Category: Bubble

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

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. This is good news if you’re looking to sell a property within Los Angeles, as it means you could be looking at making a nice profit on your home. Looking at companies such as Get Fair Home Offers could also enable you to sell your house quickly and at a price you’re comfortable with, Get Fair Home Offers is a trusted company that buys Los Angeles homes for cash if you’re interested!

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.”