The Meaning of Property

In the late 1980s, real estate expert Austin Jaffe flew to Hungary to attend a conference on housing. Like all of Eastern and Central Europe, Hungary was on the brink of transition from state socialism to market capitalism. At the conference, Jaffe asked researchers, “What does property mean here? How will it change if your country changes?”

green field with tall buildings in background

Those questions have since taken Jaffe, director of the Institute for Real Estate Studies at Penn State, to Poland, Russia, and the Czech Republic.

“The meaning of property varies from place to place,” Jaffe says. “Property refers to the rights to the assets, not the assets themselves—rights that are defined by a country's legal system, custom, culture.

“If we know what property means to people, we can make predictions about how the assets will be used,” he adds.

Jaffe has studied property rights all over the world, serving as a consultant to the World Bank, the Nordic Council of Ministers, the Prudential Realty Group, the Eastern European Real Property Foundation, and the Real Estate Research Institute. He has also held faculty appointments at universities in Sweden, the Netherlands, Israel, Singapore, New Zealand, Hong Kong, and Finand. “I don't particularly like to fly,” says Jaffe, a big guy with a wide grin who seems to prefer slacks and a windbreaker to a suit and tie. “But, my research questions have always had an international flavor.”

One of Jaffe's latest questions has been how transition countries are handling restitution—the return of property to those who have former claims on it. “Restitution is just one issue within the broader topic of property rights,” he explains.

During World War II, the Nazis seized private property in Eastern and Central Europe. Later, the Communists took the property for the state. Now governments and courts are trying to handle multiple claims on land and buildings.

Those asking for restitution of property in Poland, for example, include “peasant farmers seeking the return of a few fields . . . Jewish families claiming townhouses in Warsaw and Krakow . . . and the heirs of some of the largest aristocratic estates in pre-1939 Europe,” according to a recent article in the Financial Times.

Jaffe and doctoral student Lynn Fisher reviewed the attempts of several Eastern and Central European countries to implement restitution. While Poland has established some restitution laws, they found, the courts are struggling with key questions: “Should restitution apply to the heirs of people who emigrated?” Jaffe asks. “What happens if someone wants his factory back, but the factory is now being used for a completely different purpose?”

In Latvia, the government gave citizens vouchers that allowed them to make bids on land. “But, the people are so poor, they sold their vouchers on the black market so they could eat. They understood what they were giving up, but they couldn't help it,” Jaffe explains.

Hungary began returning property to former owners in the 1980s, and is much farther along in the transition than many of its neighbors. “The transition will be over when the Eastern countries resemble the Western countries in terms of markets,” Jaffe says. “The Czech Republic and Hungary are a lot closer than people think.

“Countries that treat restitution seriously are more likely to be democratic in the future,” he adds.

“My suspicion is that it has to do with the character of the people. One's attitude towards property depends on social or cultural aspects.”

Russia, for example, may never fully support restitution or the private ownership of property.

“The land in Russia isn't yet a matter of business as it is in Western Europe or the United States,” wrote Simon Mitropolitski, a columnist for the International Real Estate Digest, in October 2000. “It is still a matter of faith, like someone's soul, like the country's soul, like the love you feel toward your mother. Good people don't sell their souls, so the majority of Russians prefer to live in hunger due to inefficient collective farms rather than sell the land into the private hands.”

But, Jaffe argues, when everyone owns the land, no one owns it. “It's the Tragedy of the Commons,” he says. Communal land is likely to be overused and neglected by the people and the state.

“There's an important link between what property rights mean and how the resources of a country are used,” Jaffe explains. “If a society permits private ownership of assets you could predict, given theory and evidence from the last 200, 300, 400 years, that the assets will gravitate to the people who value them most.

“People develop ideas about what to do with privately-held land, machines, buildings. They can then transform those ideas into productive growth engines.

“Owning property provides an incentive for innovation. Society benefits from inventions. People can get rich, but society gets richer. It's innovation that raises the standard of living in a society. That's the story of the rise of the west.

“Then there's a contrasting story,” Jaffe adds. In state socialism, little innovation exists. “When you don't get to keep what you create, the incentive to create is lost.”

Austin J. Jaffe, Ph.D., is Philip H. Sieg Professor of Business Administration and director of the Institute for Real Estate Studies, Smeal College of Business Administration, 409-A Business Administration Bldg., University Park, PA 16802; 814-865-1938; ajj@psu.edu. Jaffe and Fisher published their review “Restitution in Transition Countries,” in the Journal of Housing and the Built Environment. Jaffe will spend the 2001-2002 academic year as a Fulbright scholar at the University of New Brunswick.

Last Updated September 01, 2001