If the risks (what you're calling "costs") become greater than your return on your investment in property, you can sell it for property which has a more acceptable risk profile.
For example, if you can't handle having neighbors who use their property as they see fit, you can always invest in housing in a community where property owners have agreed to abide by certain conditions.
In a free society there is only one constraint (and it's not on property): you cannot trespass against or appropriate anyone else or their property without their consent. All other constraints are constraints on property and freedom.
As far as "the real world" is concerned, if conditions are unjust they should be made just. No small number of men told Thomas Jefferson, George Washington and Samuel Adams that they should just "accept reality". Thankfully, they refused.
They wouldn't have acknowledged such unconscionable violations of life, liberty and property, and neither should we - no matter what the CHD decides is best for us subjects.
The guy who moves to my neighborhood and opens a brothel or biker bar -- even if it's entirely on his property -- imposes real costs on me and my neighbors. In a free society, I have some say about whether I'm willing to accept those costs. Thus, as a member of a free society, I should have legal recourse to prevent him from imposing those costs without my consent. This is an example of how private property rights and community interests may not necessarily be in agreement.
In such cases, property rights must be traded against community interests. We can argue about the parameters of the trade; however, the fact that there is a legitimate trade to be made, is beyond question.
At the very least, this implies a requirement for a legal body with authority to decide between legitimate conflicts of interest, and to enforce the ruling once it's made. Thus, the existence of Chicago property courts is quite defensible, even if their current actions are excessive.