another are “void” because they violate common right and Magna Charta.

The Kelo Court paid lip service to Justice Chase’s Calder opinion, but upheld the taking of Ms. Dery’s property because it promotes the “public purposes” of the community. The taking of her property, according to the Court, will supposedly create more jobs and increase the tax base in New London.

The phrase “public purpose” does not appear in the Fifth Amendment but the words “public use” do. As Justice Clarence Thomas noted in dissent, the text of the Amendment permits the taking of property “only if the public has a right to employ it” (e.g., public roads, public parks, etcetera). Taking Ms. Dery’s home so private parties can erect an office building or hotel is not a public use.

Aside from violating the fundamental law of the Constitution, Kelo subverts the free market’s system of voluntary exchange. Prior to Kelo, if Corporation X, for example, desired to purchase a parcel of land to build a hotel, it had to make a satisfactory offer to the owner. If the parties agreed on a price, a voluntary transaction resulted in which both parties felt they benefited. Under Kelo, if the property owner does not agree to Corporation X’s terms, then Corporation X has the option of persuading the government to exercise the power of eminent domain. Corporation X need only allege that its proposed hotel will be a more productive use of the property.

Kelo is a major setback for the sanctity of private property. By deleting the “public use” requirement from the Fifth Amendment, the Supreme Court invites the powerful and politically connected to lobby government to transfer private property to them. The rightful owners are left with no remedy. Property ownership is placed in a precarious position.