Real Estate Development: Entrecomm Versus Subdivision
Many people believe only governments or non-profits can provide public goods—services like infrastructure, security, and dispute resolution. These services are often labeled as non-excludable (available to everyone) and non-rivalrous (one person’s use doesn’t diminish availability for others). However, this belief overlooks the effectiveness of for-profit entities in providing such goods. Without profit, there is no price mechanism to determine the correct trade-offs among scarce resources. This applies equally to governments and non-profits.
For-profit companies like hotels, shopping malls, and apartment complexes already provide public goods through voluntary contracts. Consider large hotels, such as the MGM Grand in Las Vegas. These establishments manage infrastructure, security, and governance for their guests and employees, including dispute resolution. Similarly, shopping centers and assisted living facilities operate under a unified owner who has a vested interest in client satisfaction, offering tailored services that people are willing to pay for.
These examples align with Spencer Heath’s idea that landowners are uniquely suited to provide public goods. Spencer MacCallum expanded on this in his research, comparing multi-tenant income properties with homeowner associations (HOAs). His findings highlight why the entrecomm model—entrepreneurial communities—is often more effective.
The Limitations of Subdivisions and HOAs
Traditional housing developments operate on a subdivision model. Developers divide land into parcels, sell them, and pass infrastructure maintenance to local governments and governance to HOAs. While HOAs set rules to enhance property values, they often become politicized and inflexible. Covenants can restrict changes even when the majority of residents support them, and disputes can be difficult to resolve.
For instance, a debate over adding playground equipment might divide residents. Families may want it, while others oppose it due to shared costs. HOAs must put such issues to a vote, and the losing side—whether for or against—is left dissatisfied. Without a unified owner, HOAs lack the flexibility to adapt dynamically to changing circumstances.
HOAs also suffer from the problem of fragmented incentives. Unlike a single-owner model, where profitability aligns with community well-being, HOAs often cater to the loudest voices or the most dominant personalities, leading to compromises that can alienate residents. Over time, this politicization erodes the sense of community that subdivisions are supposed to foster.
The Advantages of the Entrecomm Model
In contrast, an entrecomm operates under a single owner who provides governance through contracts. This structure offers significant advantages:
Flexibility: The owner can adapt to changing circumstances without being constrained by rigid rules. For example, if a playground would increase land value, the owner can decide to add it. Similarly, if market demands shift toward office space, the owner can transition parts of the property accordingly, ensuring maximum utility and tenant satisfaction.
Dispute Resolution: Owners have the incentive to resolve disputes efficiently to retain tenants. If a tenant proves unreasonable, the owner can choose not to renew their lease, maintaining community harmony. Unlike HOAs, where disputes often devolve into lengthy and divisive battles, entrecomms provide clear and streamlined resolution processes.
Tenant Selection: An entrecomm can curate a community of like-minded tenants, fostering shared values and satisfaction while ensuring inclusivity driven by market demand. This ability to select tenants creates a cohesive community where residents are more likely to align with the property’s overall vision and goals.
Organic Growth: The entrecomm model allows communities to evolve based on market needs. For instance, if office space is in demand, the owner can offer current residential tenants better homes on the property to free up space for new development. This adaptability ensures the community remains relevant and prosperous over time.
Incentive Alignment: Unlike HOAs or governments, entrecomm owners’ profits depend on tenant satisfaction, ensuring a focus on delivering valuable services. This alignment of incentives creates a feedback loop where community well-being directly impacts the owner’s success.
Why Smaller Jurisdictions Work Better
The entrecomm model benefits from being small and flexible. Dissatisfied tenants can leave easily, putting pressure on owners to maintain high standards. This contrasts sharply with larger jurisdictions like nation-states, where relocating often involves significant challenges.
Additionally, the contractual nature of entrecomms eliminates the need for coercive practices like eminent domain. Changes to the community are negotiated between the owner and tenants, ensuring mutual agreement and protecting both parties. This voluntary approach fosters trust and collaboration, making the community more resilient to external pressures.
Smaller jurisdictions also create a competitive dynamic. If an entrecomm fails to meet tenant expectations, neighboring communities can attract those tenants, incentivizing constant improvement. This competition is a powerful driver of innovation and quality in services, something that large governments struggle to replicate.
A Real-World Example: Morazan
Entrecomms address governance challenges more effectively than HOAs or governments. A compelling example is Morazan, a semi-autonomous zone where the entrecomm model has been implemented successfully. Here, landowners provide essential services, manage infrastructure, and create an environment tailored to tenant needs—all while aligning profit incentives with community well-being.
In Morazan, residents benefit from streamlined governance, efficient infrastructure, and a focus on safety and prosperity. The landowners’ ability to adapt to market demands ensures that the community remains vibrant and relevant. For example, if there is a demand for new amenities or facilities, the owners can invest in these improvements without the bureaucratic delays typical of traditional governments.
Conclusion: A Scalable Model for Modern Communities
By leveraging entrepreneurial governance, Morazan demonstrates how the entrecomm model can deliver superior outcomes compared to traditional subdivisions. It’s a practical, scalable solution for building thriving communities that adapt to the modern world’s dynamic demands.
The entrecomm model proves that for-profit governance doesn’t just work—it excels. By aligning incentives, fostering flexibility, and prioritizing tenant satisfaction, it creates communities that thrive on voluntary participation and mutual benefit. As more examples like Morazan emerge, the potential for entrecomms to reshape how we think about governance and community development becomes increasingly clear.