LA's Housing Crisis: A System Built for Profit, Not People

THE VIEW FROM HERE - Over the decades, the Los Angeles City Council and Mayors have followed the maxim to keep voters “bare foot and pregnant.”  This philosophy recapitulates keeping women in their place, e.g. the bedroom and kitchen, without agency.  Agency means that a person has the information, rights, and power to act in their own best interests.  Wall Street and the politicos have created a political economic system in Los Angeles which runs on nonstop lies so that individual Angelenos lack the Agency to act in their own best interests.  As long as Angelenos believe the outright fiction that Los Angeles needs to densify, densify, densify, our wealth will continue to flow up to Wall Street, while Los Angeles’ poverty escalates and the Family Millennials flee. 

Because Family Millennials are society’s primary segment sustaining a consumer economy, the fewer Family Millennials, the weaker the consumer economy.  Similarly, at the low end, as rents increase the poor have no choice but to reduce consumer spending.  Thus, high housing prices and high rents deprive local businesses of billions of dollars, which is instead is funneled upwards to Wall Street. 

The Death of Keynesian Economics is Killing Los Angeles 

No city councilmember, no mayor, no candidate for pubic office has explained the results of the death Keynesian Economics. Both Keynes and Adam Smith (Wealth of Nations 1776) said that the entire economy depends on Willing Sellers and Willing Buyers agreeing on prices.  For example, if Joe agrees to sell his horse to Bob and Bob pays Joe with counterfeit money, Joe was not a Willing seller.  Fraud vitiates consent. Cal Civ Code § 1567 

Before the repeal of the 1932 Glass-Steagall Acts, massive institution-wide frauds were not possible.  Under Glass-Steagall, investment firms had to justify their intended use of the funds they wanted to borrow from third parties, who seldom funded fraudulent scams like the Subprime Fraud which resulted in the Crash of 2008.  Nor, would lenders support the monetization of housing in Los Angeles and elsewhere.  Independent lenders have the wider society objective to stop frauds since the market system needs “symmetrical information.”  When only the Wall Street side has accurate data and buyers are constantly fed falsehoods, buyers are no longer Willing.  They become Duped Saps. 

The monetization of housing allowed Wall Street to buy up low end housing subject to rent control and turn those projects into luxury condos and apartments.  Because poor people have less money to pay rent, apartment owners who rent to the poor earn less rental income than owners of luxury units.  On the other hand, owners of old RSO units have lower costs.  If they have not already paid off their mortgages, their monthly payments, which started a decade earlier, are much less than mortgage payments for owners of new luxury units.  When there is no great demand to buy RSO properties, owners units are motivated to keep their properties in decent condition.  When Wall Street corruption takes over, then the demand for RSO units skyrockets and owners are motivated to sell and to also stop all maintenance to reduce their costs until a developer buys them out.  Developers tear down the old RSO units, and construct larger fancier projects aimed at the wealthy.  Developers did not invent the economic truism, “Buy Low, Sell High.” 

Wall Street, however, sees the chance to exchange old RSO projects which pay little or no mortgages for new fancy non-RSO units which carry heavy mortgages whose income stream will last for 30 years.  Also, the more density on a plot of land, the more rental income. Thus, densification results in higher land prices for nearby properties.  When the transformation of RSO complexes for new complexes is slow, society can absorb the resulting homelessness.  When, however, Wall Street monetizes housing and it only cares about is how fast money it can extract,  purchase and destruction of ROS units accelerates creating a rapid and huge dumping of poor people on the streets which becomes the Homeless Crisis.  If Wall Street still had to raise capital from outside investors, those investors would have foreseen that developers were exchanging low end house for higher end far beyond the demand.   In brief, any deficiency in housing was not caused by failure to build but by the rash mass destruction RSO units. 

An abrupt serious decrease in supply will increase costs.  (When oil supply falls, prices rise.)  Lack of building didd not cause homelessness.  90% of people we call homeless had homes until developers tore down the homes.  Meanwhile, the new projects had high vacancy rates (above 5%).  Densification of DTLA high rises shows what happens when construction results in a glut, bankruptcies and Graffiti Towers. 

The Evil of Spot Zoning (The Basis of SB 79) 

Another tool of monetization is Spot Zoning which allows developments in residential areas.   Developers plan to earn income from their projects, while families plan to live in their homes. Developers outbid families for detached homes.  The higher developer payments go into the “comps” so that the next to sell their homes want the new higher comp prices.   Spot Zoning added to the upward spiral for home prices which few families could afford. 

In 1970, the average range for a home in what is now the Hollywood Grove HPOZ was between $25,000 to $30,000.00 but today those homes are worth over $1.7 Million.  Since the homes stayed close to their 1970 configuration, they should be worth between $244,000 and $325,000 (av. $284,000).  Assuming good maintenance and upgrades to plumbing and electrical, those costs would not account for the $1.4 higher sales prices.  The difference is the persistent monetization of housing as a product.   

This price increase benefits the homeowners who bought in 1970, but it prices new Family Millennials out of the market.  Because the end of Glass-Steagall not allowed Wall Street to monetize housing, Family Millennials are leaving LA.  If the example started in 2000, the average price in 2025 would be $775,000 which is $1 Million less that the current prices in the HG HPOZ.  The $1 Million discrepancy flows up to Wall Street due to higher mortgages. 

SB 79 is based on widespread up-zoning of residental properties within ½ miles of a transit hub and not allowing homeowners to object, which is censorship of Free Speech.  SB 79 is unconstitutional. 

Worse than monetization of housing is DSA’s decommodification of housing  which follows the Pruitt-Igoe  and East Berlin’s post WW II housing strategy.