Monthly Archives: December 2017

Lowball Watch — Virginia

The Martinville Bulletin, 12-29-17, reports that the Virginia DOT deposited $6.28 million for the taking of a truckstop, but settled for $7.2 million, an increase of close to $1 million. Laurence Hammond, VDOT to pay $7.2 million for truck stop closed by Batentout Highway project, for an increasr of $920,000.

They’re Singin’ Our Song at the Times — Sort Of

No sooner has the ink dried on our last post, that The New York Times, no less, has chimed in with the same tune — sort of. See Californians Brave Fires, but Flee Cost of Living, NY Times, Dec. 13, 2017, front page. The times, sure enough, dwells on the outward flow of Californians (of which more presently) but it keeps mum on the causes of this huge out-migration.

Says the Times:
“[S]ince 2000 the state has lost more than two million residents 25 and older, including 220,000 who moved to Texas, according to census data. Arizona and Nevada have each welcomed about 180,000 California expatriates since the start of the decade.” Which is like writing about a drought by informing the readers that water won’t come out the wall when you turn on the spigot. In other words, the Times describes the phenomenon but tells us nothing about the causes.

And as we explained in our previous post, the causes include an obdurate California government policy preventing the construction of badly needed dwellings in numbers that are capable of meeting the prevailing housing needs of the state’s population. The Times studiously ignores the cold fact that if a municipality zones land for commercial uses that will accommodate, say, 20,000 workers, and then zones land as residential for only 5000 people, all you do is guarantee a housing shortage and its economic Siamese twin, a steep and rapid rise in home prices and rents.

But why are the California land-use regulators doing that? We see two answers to that question. First, it’s the NIMBY phenomenon — existing homeowners have got theirs and they now mean to keep things that way, as home prices and rents keep soaring, transforming too many existing homeowners into paper millionaires. Second, cities yield to NIMBY demands because they can. California courts, instead of serving their traditional role as a restraining force that keeps regulations and government conduct reasonable, or even constitutional, rubber-stamp whatever comes out of city planning and zoning departments. As Richard Babcock, the late dean of the American land-use bar put it in one of his books, “In California, the courts have elevated government arrogance to an art form.” And so they have.

So it’s hardly surprising that more and more Californians are selling their suburban homes for a half a mil or so (now the median price of a Golden State home) and head out to where the grass is greener and the living more lucrative.

What happens now? We can’t really say because we follow the wisdom of Yogi Berra who said, “Prediction is very difficult. Especially about the future.” So there is nothing to do but to wait and see how it all turns out. But to quote the phrase of Gretchen Morgenson, our favorite New York Times financial reporter, predicting the 2008 bursting of the real estate bubble, “It won’t be pretty.”

Remember Justice Clark, the Prophet

The good book tells us that a prophet is without honor in his own country, but he is still a prophet. A prime example of that verity can be found in the aftermath of the California Supreme Court’s decision in Agins v. City of Tiburon, 24 Cal.3d 266 (1979). There, the court’s majority held that (notwithstanding the U.S. Supreme Court’s earlier decisions to the contrary), there would now be no such thing as a regulatory taking of property in California. An aggrieved owner’s remedy for confiscatory regulations would no longer be the just compensation specified in the Fifth Amendment. The only remedy would now be a petition for a writ of mandate invalidating the offending regulation, or perhaps declaratory relief where the unconstitutionality of the regulation appeared on its face. But no compensation. Needless to say, that message of extremism in land regulation was received in city halls across the state: would-be builders were now fair game.

The Agins holding was at first upheld by the U.S. Supreme Court on other grounds (lack of ripeness), but in 1978 it was expressly overruled in First English etc. Church v. County of Los Angeles, 482 U.S. 304 (1987) which held that the California Supreme Court had decided Agins incorrectly. That much is no news for takings law mavens. But in addition to the Agins majority opinion, there was a dissent by Justice William P. Clark, Jr.. In addition to disagreeing with the majority’s substantive holding on remedies, he also gave us a glimpse of the future. He predicted that if judicially tolerated, the kind of extreme land-use regulations exemplified by Agins would lead to a housing disaster in California.

As Clark put it, “Perhaps of greater concern is the consequence that Tiburon — and many other governmental agencies enacting similar land use plans — will price properties within their control out of reach of most people. Only the most wealthy will be able to afford purchase of and construction on lands in such areas. The environment which Tiburon seeks to preserve will disproportionately benefit that wealthy landowner, whose home will be surrounded by open space, unobstructed view and unpolluted atmosphere.” 24 Cal. 3d 283-284.

Justice Clark wrote in 1979, and the passage of time has proven him right – the California Agins majority holding was expressly overruled by the U.S. Supreme Court in 1987 – and Clark’s economic prediction has come true as well. According to Zillow, during the elapsed time, even with the 2008 recession, the median price of a California home soared to $585,000. And housing prices in disfavored inland areas are also moving up dramatically – as I write, the Los Angeles Times reports that in Stockton, home prices have risen by 92% in the past five years. Median homes in San Francisco have gone over the top — literally and figuratively — and now go for over $1,000,000. And remember, “median” means that half the homes in “Baghdad-by-the Bay” now go for more than a million dollars apiece.

Two Presidential Commissions on Housing studied the problem and concluded that excessive cost of regulation and selfish demands of NIMBY suburbanites, in which local regulators acquiesce, lie at the root of California’s dizzying housing costs. Things have come to such a state that even the proposed construction of as few as three small, single-family houses in a residential area can become a protracted litigational nightmare; Conor Dougherty, Getting to Yes on Nimby Street, N.Y. Times, Dec. 1, 2017, Sunday Business Sec. p.1. And it took 30 years and hundreds of thousands of dollars in municipal fees for the unfortunate Bonnie Agins to get permission to build three homes on her 5-acre parcel.

But what about the legislature? Oh, it passes seemingly pertinent laws said to address the problem, but actually do not accomplish much. Land-use and housing regulations are administrated locally, and as a practical matter state legislation does not carry much weight there. The latest batch of legislation is advertised as a solution to our housing crisis; it imposes new taxes on real estate transactions, which will inevitably increase overall housing costs. In other words, the legislature cannot repeal the law of supply and demand. Michael M. Berger said it all in one of his columns in this newspaper when he characterized such legislative efforts as All Yak, No Shack. Daily Journal, March 2, 2005.

What is unfolding in California are the harsh effects of the laws of economics, and of an unspoken policy choice by local governments and courts to limit population growth by using harshly restrictive land-use regulations that drive housing prices above most people’s ability to buy. One result is a growing homeless population. All this fattens the home equities of existing home owners (read, local voters), and increasingly drives ordinary folks to migrate to other states. In North Carolina, for example, to which members of my family have migrated, you can buy a 3000 square foot, four-bedroom suburban home on a sizable plot of land, for about $250,000. So you can sell your half-million dollar California shack, move to a nice Charlotte suburb, buy a home free and clear, and still stash a quarter million dollars as a kitty for your retirement. Sounds like an economic no-brainer, and many departing Californians agree.

But be careful. For if you like living in the California foreshadowed by Justice Clark almost 40 years ago, where home price trends are set by appetites of conspicuously consuming, big-buck techies and movie folks, you may get what you wish for. Actually, you are in the process of getting it, ready or not, so enjoy it if you can.

This post appeared as a column in the Los Angeles Daily Journal on 12/6/17