Private Cities

by J. Brian Phillips

In recent years, the benefits of the free market have been demonstrated as governments around the world have turned to the private sector to provide services more efficiently. However, critics of the free market argue that these benefits are isolated cases -- that a truly free society is unworkable and impractical. Government, the argument goes, is far better equipped to provide the services and public facilities individuals need and desire.

However, a growing number of American homeowners are unknowingly demonstrating just how far privatization can go. Planned unit developments (PUD's) are privately developed, and primarily privately operated, communities.

PUD's first became popular in the mid-1960s after Congress passed the 1961 Housing Act permitting the Federal Housing Administration to insure condominium mortgages. Today, nearly 30 million Americans live in approximately 100,000 planned communities, consisting of single-family homes, townhouses, condominiums, shopping centers, office buildings, and facilities to house light industry. These communities range in size from a single condominium building to huge complexes of more than 50,000 acres. PUD's include retirement communities in the sunbelt states, all-adult communities, and communities catering to families with children.

Whatever the particulars of a given community, PUD's have three common traits: building and land use restrictions, shared amenities, and community associations to which all property owners belong.

The Economist (April 5, 1986) reports that "within their enclaves these associations perform all the functions of a small government." These associations, according to one development company, "work to assure that the communities' amenities, public facilities and other areas are supported and maintained." (New Home Journal, May/June 1987) In essence, they are a combination public works/parks and recreation department. Funding usually comes from maintenance fees assessed on each property owner.

Perhaps the most important function of the community association is enforcing deed restrictions. Deed restrictions are a form of private "zoning," in which developers establish certain rules to prevent undesirable buildings and land use. Like zoning, deed restrictions provide continuity within a given area; unlike zoning, deed restrictions are governed by market considerations.

"When you are developing a master-planned community you are essentially trying to make it so the [homeowner] doesn't have to leave the area to get what he wants," explains Dennis Guerra, a project manager for the First Colony master-planned community near Houston. This requires a careful marketing study to determine the amenities homeowners want. Retail shops, grocery and convenience stores, doctors, dentists, animal clinics, and other frequently visited businesses are often located within the community.

Most PUD's consist of a number of villages -- subdivisions within the PUD -- separated by the community's major roads. Business areas are located along these thoroughfares, which helps "keep cars essentially out of the residential areas," says Guerra. In planning a community, the developer must work closely with the business community to construct a plan which benefits businesses and future homeowners.

This does not mean that businesses dictate a community's plan. For many years, Guerra says, First Colony resisted attempts by various fast-food chains to build restaurants in the community. The locations sought by the chains would have drawn excessive traffic and disrupted the developer's master plan. Because developers must be concerned with the long-term economic success of their projects, such considerations are essential. Conversely, zoning boards are generally motivated by short-term political expediency. More significantly, deed restrictions eliminate zoning bureaucrats and the accompanying taxes.

While separating commercial and residential areas is a common justification for zoning, developers have found that many homeowners prefer to be close to shopping centers and their jobs. Indeed, many communities seek businesses for this very reason. For example, Windward, a community north of Atlanta which caters to relocated executives, encourages corporations to locate facilities within the community. Dearborn Park, just south of Chicago's Loop, is within walking distance of work for many of its young, professional residents. Many communities locate light industries along their perimeters. These mixed-use communities are becoming increasing popular, as the free market seeks to meet the demands of homeowners. This type of flexible land use is nearly always prohibited by government zoning boards.

The extensive planning required by PUD's offers a private alternative to another activity traditionally undertaken by government: protection of the environment. Parks, greenbelts, jogging trails, and wooded areas can be found in nearly every planned community. According to one development company, this is how it "enhances the value of a master-planned community by working with, not against, nature." (New Home Journal, May/June 1987) Some developers go so far as to operate tree farms within their communities.

In Washington State, timber industry giant Weyerhaeuser Company is planning a $1 billion residential community abutting Puget Sound. Up to 30 per cent of the community will be open space -- golf course, parks, trails, and forests. At Boca Pointe, a 1,019-acre community in Boca Raton, Florida, nearly 40 per cent of the development consists of parks, greenbelts, lakes, and fairways. Kingwood, a community near Houston also called The Livable Forest, has more than 30 miles of wooded trails for walking, jogging, and bike riding.

Golf courses are popular amenities in master-planned communities, as builders seek to create a resort-like atmosphere for homeowners. "Equestrian communities" -- developments with horseback-riding facilities -- have been built or are planned in Arizona, Illinois, Utah, and California. The Palm Beach Polo and Country Club in Florida offers ten polo fields, 45 holes of golf, and two croquet lawns for residents. Swimming pools, health clubs, tennis courts, saunas, and other recreational facilities are also common in PUD's.

While these facilities are generally built by the developer, the homeowners association eventually assumes control and maintenance responsibilities. Some facilities, such as golf courses and health clubs, are operated by private businesses, and require membership fees. But all of these recreational facilities are provided by the private sector, replacing the parks and recreation departments found in most cities.

Just as city governments organize sports leagues to use municipal parks, homeowners associations sponsor activities to utilize the community's facilities. Basketball, softball, and volleyball leagues are popular among adults. "Dad's clubs" organize and operate baseball, swimming, and other sports teams for community children.

Community activism is hardly limited to athletics. The homeowners associations encourage "grass-roots" democracy, and give property owners a real opportunity to influence decisions regarding their community. Civic associations also provide support groups, and sponsor art shows, theater groups, and scouting programs for children. A civic group in Kingwood, near Houston, opened a 60,000-volume library in 1983. Fun runs, parades, and holiday celebrations are also common activities within PUD's.

To homeowners, one of the most attractive features of master-planned communities is their security. At Las Colinas, near Dallas, a computer-controlled security system provides immediate aid from police, firemen, or medical professionals. The Towers of Quayside in Miami is a virtual fortress, with closed-circuit television surveillance, an electronic antiintrusion beam, and strolling security guards keeping out unwanted visitors.

While such sophistication is rare, even less affluent neighborhoods often have some form of private security protection. Shared costs make this affordable. Most developers construct gates at the entrances to their communities. When residents are willing to pay for it, these gates are manned by security personnel. Other communities establish volunteer security patrols, consisting of community residents.

Fire protection -- particularly in unincorporated areas -- is usually provided by either private companies or volunteer fire departments. Independent water districts provide water and sewage treatment. Private companies collect garbage, and are contracted by the homeowners association. Catering to families, Centura Parc in Florida and Lake Valley Ranch in Texas offer day care for children. Other developers are planning to include child care facilities.

Because of the high density of homes in most PUD's, they make attractive targets for cities seeking to expand their tax bases through annexation. Generally, when a PUD is annexed, most services -- water, fire protection, garbage pick-up, etc. -- are then provided by the municipality. In the process, homeowners lose autonomy and the accompanying benefits.

Some services, such as schools, are provided by the public sector in nearly all PUD's. Many communities in unincorporated areas rely on the county sheriff department for security. And road maintenance, after certain requirements are met, generally becomes the responsibility of county road crews. But this does not detract from the broader lesson to be learned from master-planned communities: the private sector can and does provide nearly all services traditionally assigned to city governments. While opponents of privatization are arguing that only government can provide certain services -- parks and recreation facilities, land use controls, trash pick-up, fire protection -- private developers are busily proving otherwise.

Like every human enterprise, PUD's have their critics. Deed restrictions, critics argue, are often excessive. Planned communities aren't planned well enough. Streets are often haphazard. Retail shops are too inconvenient to reach. Such criticisms are generally intended to justify some form of government planning, either direct or indirect.

However, no community, regardless of who plans it, will appeal to everyone. Our tastes in neighborhoods, like our tastes in movies, clothes, and food, vary as widely as individuals themselves. And this is precisely why the free market is vastly superior to government planning -- freedom allows individuals to choose and pursue their own values without interference from others. The free market operates on voluntary, contractual agreements; government policies and programs operate by means of coercion.