HOW CALIFORNIA REAL ESTATE GOT BURNED\Never mind recessions or aerospace slumps - it was the courts.

Byline: Gideon Kanner

LAND-USE law in California is - shall we say? - different. With a few forlorn exceptions, our courts seem to view the old adage that you can't fight City Hall as the law of the land.

It's sort of like medieval England, where only King William the Bastard actually owned land. Now it's the bastards in City Hall, if you know what I mean. These days, everything out here is legal between consenting adults, except developing real estate.

Where else would an emergency effort by beachfront homeowners to save their homes from severe winter tides be deemed unauthorized "development" subject to heavy fines and forced transfer of their beachfront back yards to the state?

Where else would a court rule, even after being reversed by the U.S. Supreme Court, that a builder can be forced to install or pay for "public art" in accordance with the city's artistic taste instead of his own?

And who but a California judge could rule that landowners have to exhaust their administrative remedies before a non-existent government body?

Don't take my word for it. California has become the punching bag for national land-use law experts, including pro-regulation advocates. Thus, Richard Babcock, the late dean of the nation's land-use bar, called California a "bizarre jurisdiction" and wrote in 1985 that, "Practitioners in other states have joked about why a California developer would sue a California community when it would cost a lot less and save much time if he simply slit his throat."

David L. Callies, a law professor at the University of Hawaii, has characterized California law as "onerous" and "draconian." In 1979, MIT planning professor Bernard Frieden devoted a book, "The Environmental Protection Hustle," to the exploration of California's regulatory follies in which nobly sounding land-use regulations were invoked to frustrate development, no matter how proper.

Now, along comes Dartmouth Prof. William A. Fischel, a noted land-use economist, with a new book, "Regulatory Takings: Law, Economics and Politics," in which he demonstrates that outlandish California home prices - even after the recent recession - are a direct result of regulatory excesses and our judiciary's persistent failure to interdict them.

Between 1971 and 1980, the cost of California housing rose five times faster than the rest of the country, and in short order, California had the highest housing prices in the continental United States. In 1960, our housing prices were 27 percent higher than the rest of the country, but in 1970 they were 35 percent higher, and by 1990, the spread reached an astonishing 147 percent.

This was not due to California's higher incomes chasing upscale housing. In 1960, before the price explosion, our incomes were 20 percent higher than the rest of the country. But by 1970 that figure slumped to 9 percent, and by 1980, to a mere 2 percent.

Thus, Californians have had to settle for lower spendable incomes because a larger segment of their wages had to go for housing. Two incomes per family became the sine qua non of home ownership, and having to live on the suburban periphery became the price of home ownership for younger people.

In-migration pressures likewise do not account for this price escalation. In the 1970s, when California housing prices first surged, our population growth was the lowest since the Great Depression. In the 1980s, other Sunbelt states had a higher population growth than California, but none experienced such dramatic housing cost increases.

Nor was it caused by Proposition 13, which lowered property taxes and gave higher prices an impetus when lower home ownership costs were capitalized. The rise in home prices began before Proposition 13 was adopted; its passage was a reaction to high property taxes caused by high home values.

Fischel's conclusion is that by refusing to enforce the rights of landowners, and enthusiastically taking the side of the regulators, California courts created a "regulatory commons" - a de facto transfer of property rights from owners of vacant land to established homeowners whose familiar cries of NIMBY (Not In My Back Yard) became California's watchwords.

Elected municipal politicians came to realize that without the courts to back up landowners' rights, they would have to do the NIMBY's bidding or get voted out of office. Imbued by a publicly-embraced spirit of environmentalism, established suburbanites have thus been able to delay, limit and at times stop development altogether for flimsy reasons or no reason at all.

Successful middle-aged Californians who bought their homes two or three decades ago are thus sitting on high six-figure home equities, and understandably anxious to keep things just the way they are - even if it means hurting their own children, who, barring a lottery win, are unlikely to live in their parents' upscale neighborhoods.

Two presidential commissions studied the problem, in 1982 and 1991, and both concluded that regulatory excesses were at the root of unreasonable housing cost. No one seemed to care, least of all the courts, which neither see, hear or speak evil when it comes to municipal regulatory excesses.

All this, of course, has had a devastating effect on the state's economy. As economist Robert Samuelson put it in 1993: "The five metropolitan areas with the least affordable housing are in California. . . . Here's a major cause of the state's economic crisis: businesses can't easily relocate in California because workers can't afford housing."

And if you blame our condition on the decline of the defense industry, think again. That may have been the catalyst, but the problem is systemic and rooted in California's draconian regulatory regime.

If the defense industry decline were the sole cause of our current woes, we would see civilian high-tech companies expanding into California to grab all that available skilled labor.

Instead, businesses - including high-tech firms - are moving out, taking jobs and payrolls with them. Also, many established California homeowners are selling their homes and moving to other states where their cashed-in equities buy them better homes free and clear, often with a tidy nest egg to spare.

The net migration is outward bound; Californians are voting with their feet.

Though an embryonic recovery has begun, it has a long way to go in spite of journalistic cheerleading that follows every uptick in our economy. The average home on my suburban home turf in the San Fernando Valley still goes for $235,000, and if you shun marginal areas, it's more like a cool quarter of a million.

As long as housing prices remain at such stratospheric levels, we are unlikely to make much headway. Sooner or later we will have to face the fact that there is no such thing as a free lunch, and that the price of our past folly in limiting housing supplies while simultaneously trying to sustain prosperity is the current stubborn recession.

So who lost California? Suspects abound, but Fischels' persuasive analysis makes clear that many of the culprits wore black robes.

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Photo (1--Color) Living in the suburbs the price of home ownership for younger people. (2) From the desert to the shore Everything in California is legal between consenting adults, except developing real estate. Daily News