The Los Angeles Times of November 30, 2013 (Andrea Chang and Andrew Khoury, Tech Effect, at p. A1) reports that “bubble” type housing costs and rentals in the “Silicon Beach” area of Los Angeles (the area west of the 405 Freeway (that’s the San Diego Freeway to us old timers), running south from Santa Monica to Marina del Rey, are spinning out of control again. The median price of a home in that area peaked at $925,000 in 2007 when the “bubble” was at its bubbliest, but plunged to $694,000 in 2010. However, now the median price is up again at $952,000, which is more than the 2007 bubble peak. And keep in mind that “median price” means that half the homes in the area are selling for more than that.
The reason for this price surge is that young, well-paid techies who are attracted to the area by the coming of tech giants like Google, Facebook, and Microsoft, as well as little-known startups, favor that area as home, and being a demographic not noted for its prudence and common sense, are blowing money on housing like drunken sailors, evidently hoping to get into big bucks as their firms prosper and are bought out. We seem to recall a similar phenomenon a while back that didn’t end well. But what do we know?
Being of the pessimistic persuasion, we offer our insight and wisdom (if that’s what they are) from around 2004, when we cautioned against an
“extremist [land-use] regulatory culture that has become instrumental in bringing about . . . a market bubble for the haves and a draconian housing shortage for the have-nots. While the use of extrapolation to predict the future is risky business, enough dark clouds are appearing on the economic horizon to justify serious concerns on that score, particularly given the huge private debt being incurred by Americans in all walks of life, which is heavily contributed to by inflated home prices.” Gideon Kanner, Making Laws ad Sausages: A Quarter-Century Retrospective on Penn Central Transportation Co. v. City of New York, 13 William & Mary Bill Rts. Jour. 679, footnote 466 and associated text (2005).
In the meantime, as the young, exuberant techies are enjoying life in their modest million-dollar digs, lots of other middle-class Californians are packing their bags, cashing out on their again/still overpriced homes, and continuing to split out of the Golden State. So to borrow the line of Gretchen Morgenson, our favorite N.Y. Times financial reporter, when the doo-doo hits the fan, as it has in 2008 and as it inevitably will again at this rate , “it won’t be pretty.”