Category: Bubble

What’s This Cruz-Trump Uproar Over Eminent Domain All About?

Unless you have been out of it lately, you must know that recently, two of the leading Republican presidential candidates — Trump  and Cruz — have been going at each other over, of all things, eminent domain. But it seems to us that the quarrel between those two gents is not exactly a quarrel. Why? Because they are talking about two different things.

Cruz argues that Trump in in favor of a type of crony capitalism whereby the government uses eminent domain to wrest property from unoffending private parties in order to turn it over to other, more favored, private parties, which is not only immoral but also contrary to the “public use” limitation on takings contained in the Fifth Amendment. He points  to an attempt by Trump to obtain the Atlantic City home of a widow named Vera Coking for some extra parking  at one of his hotels, to make limousine parking for heavy rollers at that hotel more convenient. Of course, Trump failed when the stalwart pro bono folks at the Institute for Justice represented Ms. Coking and got the court to disapprove the taking.

Trump responds that eminent domain is great, and that without it we wouldn’t be able to build roads, public buildings, defense installations, etc. True enough. But Trump fails to deal with Cruz’s specific charge that a lot of today’s takings are not for genuine public uses, but for private gain — of which urban redevelopment is a good example. This process takes properties from one class of private owners and turns them over, as it tried to do in the notorious Kelo v. New London case, to favored redevelopers for the latter’s gain on the theory that by a trickle down process the community will gain.

Thus, it seems to us that these two candidates are talking past each other, about two different things. Nobody we know of argues that eminent domain should be abolished — sometimes its use is a matter of public necessity. But taking land for whatever reason from citizen A in order to give it to citizen B for the latter’s profit, is an altogether different story.  See Dean Starkman, Take and Give: Condemnation Is Used to Hand One Business Property of Another, Wall St. Jour., Dec.1, 1998, at p. A1.

Follow up.  For the Washington Post take on this issue, see Katie Zazina, Jan.25, 2016, How an Obscure Legal Issue Has Found Its Way Into the GOP Race.





Bubble, Bubble, . . . (Cont’d.)

Quote from today’s Los Angeles Times:

“A record amount of foreign money is flowing into the U.S. housing market. And the Southland is a prime destination.

“Overseas buyers and new immigrants accounted for $92 billion worth of home purchases in the U.S. in the 12 months ended in March, according to a new study out Tuesday from the National Assn. of Realtors. That’s up 35% from the year before.

“Nearly one-fourth of those purchases came from Chinese buyers. And the place they are looking most [sic] is Southern California.” Tim Logan, Southland Homes Draw Foreign Cash, Los Angeles Times, July 9, 2014, p. B1 (Business Section).

Also see Les Christie, Land Grab: Rich Chinese Are Snapping Up America’s Real Estate,, July 8, 2014, click on

Bubble, Bubble — Is That the Sound of the post-Bubble Bubble beginning to Pop?

This one is serious, folks, so pay attention. As we noted in this blog from time to time, the California housing market has been goosed upward recently by big-buck folks buying up distressed homes cheaply en masse in order to rent them out, and make a buck that way, as well as score some capital gains as the California housing market recovers.

According to today’s L.A. Times — front page, no less — it looks like that gravy train is slowing to a halt. Tim Logan, Investors Curb Home Buying, L.A. Times, March 29, 2014, at p. A1. “Companies are dialing back their purchases of houses to rent out, a signal prices hit a ceiling in SoCal.” The peak  in the numbers of such sales was reached in 2013, when it hit 613 homes being bought by the 20 largest single-family home buyers. This year it came down to 96. Sounds like a peak in numbers has indeed been reached.

But this isn’t all. Markets have this habit whereby they rarely stand still — they either move up or down. And given these figures and the economy generally, we don’t see how home prices can keep going up. Other than the big-boy cash home buyers, we don’t see how Mom-and-Pop homebuyers — the kind of folks who want a nice roof over their heads — can pay more than the current median prices of $385,000. And the other thing about big-buck professional homebuyers, is that they are not likely to sit there and watch the market value of their investments go down — they’ll bail when the market turns hinky and do their best to sell and collect whatever gain they managed to accumulate — and move on to other investments.

Still, some of big-time buyers are still at it. The L.A. Times reports that Starwood Waypoint Residential Trust is still buying homes in Southern California, and just popped $144 million on “a portfolio of 707 homes, ” which according to our calculator comes to $203,000 per home. We should also note that should you be able to find a $200-grand home around here, you wouldn’t want to live in it. So those $200-grand bargains must be in highly disfavored parts of the state.

So stay tuned, and see how it turns out. Being a congenital pessimist we have a hunch that this isn’t going to end well.

Bubble, Buble . . .

Latest dispatch from Southern California tells us that wealthy Chinese — that’s Chinese as in China, not your local Chinatown — are scooping up homes in the better parts of town favored by Chinese buyers. Homes in places like Arcadia, San Marino (a long-time favorite of wealthy Chinese), San Gabriel, Temple City and Walnut, are selling like hot cakes at rapidly rising prices. In parts of Arcadia prices are up 23.7% to 30.5%, and the median price is around $1.32 million. The market is apparently driven by Chinese “flight capital” — money earned in China but being spent in America, rather than remaining at risk in China’s increasingly uncertain economy. E. Scott Reckard and Andrew Khoury, Wealthy Chinese Home Buyers Boost Suburban L.A. Housing Markets, March 24, 2014 — click on,0,5923659.story#axzz2wtgIyIix

But whatever those buyers’ motivation, the Chinese home buying spree is having a ripple effect. This is unsurprising if you reflect on the fact that of late the Chinese have bought 12% of all U.S. homes bought by foreigners, as opposed to only 5% in 2007, the last pre-crash year. Which means that homes in desirable parts of California are becoming increasingly unaffordable to ordinary folks who, even before the Chinese buying spree, have been getting crowded out of the regular home market by well endowed cash buyers and investors. Now, add this Chinese cohort who considers these outlandish home prices to be bargains, and what you get is . . . You tell us.

This isn’t good, folks. It’s nice when your home appreciates as you age, but there is such a thing as too much of a good thing — as we should have learned in 2008.

Bubble, Bubble . . . (Cont’d.)

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.”