Sunday, April 22, 2012

California Feudalism

Back in 2000, Thomas Sowell's wonderful Basic Economics: A Common Sense Guide to the Economy was first published. It's seen the publication of three additional editions, with some revising and updating. But in the first edition (remember, this was written before 2000), Sowell spends some time discussing California and the housing boom (bubble). Sowell makes the oh-so-salient point that the restrictions on land use in California--in particular, those of coastal regions like San Francisco and Marin County--were a primary cause of skyrocketing real estate prices.

And this, by the way, indicates something often ignored or not understood by people generalizing about the housing bubble--or housing crisis--in the United States: it was initially limited by location. Note that most economists, politicians, pundits, and the like talk about the bubble as having started around 2001. But in California--and some other places--it started much earlier. In fact, trouble was already brewing in the California housing industry long before the sub-prime crisis, long before the housing bubble is said to have "burst."

In the years before the nation's bubble burst, the top growth industry in California was the repo industry, as upper class lifestyles financed by dot-com money hit a wall. People were desperate to hold on to their homes--which they had paid through the nose for--and thus assets like luxury cars were the first to go. Not many people recognized this, given that repo numbers are hardly common knowledge. But if the information had been readily available, no doubt many would have seen the coming storm.

But back to Sowell's point, the impact of restrictions on land use in California. Marin County is beautiful. I know people who live there and the open spaces around homes, the roads uncluttered with development, make it a wonderful place to live, to raise a family. If, of course, you can afford it. Because the restrictions on development are severe, people of lesser means simply cannot live in the immediate area, by and large. Even those with what we would call decent jobs--like maybe managing a retail store--don't make nearly enough to buy into the area.

Thus, the majority of people employed at local businesses--even many of the owners of local businesses--don't get to live in the area, with the people they serve on a daily basis. And the area is no urban hub, to be fair, but there are substantial numbers of businesses there to serve the region's quarter of a million or so residents. The restrictions on growth and development mean cheap housing--in the form of apartment complexes and the like--are a no-no. Thus, it's near impossible for the population to grow significantly, if at all.

According to the U.S. Census, Marin County's population grew by just 2% from 2000 to 2010. As one can see by looking at the other data, Marin County is rich, white, and older than the rest of California. Use the Census page to compare your own county of residence with Marin. See how you stack up. Me? I'm in Miami-Dade County. We saw an 11% increase over those same years. And our median income level is half that of Marin County. Here are the key stats for our purposes, though:
Marin County:  
Land area in square miles, 2010            520.31 
Persons per square mile, 2010              485.1
That is one small number--the second one--for a county so close to a major urban center (San Francisco). Loudoun County, Virginia--the richest county in the United States--has a population density of 605.8. Nassau County, New York--another very rich county--has a density of 4704.8! Morris County, New Jersey--also very rich--is at 1069.8. The richest county in Texas--Fort Bend--comes in at 679.5.

There can be some very valid and unavoidable reasons for low population density, of course. But for a nation whose population is growing at a rate of even just 1% a year, room has to be made, where possible. The other counties noted above all had much higher increases than Marin County for the same period, 2000-2010. Fort Bend's was over 65%. Loudoun's was 84%. Yet, Marin County's sits at--again--just over 2%. That's .2% a year. Almost insignificant growth.

The evidence very clearly suggests what Sowell claimed: restrictions on land use and development are being used to maintain a lifestyle for the rich, white, older residents of Marin County. Middle and lower class peoples are being kept out, except when they are needed for work. And not-so-oddly, Marin County is a liberal and Democrat stronghold.

This situation is not limited to Marin County, alone, in California. But it would appear there are consequences for maintaining such limiting structures. According to Joel Kotkin, many young families have had enough of the gatekeeper mentality of California's wealthy elitists:
Nearly four million more people have left the Golden State in the last two decades than have come from other states. This is a sharp reversal from the 1980s, when 100,000 more Americans were settling in California each year than were leaving. According to Mr. Kotkin, most of those leaving are between the ages of 5 and 14 or 34 to 45. In other words, young families...
As a result, California is turning into a two-and-a-half-class society. On top are the "entrenched incumbents" who inherited their wealth or came to California early and made their money. Then there's a shrunken middle class of public employees and, miles below, a permanent welfare class. As it stands today, about 40% of Californians don't pay any income tax and a quarter are on Medicaid.
In California, you're an aristocrat, you work for the State, or you're a peasant. There's not much else, these days. Yet, amazingly, California is the de facto capital of liberals and progressives, particularly in those regions--like Marin County--that so typify this class system. It remains a lock-solid "Blue State," an easy win in the column of the Democrats for Presidential and Senate elections. And that begs the question: what are people smoking out there?

Cheers, all.