It isn’t every day that the lefty Los Angeles Times editorial page sings in harmony with its conservative Wall Street Journal counterpart. On March 13th, both these journalistic biggies ran op-ed pieces on the decline of California. See Bradley Schiller, California, a Bad Bet For Business, L.A. Times, March 13, 2012, at p. A11, and Michael J. Boskin and John F Cogan, California’s Greek Tragedy, Wall Street Jour., March 13, 2012, at p. A13.
Both opinion pieces round up the usual suspects: High taxes, a fiscally irrational legislature, an oppressive regulatory climate, unaffordable government social programs, a business-hostile, time and money-consuming bureaucracy, overreaching public employee unions, cultural and linguistic tensions (California is now 37% Hispanic and 13% Asian — which adds up to one-half of the state’s population), etc., etc. There is merit to being concerned about all these factors but something big is missing from this picture. Housing cost.
As we have had occasion to observe in our occasional posts, California housing costs are way higher than those in other states, whereas the median California income ($42,578), is a mere $2633 higher than the national average ($39,945), which doesn’t begin to take care of the additional cost of local housing. And by using the phrase “cost of housing” we don’t mean to evoke flossy images of Beverly Hills or Rancho Palos Verdes. Go to Google, and type in “homes for sale in Burbank” and see what you get. Why Burbank? Because it’s an ordinary suburban community in the East San Fernando Valley, we live there, and we know first hand that it is an old, middle to lower-middle class community whose housing stock largely consists of decades-old, small, two bedroom houses well below 2000 square feet — 1500 or less is usually more like it. Then check out what is for sale and for how much, and you’ll get the message. And don’t cheat by looking at the cluster of more recently built million-dollar homes way up in the hills above Burbank, although if you do, that will only make our point in spades; who the hell would want to pay over a million bucks to live in the boondocks of Burbank?
On top of that, the latest dispatches indicate that with fewer people buying homes and more people losing homes by foreclosure, what you get is pressure on the rental market. See Alejandro Lazo, Rising Rents May Signal a Recovery, L.A. Times, March 13, 2012, at p. B1. That headline tries to put a positive spin on things but it does not represent current reality. A friend moved out here from the Southeast recently (where he lived in a four-bedroom home in one of the best suburbs of Charlotte), and we have been watching his travails in trying to find a place to live, only to discover that around here $400,000+ gets you a home with all the charm and grandeur of a chicken coop, in a downscale neighborhood, and that it takes about two grand per month to rent a conveniently located, if downscale two-bedroom apartment. This isn’t good folks.
All of which, put together, explains why Californians, particularly gringos, are leaving the state in high numbers that would be even higher if it were possible for them to sell their homes in the slow California market, without losing their shirts.
Afterthought. And why are California homes overpriced even now? How did they get to price levels so high that they remain unaffordable even after the “bubble” popped? Read Chapter 6 of Professor William A. Fischel’s 1995 book REGULATORY TAKINGS: LAW, ECONOMICS AND POLITICS (Harvard U. Press), which tells the story of California’s excessive land-use regulatory climate and its impact on housing prices, and of the California courts that never hesitate to uphold extreme land-use regulations, no matter what. As the nation’s erstwhile dean of the land-use bar, the late Richard Babcock of Chicago once put it: “In California, the courts have elevated government arrogance to an art form.”