Turning the NIMBY tide

NIMBY, i.e., “Not in my backyard”, is an acronym that was coined in the early 1980s to describe neighbours who campaign against planned infrastructure or housing developments local to them. What began then as a local community campaign against predatory commercial projects has since turned into a massive roadblock on societal development, amplifying segregation, deepening wealth inequality and robbing future generations of fair opportunities.

In most parts of the developed and democratic world, every housing, public transport or energy infrastructure project is likely to face strong resistance. As Brooks and Liscow research from 2019 demonstrates, the rise of the “citizen voice” in government decision-making is a major cause of increased expenditure. The study is clear confirmation that the power of yelling loudly is becoming more and more effective and is forcing legislative changes.

In this article, we cover the cause and nature of such resistance. More interestingly, we propose a way for such infrastructure projects to include local communities as ultimate beneficiaries, thereby reducing resistance and paving a mutual way forward.

Examples

NIMBY opposition has impacted numerous projects around the world, leading to cost increases, project delays or outright project cancellations. Here are some specific examples:

A hydroelectric power plant in Fort St. John, British Columbia (Canada) faced seven years of court proceedings to sort out litigation cases raised by local communities
A nuclear waste repository in Yucca Mountain (USA) has faced 35 years of resistance and litigation, resulting in nuclear power stations resorting to the dry cask storage of waste on-site.
A wind farm in Cape Cod (USA), faced 16 years of NIMBY resistance and burned through approximately $100 million before the developer gave up on the project.
A nuclear power plant in Peace River, Alberta (Canada) was cancelled in 2011 after strong resistance by local communities.

We have limited ourselves to just a handful of examples here to illustrate the issue. However, no doubt every reader will be able to come up with his or her own examples of projects that have either been cancelled or have faced delays or cost increases due to local resistance. At the end of the day, society as a whole bears the costs – either directly as monetary costs to taxpayers or indirectly via a lower quality of life.

What triggers the resistance?

The resistance encountered on planning new projects varies according to the project and specific opponents. Most often, the opposition is rooted in fear of either a homeowner’s property value decreasing, environmental degradation or traffic congestion.

This is understandable – construction is always a nuisance, nearby trains are loud and wind farms obstruct views. What amplifies this is people’s inherent tendency to resist any change, especially when it involves their immediate surroundings, even if they cannot pinpoint a rational reason behind the fear.

Deeper insights from local communities reveal that not everybody is a objector. But as Einstein, Glick and Palmer from Boston University have exposed, pretty much everyone who shows up to community meetings is. Their work in examining zoning and planning meetings from 97 towns and cities across Massachusetts found that only 14.6 percent of people who showed up to community meetings were in favour of the specific project being proposed.

Again, this is understandable. In order to devote your weeknights to boring meetings where people yell at one another you really must have a strong opinion, either pro, or more likely, contra the proposal.

Cost of NIMBYism to society

NIMBY movements have many negative effects on our society. Below are just a few examples:

Delays in infrastructure development: NIMBYism can lead to significant delays in the approval and implementation of infrastructure projects like public transportation, roads and utilities. This delay hinders economic growth and development.
Higher costs: NIMBYism increases project costs due to extended planning phases, legal battles and changes in project design. These increased costs burden all taxpayers.
Housing shortages: Strong NIMBY opposition to affordable housing leads to the segmentation of communities and an outright housing shortage.
Environmental impact: Opposition to environmentally sustainable projects, such as renewable or nuclear energy facilities results in a continued dependence on fossil fuels, further contributing to environmental degradation.
Economic growth inhibition: NIMBYism deters businesses from investing in entire regions due to difficulty obtaining permits and approvals for necessary facilities and infrastructure. This leads to a stifling of local economic growth and a limiting of job opportunities.
Increased traffic congestion: Resistance to public transport infrastructure projects leads to worsened traffic congestion and longer commute times for everyone.

With all the negativism radiating through our article, it's important to note that while NIMBYism has its negative effects, it often reflects the legitimate concerns and interests of local residents who want to protect their communities. Balancing these concerns with the broader public interest and long-term planning is a complex challenge for both policymakers and developers.

The solution proposed here is based on the alignment of interests. This solution is applicable for commercial projects and is expected to generate income for shareholders of the project.

The basis is to align the financial interests of the developer with the local community. It is fair to acknowledge that local residents are impacted. What if their tolerance could somehow be compensated for? What if the local residents could benefit directly from the financial success of the project? What if there are means to involve such residents in the project, in a similar way to shareholders?

Before looking at the actual solution, let’s walk through an example and explain the potential power of the concept:

Example - a wind farm project

Let's use the example of a wind farm, which plans to erect 100 onshore wind turbines on a peninsula inhabited by 50 landowners. The wind farm’s projected power output is 300 MWh and the investment for the farm is estimated at €400 million.

With the green energy subsidies set up by the local regulator, the projected ROI for investors is at 7%, which is distributed as annual dividends after reaching the operational phase of the farm. Investors are lining up to park the capital.

On the flip side, the local community is (by no surprise) upset – their beautiful views to the bay will be disrupted, and they expect a lot of disturbance during the three-year construction period. Many residents are also worried about the potential noise pollution during the operational phase of the farm.

Let’s look at what can be offered to the community in return for them standing down from the (at least) multi-year legal battles they could launch against the development of the wind farm.

Annual dividends distributed for investors are expected to be at €28 million per year.
Setting aside 1% of the dividends for the local community will result in €280,000 becoming available for the local community on a yearly basis.
The local community consists of 50 landowners. Distributed equally, this would result in €5,600 yearly dividends per landowner.

Would this be enough for local acquiescence? No doubt, for some landowners €5,600 per year is insignificant compared to the (perceived) loss of land value or quality of life. But it might just be enough to change the perception of the majority – after all, over the expected 30-year lifetime of the wind farm, the average landowner would net €168,000 from the project.

The cost for the wind farm shareholders over the same 30-year period would be €8,400,000, paid out as dividends to local residents that otherwise would have been distributed between shareholders. Is the lower return to shareholders worth it? It is up to the farm management to quantify, but considering the multi-year delays active community members can launch along with hefty legal costs, it can easily turn out to be a positive-ROI decision.

The example above is deliberately simplified, and it does not take into account the potential leverage on the investment, the cost of legal fees and delay, or weighing it by the value of the land, which vary depending on the project.

If this potential seems promising, the following describes a financial instrument built by koos.io that is usable to convert local opposition into a community that benefits from and votes for a project.

Introducing virtual shares

Distributing the financial success of a company is typically done via equity. Therefore, the proposed solution is a financial instrument, which carries some or all of the following rights:

Exit right, allowing the holder of the instrument to sell their shares to the acquiring company or to receive a cash payment equal to the value of their shares as part of the acquisition process.
Dividend right, entitling the holder of the instrument the privilege to receive a portion of the company's profits in the form of dividends.
Redemption right, allowing the holder to sell back the instrument to the company at a certain price on certain conditions.
Liquidation right, giving the holder of the instrument the right to receive their proportionate share of any assets or proceeds that remain after the company's debts and obligations have been settled in the event of liquidation or winding up.

The designed instrument treats virtual shareholders in the same way as actual shareholders, just with limited rights, most notably towards governance matters – for example, virtual shareholders would not be able to elect the board members of the company. However, when it comes to sharing financial success, virtual shareholders should be treated the same as actual shareholders.

The set of rights can be enhanced further, by introducing early cash-out opportunities for the local community members given the project has cleared certain stages. For example, allowing local residents to sell back their shareholding in the project at:

€100 per share if the project passes in the local municipality council;
€200 per share if the project passes in the environmental ministry;
€400 per share if the project has all the required permits and no outstanding litigations blocking the construction.

Such virtual shares could not be bought; instead, local residents would be able to earn their shareholding in the project by conducting actions that help the project, for example:

Participating in a local community meeting
Organising a local community meeting
Posting in favour of the project on social media
Advocating for the project in regular media

Equipped with an instrument like this, the project can involve local residents and share the financial success of the project either via dividend, exit or redemption rights with the community.

Implementing the project - help by koos.io

Full disclosure: the authors of the article have a vested interest here – we are building the means to allow equity to be distributed in a company for anyone who helps the business, allowing all supporters to benefit from the financial success.

We do believe that sharing success builds a better world for everyone, so we have founded koos.io, which is the perfect partner for you if you are interested in the opportunities of virtual shareholding. We have built the legal and technical foundation for your next project that may face the threat of NIMBYism, helping you to turn the local community from campaigners against into advocates for.