But perhaps that crisis sent a sufficient number of power players to school and we've entered a new stretch where the system can quarantine the viruses that plummet values through the crawlspace. Hopefully the financial system's hijinks aren't cooking some new ones that few will recognize.
For now we have a shortage of inventory combined with persisting demand, the number of motivated buyers to a great extent helping to deplete the stocks. This is the kind of potent convergence the Econ 101 textbooks sell as the product of market freedom. There are apparently enough buyers out there who believe that what they purchase will rise in value sufficiently to warrant the investment over at least the durable short term.
In theory this condition shouldn't last too long. As more and more players take advantage of the inflation, build new units or convert old ones to condos, the increased supplies should put downward pressure on prices. Plus the self-interested purchasers and speculators can sense when the limit is being reached and won't continue to shell out the big bucks for properties that will likely go for less in the not too distant future. And their hesitations can spawn the downward trend, even lead to a spiral. Sell-offs can begin to breed sell-offs faster than the feral rabbit population at City College replaces itself.
Just as high property values are a godsend of sorts, manna from the heavenly cathedrals of finance that can motor more of us into the middle class and above, their evaporation also leads to greater opportunities for many. Downward market corrections are the mother of speculative invention. They beget the cash for the next equity stash. Periods of declining value are necessary to spur the next round of bargains. It's all about being prepared to dump property at the right time and wait for the market to fall far enough to spend the windfall and clean up at the fire sales and foreclosure auctions. But not everyone can wait and play property flipper. You have to have a pretty good stash to begin with.
The downside to the market correction that enables this opportunism is that once the spiraling commences a financial tornado rips through the system, erasing jobs and assets overnight. Innocent victims pay with their lives.
Fortunes were made after the 2008 crash but mostly for the already endowed. Small investors who entered the market just before this traumatic event had a difficult time surviving it, thanks to the Obama-era policies that mostly bailed out big banks. But those fortunate enough to weather that storm have also reaped gains. Many of these took out loans during the Bush years when interest-only and no-doc loans were there for the taking, and down payments were waived.
These policies were the product of the deregulation of the financial industry that followed the repeal of Glass Steagall in the late 90s, the legislation passed during the Depression to regulate the financial industry and prevent another crash. This was pushed by both Democrats and Republicans who claimed there were sufficient safeguards in the system to prevent another financial crisis. Banks then loosened their requirements and expanded their business, giving more of the minimally-endowed the chance to take the risk themselves and access the American property dream.
Without that post-2008 crisis these policies would likely have expanded middle class home ownership. Since bank policies are always restrictive for first-time home owners, and programs to assist them have been seriously eroded since the early 80s wave of anti-government fervor, these years were a boon for many. The argument that it is the excessive, risky borrowing these policies endorsed that led to this crisis, the growing accumulation of defaulted loans imploding the system, has become the official storyline, but masses of aspiring seekers of the American Dream were clearly robo-signed out of it. The loan-terms were in many cases impossible to fulfill even without the recession conditions.
Returning to today, it's clear that property ownership in urban California and especially in places along the ocean like here, can vault the fortunate over the obstacles of a low-wage, stagnant economy. You can be an out-of-work musician or struggling artist in dire straits but if you can get the man with the means to extend a loan there'll be money for nothing down the road and the checks will be free.
Getting that accomplished now, however, is becoming very difficult. Even though the banking system has been stabilized, we've certainly not returned to the post-Glass Steagall-repeal climate with interest-only and no-doc loans and zero downs. Dodd-Frank was the signature legislation passed in the early Obama administration, owned by the Democrats, that was meant to restore order. And it obviously did that. It mandated that banks keep more substantial reserves on hand to protect them against runs should another crisis ensue since failures spawn failures in a devastating domino effect.
But many have wondered if the price paid for this necessary restoration hasn't been too severe. The Dodd-Frank rules have especially burdened small and community banks according to Ellen Brown of the Public Banking Institute, forcing many to fail and encouraging the large banks to gobble them up, making the too-big-to-fail institutions even bigger and more unaccountable than ever.
Another unfortunate result has been the income-to-debt ratios that banks must impose on loan applicants. These are well beyond playing-it-safe, according to Tracy Lopez of Wescom Credit Union, hardly a fan of reckless deregulation. This has prevented them from issuing loans to members they consider very good risks, and negatively impacted its balance sheet. Dodd-Frank has not been the panacea for the lower and middle class that many have claimed. Many who have dutifully made their payments over the years now find themselves unable to refinance and forced to sell as the interest rates keep rising. The main beneficiaries of Dodd-Frank are those with income considerably beyond what's necessary to make payments; those who have little need of corrective legislation. This issue has forced the current Congress, with the Republicans in the lead, to address this imbalance. It may soon eliminate some of Dodd-Frank's restrictions.
Where does this leave the non-propertied here, many of whom are having to fork over an ever greater share of their incomes to landlords, or staying one step ahead of the process servers (a busy breed these days) while they scope out the city for the scarcely better deal. The fortunate must believe all boats rise together on the same wave of prosperity, but the asset-less world has not participated in the boom. Wages have remained stagnant across the land for a couple generations thanks to the weakening of unions, deindustrialization and the outsourcing and temping of jobs. There are some signs in the last jobs report that wage levels are rising but it is likely too little too late.
Renters of course get hit the hardest in times of recession when many of the most vulnerable and wage-dependent lose their jobs and can't meet their obligations. They get evicted or move on and temporarily join the transient population. The spike in the number of empty rental-units stabilizes rents by default, benefiting those fortunate enough to secure employment. That's not to say that property owners evade foreclosures during such unfortunate times.
In boom times evictions should markedly decline. Do most owners of inflated properties really need more? Why can't they pass on their benefits to those who help make them a profit, filter it down? Obviously, there are mom-and-pop landlords whose financial situations are not as favorable.
When excess breeds excess, rent control ordinances are necessary to stabilize the community. The rise of rent control in California in the late 70s was the result of an astronomical increase in property values that began around 1973. By the end of the decade properties were worth significantly more than they were at the beginning. The resulting increased appraisal of taxes made properties unaffordable and forced many to abandon them. Landlords passed on much if not all of these increases to tenants, spiking an eviction epidemic.
This of course led to a referendum that froze taxes in the form of Prop 13 in 1978, a law that is still secure. Commercial property was eventually included through an exemption loophole that is being perennially challenged in the courts. The passage of rent control laws in various cities after that was necessary despite this freeze since values continued to spike and renters continued to experience reversals. The ordinances in Santa Monica and West Hollywood, for example, brought stability to those communities.
A rent control ordinance might be on the local ballot here this Fall if 27,000 signatures are collected by the RentControlNow Coalition by July 30th. It looks like they will get them. The resistance to it from landlords, especially the smaller ones who could be hurt by controls on rents, is vigorous. Many claim they will be unable to survive without the "free" market.
But perhaps Long Beach's wealth of enlightened property-owning citizens will do the right thing and restrain their legal mandates, and above all face the fact that the housing market is far from free. Maybe controls will become unnecessary. Long Beach will be an example for the nation's evolving capitalism, showing how the renting economy can be harmonized with the propertyowning economy...
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|Title Annotation:||LB HOUSINGI|
|Date:||Mar 22, 2018|
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