Fixing a 'market failure'?

I grew up on the outskirts of Bulgaria's capital, Sofia. Our neighborhood looked more like a village than a suburb. We would often wake up to the sound of a rooster crowing across the street. I used to buy fresh milk from a farmer whose cows grazed in a field less than a half-mile from my parents' apartment building.

We were surrounded by much more grass than concrete. There were almost no traffic lights and pedestrian crossings were useless. It was so hard to buy a car that parents did not object when we chose to play in the streets-the risk of getting run over by a motor vehicle was much smaller than getting hit by sparrows' droppings. The state's control of construction had led to severe housing shortages. In an effort to cope with the problem, the socialist government implemented feudalistic residency laws.

Two decades after the fall of the Berlin Wall, the city is unrecognizable. A million people migrated to the capital. The tiny houses and the huge lawns used as soccer fields by generations of kids are almost all replaced by tall buildings, superstores, restaurants. Parking wars and traffic jams are worse than those in New York City.

Private property rights were restored over most of the land. Housing prices skyrocketed, tempting the owner of the playground next to our building to sell the tiny piece of land to a real estate entrepreneur. The plan was to provide housing for 20 families and some space on the ground floor for a few businesses. But the new project did not inspire much enthusiasm in the community. My childhood friends, now parents, petitioned several government institutions and called the media to prevent the construction in the interest of hundreds of local kids who had already lost most of the safe and convenient places to play.

The question (and I hope that it can stir a good discussion among WORLDmag.com readers) is whether some form of government involvement is justified and necessary in this and similar cases. Is that an example of a market failure where even Friedrich Hayek would advocate for state intervention? Ultimately, we need to struggle with the question: For what purposes and how far should we use the democratic process to change economic outcomes that may be disliked by a majority of voters?