Man Without Qualities

Friday, November 14, 2003

Good News, Bad News

The good news is that home values are soaring, especially in California: Riverside-San Bernardino, Calif., soared 26.5%, while the Los Angeles area climbed 25.4%.

The bad news is that housing prices in California are soaring by the same amounts - somebody, that is, everybody, has to pay those prices.

If one is a current homeowner who does not need a bigger home, then soaring home prices seem nice. But if one is a first-time home buyer - or one who needs to "trade up" - these soaring prices are a disaster.

California has seriously suppressed new residential construction. For example, throughout pricey Orange County high rise residential construction is not permitted - with very few exceptions, such as senior citizen housing. Los Angeles County - now one of the nation's fastest growing counties - has not permitted a large housing development in many years. The recently approved Newhall Ranch project would add 20,885 homes to the Santa Clarita Valley, and the Tejon Ranch Co. is planning to build 23,000 homes near the Grapevine along the Tehachapi Mountains. But those are small numbers compared to the demand. And even those projects are uncertain and have been long delayed by environmental and other challenges. Another large proposed project recently terminated in the purchase of the land as a conservancy by the state.

One effect of the housing shortage - it is really a crisis for those of modest means, but for some reason that term is not widely used - is that many marginal urban neighborhoods are being "revived" - although bizarre "historical preservation" restraints also restrict this kind of development. For example, is it really the case that almost every 1920's stucco apartment building in Hollywood is of "historical significance?"- Los Angeles says just about that.

Such "revivals" are all very nice, but those "revivals" further obscure the fact that more and more people are not able to afford the kind of housing that a market governed by rules directed at maximizing aggregate welfare (and wealth) would provide. Environmental and historical preservation regulations, especially, are being used by current homeowners to effect a kind of smash-and-grap raid on other people's properties and home ownership possibilities. Other limitations - such as height limitations - further restrict affordable development.

Not surprisingly, rents have also soared in Los Angeles, which recently became the second most expensive city for renters (after San Francisco) in California.

So where are those currently striking supermarket and MTA employees supposed to live? What happens to them if housing prices soar by 25% again next year? Supposedly, those strikes are both mostly occassioned by health care benefit considerations. The Los Angeles Times describes the supermarket stike this way:

The United Food and Commercial Workers union went on strike Oct. 11 after rejecting a contract presented by the management of the parent companies of Albertsons, Ralphs and Vons supermarkets. The union rejected the contract mainly because the various managements want employees to pay 50% of hospital stays, 50% of doctor's visits, 50% for prescriptions and to take a cut in vision and dental.

Those are not insubstantial issues - although one could question the spin in this passage. But I have to wonder whether medical benefit issues are being used as a surrogate for a much wider problem: California is becoming very expensive because of rent-seeking regulation. Housing prices are just one example of that price surge, although a tremendously significant example. Health benefit issues find easier resonance with the media and public than, say, demands for higher wages or a relaxation of construction regulation. So the unions - not surprisingly - are trumpeting health benefit issues. The supermarket companies talk about Walmart, but there is no Walmart at the MTA's door.

But a lot more is going on here.

And if health benefit issues are surrogate issues, it makes a lot more sense that the strikes just drag on and on. Most arguements do drag on if their real, motivating concerns are not being discussed.

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