EXPOSES NEIGHBORHOOD COUNCIL INFLUENCE—(Editor’s note: We decided to re-post this possible pay-for-play eye-opener for a couple of reasons. First, it’s a CityWatch kind of story and we wanted to make sure you didn’t miss it. We think that the flow of big dollars from developers to elected officials voting on their projects is a serious ethics violation and should be a violation of the law. And finally, we think the attention paid by Mr. Caruso to the Mid City Community Council was at the least interesting if not extraordinary. Neighborhood councils celebrate the 15^th anniversary of certification of LA’s council this month. NCs have come a long way.)

Real estate developer Rick Caruso has been a reliable benefactor at Los Angeles City Hall, giving donations big and small to the city’s politicians and their pet causes.

Caruso, known for the Grove and other shopping destinations, has donated to all but one of the city’s 17 elected officials. His charitable foundation provided $125,000 to a nonprofit set up by Mayor Eric Garcetti. And his companies recently gave $200,000 to the campaign for Measure M, the sales tax hike Garcetti championed in last month’s election.

Add in money from his employees and his family members, and Caruso-affiliated donors have provided more than $476,000 to the city’s elected officials and their initiatives over the past five years, according to contribution reports.

Now, Caruso wants Garcetti and the council to approve a 20-story residential tower on La Cienega Boulevard, on a site where new buildings are currently limited to a height of 45 feet. Opponents of the project view Caruso’s donations with alarm, saying the steady stream of contributions has undermined their confidence in the city’s planning process.

“I'm sorry, but that’s a lot of money,” said Keith Nakata, a foe of the project who lives roughly five blocks from the site. “That is obviously something that the community cannot compete against.” (Read the rest.)   

-cw

PLATKIN ON PLANNING-In previous CityWatch articles I have spelled out the many long-term and harmful consequences of bad planning. Yet, in Los Angeles truly bad city planning just keeps rolling along, in particular, repeated cases of City Hall decision-makers overriding legally adopted Community Plans and local zoning through speculator-friendly spot-zoning and spot-planning enabled by campaign contributions. 

While we wait for evidence that this bothers the decision makers, it clearly bothers the engaged public. In fact, this is why Los Angeles has had so many planning-related voter initiatives, lawsuits, and Sacramento legislative directives over the past half century. Furthermore, this push back against bad planning and the Big Real Estate interests behind it will continue as long as “legal corruption” is rooted out. 

To cite but one example, Los Angeles voters overwhelmingly approved Proposition U in 1986 to limit the size of commercial buildings. Now, 30 years later, in March 2017, they can bring Proposition U into the 21^st Century through Proposition S, also called the Neighborhood Integrity Initiative. As frequently discussed at CityWatch, Proposition S will stop most spot-zoning and spot-planning, while also jumpstarting the update of LA’s General Plan, including the 35 Community Plans. 

An excellent example of spot-zoning and spot-planning in the cross hairs of Proposition S is close to where I live. It is the Caruso Affiliated project at 333 S. LaCienega, the site of former Loehman’s discount clothing store. Located at the “Bermuda Triangle” intersection of San Vicente Boulevard, Third Street, Burton Way, and LaCienega, it is one block south of the Beverly Center and one block west of the Cedar-Sinai Hospital. Now under appeal to the City Council, the City Planning Commission has already awarded this project six separate zoning and planning approvals.  If sustained, these bennies would permit the construction of a 240 foot high rise luxury apartment tower on a parcel whose current height limit is 45 feet. While height is certainly a problem with this project, it also has other serious problems that I highlight later in this article. 

But, first let’s examine how this malodorous project bulldozed its way through a City Council office, a neighborhood council, the Department of City Planning, and the City Planning Commission. Part of the answer is heavy lobbying, as described in another CityWatch article, “How Big Real Estate Manufactures Consent.”  But, a second part of their formula is masking the bad planning that pervades this and similar projects with the cheap perfume of “conditions of approval.” In this case, there are nearly 40 pages of approval conditions all neatly folded into this project’s two determinations.  

This is standard practice since nearly every case that the Department of City Planning handles, including those that the City Council later approves through lot specific ordinances, is weighted down by pages of conditions. Having written some of these determinations and read far more, I now believe that their real purpose of these many promises is to gain the support of community groups who do not like specific projects.   

Flaws in Conditions of Approval: There are, however, eight serious flaws in this Big Real Estate tactic, even though it often succeeds in convincing local planning light weights to begrudgingly support a project. 

1)  The conditions cost the developers very little. They are a tiny fraction of the budget for a major project, and I suspect some conditions also qualify as tax credits or deductions, including those that were added as promises to community groups. 

2)  Most of the conditions mitigate a project’s construction and operational impacts. They are, therefore, not true community benefits. Instead their ostensible role is to buy off opponents to controversial projects. 

3)  A project’s developer and his/her tenants also benefit from conditions to offer on and off-site improvements, such as tree planting.  The improvements spruce up projects, and therefore make them more appealing to potential tenants. 

4)  Some conditioned improvements, such as quasi-public fountains, can be used to offset L.A.’s one percent Public Arts fee.  

5)  Off-site improvements promised through conditions are minimal. They do not address the real infrastructure deficits in most of Los Angeles, including but hardly limited to sub-standard street trees, crumbling sidewalks, missing ADA curb cuts, dangerous pot-holes, thirsty grass in yards and parks, decrepit alleys, dangerous overhead wires, unsightly supergraphics and billboards, lax code enforcement, old and failing water mains, missing bicycle infrastructure, slow internet, and unreliable electric power. 

6) The only conditions that City Planning actually monitors are contained in alcohol permits (CUB’s). As for more powerful discretionary actions adopted through City Council ordinances -- such as Zone Changes and General Plan Amendments -- City Planning has no monitoring staff or procedures. 

7)  The Los Angeles Department of Building and Safety (LADBS) also does not have any proactive procedures for enforcing these hundreds of conditions for hundreds of cases.  Like all code violations, it is up to local communities to submit complaints that approval conditions have not been complied with. But, as many Angelinos have slowly learned, these complaints are frequently ignored. In fact, this is why experienced residents resort to City Council interventions in order to get LADBS to finally move on code violations. 

8) Once a building is permitted and completed, there are no consequences for unmet conditions, such on and off-site improvements. In Los Angeles, buildings are not partially or wholly demolished when they fail to meet the building code, zoning code, or compliance with the conditions imposed on all discretionary zoning and planning actions. 

Considering these eight gaping loopholes, my conclusion is that the real purpose of conditions of approval is to assuage community opponents by offering mitigation to their complaints about major projects. It is to get them to approve an otherwise bad project when measured against legally adopted General Plan elements, Height Districts, and zones. 

In my next City Watch column, I will address explain why projects like 333 S. LaCienega are truly awful city planning. For now suffice it to say the following: 

• It sets an ominous precedent for future General Plan Amendments, Zone Changes, and Height District Changes.  If this project is successful, similar requests to build other new high-rise luxury projects in this area will methodically appear. 

• It does not comply with the legally required findings that the project be consistent with the scale and character of the neighborhood. As for scale, the projects will be 240 feet high and have a Floor Area Ratio (i.e., mass) of 6.0 on a lot where the height is restricted to 45 feet and the mass of a building is limited to an FAR of 1.5. As for compatible character, the proposed tower has a nautical architectural style, similar to a cruise ship, while most of the surrounding residential buildings have Spanish Revival design features. 

• It does not comply with the City Charter Section 555, which is clear that the City Council can adopt legislative actions, such as General Plan Amendments, “… provided that the part or area involved has significant social, economic or physical identity.” A parcel that is bequeathed spot-zoning because it allows a more lucrative project hardly has a distinctive and significant identify. 

• It has not demonstrated that there is such a shortage of lots zone for luxury apartments in the Wilshire Community Plan area that the City Council should require adopted zone changes to meet this need. 

• It purports to be a transit oriented project, but the nearest mass transit station – at Wilshire and LaCienega-- will be more than a half-mile from the tower, and the transit station will not open up until 2023. Furthermore, the proposed project has 24/7 on-call, chauffer driven luxury car service for all tenants, making it high unlikely that these high flyers will walk a half-mile to hop on the Purple Line subway to travel 

• It is located at one of the most congested intersections in Los Angeles. Called the Bermuda Triangle, the site is the convergence point of San Vicente Boulevard, Third Street, LaCienega Boulevard, and Burton Way. No combination of street signs, signal lights, and traffic officers have ever managed to keep this intersection clear. 

• It claims it needs large amounts of additional height and mass economic incentives to add new pedestrian oriented features, even though this part of Los Angeles and Beverly Hills has many pedestrian-oriented projects and corridors, with buildings that conform to plans and zones. 

(Dick Platkin is a veteran city planner. He reports on local planning issues for CityWatch, and he welcomes comments and questions at [email protected].) Prepped for CityWatch by Linda Abrams.

NOW AND FUTURE DRUG POLICY-As 2016 comes to a tumultuous end, we look back on the year in drugs and drug policy. It’s definitely a mixed bag, with some major victories for drug reform, especially marijuana legalization, but also some major challenges, especially around heroin and prescription opioids, and the threat of things taking a turn for the worse next year.

Here are the six biggest stories from the year on drugs: 

1. Marijuana legalization wins big. 

Pot legalization initiatives won in California, Maine, Massachusetts, and Nevada, losing only in Arizona. These weren’t the first states to do so -- Colorado and Washington led the way in 2012, with Alaska, Oregon and Washington, D.C., following in 2014 -- but in one fell swoop, states with a combined population of nearly 50 million people just freed the weed. Add in the earlier states, and we’re now talking about around 67 million people, or more than one-fifth of the national population. 

The question is, where does marijuana win next? We won’t see state legalization initiatives until 2018 (and the conventional wisdom is to wait for the higher-turnout 2020 presidential election year), and most of the low-hanging fruit in terms of initiative states has been harvested, but activists in Michigan came this close to qualifying for the ballot this year and are raring to go again. In the meantime, there are the state legislatures. When AlterNet looked into the crystal ball a few weeks ago, the best bets looked like Connecticut, Maryland, New Mexico, Rhode Island, and Vermont. 

2. Medical marijuana wins big. 

Medical marijuana is even more popular than legal weed, and it went four-for-four at the ballot box in November, adding Arkansas, Florida, Montana and North Dakota to the list of full-blown medical marijuana states. That makes 28 states -- more than half the country -- that allow medical marijuana, along with another dozen or so red states that have passed limited CBD-only medical marijuana laws as a sop to public opinion. 

It’s worth noting that Montana is a special case. Voters there approved medical marijuana in 2004, only to see a Republican-dominated state legislature gut the program in 2011. The initiative approved by voters this year reinstates that program, and shuttered dispensaries are now set to reopen. 

The increasing acceptance of medical marijuana is going to make it that much harder for the DEA or the Trump administration to balk at reclassifying marijuana away from Schedule I, which is supposedly reserved for dangerous substances with no medical uses. It may also, along with the growing number of legal pot states, provide the necessary impetus to changing federal banking laws to allow pot businesses to behave like normal businesses. 

3. Republicans take control in Washington. 

The Trump victory last month and looming Republican control of both houses of Congress has profound drug policy implications, for everything from legal marijuana to funding for needle exchange programs to sentencing policy to the border and foreign policy and beyond. Early Trump cabinet picks, such as Alabama Sen. Jeff Sessions (R) to lead the Justice Department, are ominous for progressive drug reform, but as with many other policy spheres, what Trump will actually do is a big unknown. It’s probably safe to say that any harm reduction programs requiring federal funding or approval are in danger, that any further sentencing reforms are unlikely and that any federal spending for mental health and substance abuse treatment will face an uphill battle. But the cops will probably get more money. 

The really big question mark is around pot policy. Trump has signaled he’s okay with letting the states experiment, but Sessions is one of the most retrograde drug warriors in Washington. Time will tell, but in the meantime, the marijuana industry is on tenterhooks and respect for the will of voters in pot legal states and even medical marijuana states is an open question. 

4. The opioid epidemic continues. 

Just as the year comes to an end, the CDC announced that opioid overdose deaths last year had topped 33,000, and with 12,000 heroin overdoses, junk had overtaken gunplay as a leading cause of death. 

The crisis has provoked numerous responses, at both the state and the federal levels, some good, and some not. Just this month, Congress approved a billion dollars in opioid treatment and prevention programs. The overdose epidemic has also prompted the loosening of access to the opioid overdose reversal drug naloxone and prodded ongoing efforts to embrace more harm reduction approaches, such as supervised injection sites. 

On the other hand, prosecutors in states across the country have taken to charging those who sell opioids (prescription or otherwise) to people who die of overdose with murder, more intrusive and privacy-invading prescription monitoring programs have been established, and the tightening of the screws on opioid prescriptions is leaving some chronic pain sufferers in the lurch and leading others to seek out opioids on the black market. 

5. Obama commutes more than 1,000 drug war sentences. 

In a bid to undo some of the most egregious excesses of the drug war, President Obama has now cut the sentences of and freed more than 1,000 people sentenced under the harsh laws of the 1980s, particularly the racially biased crack cocaine laws, who have already served more time than they would have if sentenced under current laws passed during the Obama administration. He has commuted more sentences in a single year than any president in history and more sentences than the last 11 presidents combined. 

The commutations come under a program announced by former Attorney General Eric Holder, who encouraged drug war prisoners to apply for them. The bad news is that the clock is going to run out before Obama has a chance to deal with thousands of pending applications backlogged in the Office of the Pardons Attorney. The good news is that he still has six weeks to issue more commutations and free more drug war prisoners. 

6. DEA gets a wakeup call when it tries to ban kratom. 

Derived from a Southeast Asian tree, kratom has become popular as an unregulated alternative to opioids for relaxation and pain relief, as well as withdrawal from opioids. It has very low overdose potential compared to other opioids and has become a go-to drug for hundreds of thousands or even millions of people. 

Perturbed by its rising popularity, the DEA moved in late summer to use its emergency scheduling powers to ban kratom, but was hit with an unprecedented buzzsaw of opposition from kratom users, scientists, researchers, and even Republican senators like Orrin Hatch (R-UT), who authored and encouraged his colleagues to sign a letter to the DEA asking the agency to postpone its planned scheduling. 

The DEA backed off -- but didn’t back down -- in October, announcing it was shelving its ban plan for now and instead opening a period of public comment. That period ended December 1, but before it did, the agency was inundated with submissions from people opposing the ban. Now, the DEA will factor in that input, as well as formal input from the Food and Drug Administration before making its decision. 

The battle around kratom isn’t over, and the DEA could still ban it in the end, but the whole episode demonstrates how much the ground has shifted under the agency. DEA doesn’t just get its way anymore.

(Phillip Smith writes for AlterNet. This piece was posted most recently at TruthDig.) Prepped for CityWatch by Linda Abrams.

THE REAL COST OF AMERICAN ED--"We could have hundreds of thousands of American seniors living in poverty due to garnished Social Security benefits if this trend continues," said Sen. Claire McCaskill of Montana. The federal government is garnishing Social Security checks to recoup unpaid student debt, leaving thousands of retired or disabled Americans below the poverty line and setting the stage for an even bigger problem, according to a new report. 

The data from the Government Accountability Office (GAO), compiled at the behest of Sens. Claire McCaskill (D-Mo.) and Elizabeth Warren (D-Mass.), showed that people over the age of 50 are the fastest-growing group with student debt, outpacing younger generations -- and compared to younger borrowers, older Americans have "considerably higher rates of default on federal student loans." This leaves them open to having up to 15 percent of their benefit payment withheld, in what's called an "offset."  

In 2015, the GAO reported (pdf), the Department of Education collected about $171 million in defaulted student loan debt through Social Security offsets from 114,000 people, the majority of that from borrowers aged 50 or older and receiving disability benefits. About 38,000 were above age 64, and more than three-quarters of older borrowers took out the loans to cover their own education, rather than to pay for their children's schooling. The typical monthly offset was slightly more than $140. And more than 70 percent of the money collected through offsets went toward interest and fees, as opposed to the loan balance. 

"This report demonstrates just how draconian these Social Security offsets are and how there seems to be a failure at all sorts of levels of this policy," Persis Yu, the director of the Student Loan Borrower Assistance Project at the Boston-based National Consumer Law Center, told MarketWatch. 

Meanwhile, the report states: "Older borrowers who remain in offset may increasingly experience financial hardship. Such is the case for a growing number of older borrowers whose Social Security benefits have fallen below the poverty guideline because the offset threshold is not adjusted for increases in costs of living." 

Indeed, the program -- which itself may be under threat from a Trump administration -- already hands out insufficient benefits, with the GAO noting that "a growing number of these older borrowers already received Social Security benefits below the poverty guideline before offsets further reduced their income." 

As shown in the chart below, this impacts tens of thousands of borrowers: 

In its report on the "disturbing" trend, the Washington Post noted: 

Some people have been granted financial hardship exemptions, while others have successfully applied for permanent disability discharge of their loans through the Education Department. But researchers at the GAO are critical of the agency's byzantine application process that puts borrowers at risk of falling back into garnishment. If people do not submit annual documentation to verify their income, their loans can be reinstated and the cuts can resume. 

In turn, Warren decried the tactics described in the report as "predatory and counterproductive."

"The hard-earned Social Security checks that are the sole source of income for millions of seniors should not be siphoned off to pay interest and fees on student loan debt," she said in a statement. "It's no wonder many Americans don't think Washington works for them: our government is shoving tens of thousands of seniors and people with disabilities into poverty through garnishment every year -- and charging them $15 every month for the privilege -- just so that the Department of Education can collect a little bit more interest and keep boosting the government's student loan profits." 

What's more, with Americans 65 and older seeing their total student loan debt grow by 385 percent since 2005, McCaskill warned that these numbers are merely "the tip of the iceberg of what may be to come." 

"We could have hundreds of thousands of American seniors living in poverty due to garnished Social Security benefits if this trend continues," she said, "and we shouldn't allow that to happen." 

Social Security Works and Student Debt Crisis, two non-profits working on different aspects of the burgeoning crisis laid out in the GAO's report, last year pledged to "always fight in solidarity with each other."

(Deidre Fulton writes for Common Dreams  … where this piece was first posted.) (Photo credit: Kate Gardiner/flickr/cc). Prepped for CityWatch by Linda Abrams.

CONNECTING CALIFORNIA--California is trapped—caught in the dangerous space between two menacingly authoritarian regimes that want to fight each other.

One regime is headquartered in Beijing, and the other is about to take power in Washington D.C. But when viewed from the Golden State, it’s striking how much they have in common.

Both are fervently nationalist, full of military men, and so bellicose they are spooking neighbors and allies. Both, while nodding to public opinion, express open contempt for human rights and undermine faith in elections and the free press. Both promote hatred of minorities (anti-Tibetan and anti-Uighur stances in China; anti-Mexican and anti-Muslim stances in the U.S.).

And both regimes are captained by swaggering men (President Xi Jinping in China; President-elect Donald Trump in U.S.) who tend to their own cults of personality and pose as corruption fighters while using their power to enrich their own families.

Most frighteningly for Californians, both regimes seem to see advantage in escalating conflict with the other. Both leaders have encouraged hatred of the other’s citizens (Xi has embraced ultranationalists who compare American treatment of the Chinese to Hitler’s treatment of the Jews, while Trump has called China a “deceitful culture”). The incoming American administration is threatening to raise tariffs and label China a currency manipulator, actions that would likely start a trade war. The Chinese administration is provoking confrontations in the South China Sea while the new American strongman embraces Taiwan—actions that could start a real war.

All this leaves California with the enormous challenge of navigating U.S.-China tensions in a way that protects our people, our economy, and our values. And that will require tricky diplomacy that doesn’t take sides, for we need to maintain relations with both regimes. After all, we live under the laws of the United States, but are irretrievably linked to China, a vital partner in the trade, culture, technology and education sectors that distinguish California in the world.

A sustained conflict between China and the U.S. could produce all kinds of new restrictions on the flow of money and people, with devastating results for California. Our public universities rely both on federal funds from D.C. and top-dollar, out-of-state tuition fees from Chinese students to subsidize the education of Californians. So any Trump restrictions on foreign visitors—or retaliatory Chinese limits on overseas study and travel—could blow up the University of California’s business model. It also would damage the University of Southern California, the city of L.A.’s largest private sector employer, which heavily recruits Chinese students.

Our state’s signature industries—Silicon Valley and Hollywood—depend on consumers who live under both regimes. And our most promising ventures—from virtual reality and artificial intelligence technologies to major developments (like the San Francisco Shipyards in Hunter’s Point, to just name one)—rely on our ability to bring together manufacturers, investors and technologists from China and the U.S. In a trade war, both regimes could decimate innovation and development with restrictions on foreign investments.

And with both regimes so quick to escalate nationalist rhetoric, it’s quite possible that both Chinese nationals and Chinese Americans in California could become targets of bigotry and hate crimes. Our housing market relies on Chinese buyers, who spend an estimated $9 billion a year on homes here. A backlash against Chinese investors buying homes (and using them only part of the year) could produce discrimination and hurt our housing market, which in turn would damage the already underfunded public schools our taxes support.

How then can California handle such a conflict?

First, by protecting our people (especially Californians of Chinese ancestry) and our institutional connections to China with the same fervor the California government is rallying to protect our undocumented immigrants against Trump’s threats of mass deportations. This California diplomacy will be especially hard given the hyper-sensitivity of the autocrats in Beijing and D.C. to the slightest of slights; just as Trump lashes out at Saturday Night Live parodies, Xi and his loyalists see the Kung Fu Panda films as American warfare against them.

A sustained conflict between China and the U.S. could produce all kinds of new restrictions on the flow of money and people, with devastating results for California.

And, second, by reminding both regimes—in friendly but firm ways—that we are opposed to conflict because the U.S. and China need each other more than they appear willing to acknowledge.

Californians who doubt this would do well to consult John Pomfret’s masterful new book, The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present. Pomfret, an American journalist long posted in China, employs telling details (the tea thrown into Boston Harbor was from Xiamen; an 1860s California attorney general campaigned against Chinese prostitutes while importing his own) to show how profoundly the two countries have shaped one other’s development, and just how vital their relationship has become to the world.

“The two nations have feuded fiercely and frequently, yet, irresistibly and inevitably, they are drawn back to one another,” he writes. “The result is two powers locked in an entangling embrace that neither can quit.”

California’s role in this difficult period should be to tell the story of its own deep ties to China, while serving as a model for a productive relationship, argues Matt Sheehan, author of the forthcoming book Chinafornia: Working with Chinese Investors, Immigrants and Ideas on U.S. Soil.

Sheehan, who also publishes the weekly Chinafornia Newsletter and provides communications consulting for Chinese and U.S. companies, says now is an important time for California officials and businesses to seek out areas of productive cooperation with Chinese counterparts, especially in areas like manufacturing and fighting climate change.

“I think of California as a living laboratory for a more practical, productive version of U.S.-China relations,” he says.

But not all collaborations with China would be helpful. Our technologies companies shouldn’t be aiding the U.S. surveillance state or assisting the Chinese government in suppressing human rights, as Facebook is reportedly doing by developing a newsfeed that would empower censors.

We also shouldn’t play to anti-Chinese prejudice, like some California unions have done in opposing trade agreements and advancing union organizing. One noxious—if ridiculous—example is a current push by the hotel workers’ union to block the sale of the Westin Hotel in Long Beach (where the union has an organizing campaign) to Chinese interests on grounds that it’s so close to that city’s port that Chinese ownership would threaten national security.

One possible model for California’s strategy going forward might be Anson Burlingame, whom President Lincoln dispatched to Beijing to represent the U.S. during the Civil War. Burlingame’s approach, as described by Pomfret, was to commiserate with the Chinese (we have our terrible rebellion with the South, you with the Taipings) as a basis for collaboration. His work ultimately produced the Burlingame Treaty, which banned discrimination against Chinese workers in America, welcomed Chinese students to U.S. educational institutions, and opened the way for Chinese immigrants to become American citizens.

Today, Burlingame’s accomplishments are mostly forgotten, but his name belongs to a highly desirable suburb in the San Francisco Bay Area, a region boasting one of America’s most prosperous populations of Chinese Americans.

(Connecting California Columnist and Editor, Zócalo Public Square … where this column first appeared. Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010).)

-cw

WEALTH FORUMLA, PART ONE-The City of Los Angeles has intentionally destroyed the housing market and the result is devastating the entire city. Here we have a prime example of a City government that has so screwed up the Price System for housing that builders are constructing for a market segment in which there is a glut while ignoring the segment that has a shortage.

Developers have been misled into constructing high-end luxury apartments when the demand for that type of housing is falling. Since the City has a net exodus of Middle Class people over people who come here, more housing is available even if no one builds anything. The slight rise in LA’s population is due to the birth rate being higher than the number of people who move away or die. But newborns do not demand more houses and elderly Baby Boomers already have homes. Since people are not “taking their houses with them,” our housing supply is increasing. 

Housing costs, however, continue to escalate causing more people to move away, especially Family Millennials who should be the Number One segment of the population to stay here and demand more housing. 

Frauds in the Los Angeles Housing Market. 

With Family Millennials leaving in droves, why aren’t housing prices falling instead of constantly rising? What are the frauds that falsely deceive Angelenos into thinking there is a huge demand for housing, when in fact the demand is falling? 

For a short while, it was the securitization of residential rental income, but it appears that this scam was too much like the fraud that caused the Crash of 2008; financial institutions backed out of this folly. 

Although we know the City has been destroying rent-controlled units -- and this fact alone would cause an increase in homelessness, placing upward pressure on rents -- it does not explain the huge increase in the market segment that is over built: higher end apartments. 

While younger Millennials still in the Dorm Room Phase of life have been doubling and tripling up in order to rent over-priced apartments, there has still been a 12% glut of these units, per the City’s own data. Yet, rents have continued to increase between 2013 and 2016. The false reporting of alleged vacancy rates has misled people into believing that there is a housing shortage when there has been none. (In order to accurately report rents, they should have been adjusted “per person.” When three single people chip in to pay for a $2,000 apartment, the rent per person is actually lower than when one person pays $800 per apartment. Thus, on a per person basis, rents can be falling while the “per apartment” rents are increasing.) 

Belief is Stronger than Fact. 

Belief in a housing shortage is another reason for prices to increase year after year while demand decreases. People pay what they believe is the market rate. As in the 2000s, developers have continued to build under the misconception that there has been a housing shortage. 

Rental prices are generally provided by real estate companies motivated to keep rents high. Thus, their rental reports are usually based on what they advertise and not on the actual rents collected. Those who saw “The Big Short” will remember how no one was taking the time to go and actually look at all these new homes. When one guy did, he discovered that they were vacant and some people were buying three, four or five homes in the belief they could be flipped in an eternal up-market. Just as Wall Street made people believe there was a huge demand for homes, landlords have issued statistics that make people believe there is a shortage of apartments due to huge demand. 

The City of Los Angeles is heavy into this fraud. It keeps lying about the fantastic increases in Hollywood’s population. In April 2016, LA issued a report that the Hollywood population had jumped to 206,000 people and cited the Southern Association of Governments (SCAG) as its source. SCAG had no data about Hollywood population. 

Then, in October 2016, the City released an even more mythical figure: Hollywood’s population was 210,511 people at the end of 2015. Wow, that’s a lot of people, but people who had any memory knew that in April 2016 the City had said the population was only 206,000 people. Did the City lose 5,511 people in the first few months of 2016? Of course, since the City’s data is composed of Lies and Myths, no one should expect any of it to make any sense. 

There is nothing new Under the Sun. 

We have seen this phenomenon previously, prior to the Crash of 2008, when housing prices were rapidly increasing faster than the population was growing. Under the classic laws of Supply and Demand, a downturn in Demand generates reduced Supply as builders realize that the prices for which they can sell new homes will soon be substantially less than the cost to produce them. Yet, the housing market boomed in the face of falling demand – just as we see today. 

The boom-bust phases of the business cycle were an immutable fact until John Bernard Keynes wrote his General Theory in 1936. But after fools like Bill Clinton, the U.S. Congress and lastly Obama’s little Timmy Geithner exiled Keynes, we have reverted to the boom-bust phases. 

When the government fails to protect the Price System from fraud, no one knows what anything is worth. After Congress’ and Bill Clinton’s repeal of Glass-Steagall and the legalization of Credit Default Swaps, massive fraud destroyed the Price System for homes. It turned out that demand for houses had been exhausted until we raised the productivity of more Americans. Rather than shift investment so that the middle and lower classes could become wealthier, Wall Street rigged the system so that people falsely believed there was this huge demand for residential housing. 

The residential housing market was similar to a Ponzi scheme in that the fraud required more and more putative home buyers in order to keep the scam afloat. In time, Ponzi-type schemes always end up demanding more buyers than there are people in the universe. 

The Formulas for Wealth. 

One need not know that PV = Rn / (1 + r)n and Ck = Rn / (1 + MEC)n are what I call the Wealth Formulas, (but most economists say “marginal efficiency of capital.”) Despite their formidable look, they simply mean that in order for a business to produce wealth, a business must sell its products for more than it costs to produce them. 

There is one vital addition -- time. Investments generate wealth over time. Thus, an important principle is not to destroy your business while it is still generating wealth. 

Since money is the abstraction by which we figure out what different things are worth, money is the great common denominator of everything a business uses to generate wealth. In other words, if a business person wants to provide for his family, he has to make certain that whatever he makes and sells costs the buyer more than it cost him or her to produce it. This is obvious, and I hope readers are saying, “Duh!” 

The Government’s Duty, LA’s Failure. 

While businessmen use these concepts daily, most people do not realize the government’s fundamental duty to make certain the formulas actually work. While defending the nation from aggression may be the government’s most important foreign function, protecting the economy is its most vital domestic duty. 

The government must make certain that the Price System accurately translates the value of different services and things into dollars. Without a way for a business person to know the value of an employee’s labor, the value of the building he or she rents for his or her business, or the value of the equipment he or she purchases so that his or her employees have the tools to manufacture the product, there is no way for the business person to calculate how much “wealth” his product will generate.  

When no one knows the value of goods and services, then no one wants to loan a business person any money, and he or she does not want to borrow any money lest he or she be unable to repay it. 

A failure of the Price System means poverty. A correctly functioning Price system means wealth. Thus, the role of all governments is to protect the Price System so that people make sound business decisions. 

The City of Los Angeles, however, is guilty of gross dereliction of duty in this regard. 

Conclusion of the ‘Wealth Formulas’ Part I. 

No one can faithfully serve two masters. The government’s proper role is to provide for the common welfare, not to be beholden to one segment of society. For too long, the City of Los Angeles has been owned by real estate developers. Thus, the City has no process to provide for the quality of life of Angelenos. 

The Planning Department has no section on macro-economics. No one knows Adam Smith from Adam West or John Maynard Keynes for a Keys Drug Store. As a result, housing prices are chaotic and we have thousands of units which no one wants, all while suffering a shortage of the type of housing people actually need. The lack of rent-control has swollen the homeless population, while the war against the single-family home has raised prices so high that we have driven away the emerging Middle Class. The situation is beyond critical and there is no reason to forecast any improvement.

(Richard Lee Abrams is a Los Angeles attorney. He can be reached at: [email protected]. Abrams views are his own and do not necessarily reflect the views of CityWatch.) Edited for CityWatch by Linda Abrams.