CORRUPTION WATCH-Los Angeles’ corruptionism will last until LA real estate crashes and burns. A sociological explanation for this might be that “we grow up to become our parents.” Many of LA Millennials’ parents or grandparents were immigrants from the East Coast or other countries, which means their history has been to leave bad conditions rather than stay and fight for reform.
This observation is not new. In his 1970 book, “Exit, Voice, and Loyalty,” Albert O. Hirschman (1915-2012) coined the term of “exit or voice.” When conditions become bad, people either leave or they agitate for improvement. People with immigrant backgrounds hail from families who previously chose to move away, and hence, they are more likely to leave than are people whose families have been there for generations.
As has been noted in CityWatch by observers over the years, Mayor Eric Garcetti’s densification mania has made conditions quite bad, resulting in a significant exodus from LA. The City now has the worst traffic congestion in the entire world (2016 Inrix). Yet, city leaders intentionally make traffic much worse with their insane obsession with devices like road diets, i.e., the removal of travel lanes from major streets. Housing prices are criminally high, and “criminally high” literally means “criminal.” Just ask Judge Richard Fruin who accepts the fact that the Los Angeles City Council is a criminal enterprise, but claims nevertheless that it is above the law. Whatever the council does, according to Judge Fruin, is non-justiciable. The Brown Act no longer applies, making it legal for the City to make its land use decisions in secret.
It's important for Angelenos to know that the courts support the criminal vote trading at City Hall. These crooks have carte blanche to do whatever they want – that is, until the crash! Why would thieves stop looting a store’s cash register if the cops are standing there saying, “take all you want”? If a private developer wants $200 million for his Grand Avenue project, he gets it. If citizens want a park for their children, it’s “no way Jose.” Los Angeles is the most park-poor major city in the United States. As Hirschman related, when people stay and fight corruption, things can improve, but when people exit, the corrupt regime remains in power. Angelenos are leaving.
The Cracks in the Los Angeles Housing Market
Cracks in the housing market first appear in the rental market – the vacancy rate for the new apartments in LA is close to triple the equilibrium level (5%) and the exodus of the Family Millennials has only just begun. Their peak birth year was about 27 years ago. Thus, we have entered the phase where more Millennials will be family-oriented with fewer young Millennials to replace them each year. When they transition from dorm-style living to raising families and building their futures, their priorities change. As the Family Millennials realize that the Los Angeles housing market for families is vastly over-priced, they are exiting the city, which is why the high-end rental market has turned soft.
Rental Markets Crash Easily
Renters are free to flee. Los Angeles homeownership rate has fallen from 52.3 % in 2007 to 47.8 in September 2016 (CurbedLA, September 2016). Worse yet, the Millennials’ rate of home ownership is less than 18% (CurbedLA, June 27, 2017). Thus, over 80% of millennials are free to move on a month’s notice. Eighty percent of Millennials want to own a detached home; their main financial goal is to build equity that way.
As a June 27, 2017 CurbedLA article noted, Los Angeles is the absolute worst place in the entire nation for Millennials to purchase a home. “As it turns out, there may be no worse place to be a Millennial looking to buy than Los Angeles. According to a new study from rental website Abodo, the metro area has the very lowest rate of homeownership among adults under the age of 35 in the nation.” When over 80% of Millennials want to buy a home and that over 80% are renters, a huge percentage of them are free to use the door.
When Will LA’s Rental Housing Market Crash?
When LA Millennials stop squandering thousands of dollars per month on rent and move away, the bubble will burst. Millennials do not flee LA so they can pay rent in other places. Rather, they flee when they realize what they can buy in other cities. It is not only LA’s high housing costs that are important, but also the potentially wonderful lives waiting for them in other parts of the nation. Let’s compare Los Angeles with Austin Texas, which is the state’s capital and a college town.
Austin, like some other places in Texas, has weather comparable to LA. Its temperature ranges from 60 degrees in January to 95.6 in August, while Los Angeles ranges from 67 degrees in January to 79 degrees in August -- but we have Santa Winds that bring temperatures to over 100 degrees. Austin has a subtropical humid climate, while LA is semi-arid.
No Bang for the Buck in LA
For example: a condo at W Hotel with 1,400 square feet with no yard costs $949,000, while in Austin, $915,000 buys a 4,863 square foot home with 1/3 acre yard (14,000 sq. ft. is roughly double the size of an LA lot.) Compare 6250 Hollywood Boulevard versus 102 Aruba Ct, Lakeway, TX. Seeing is believing.
LA rents are so exorbitant, they make it virtually impossible to save for a down payment which means 80% of LA Millennials have no prospect of building equity. In other words, they will spend their lives working to make Wall Street executives wealthy while their children do without.
As Albert Hirschman proved in 1970, Americans move away from bad conditions. The crash in LA high-end rental market is already underway. The real challenge for LA Millennials is to move before the prices rise in Austin.
(Richard Lee Abrams is a Los Angeles attorney and a CityWatch contributor. He can be reached at: Rickleeabrams@Gmail.com. Abrams views are his own and do not necessarily reflect the views of CityWatch.) Edited for CityWatch by Linda Abrams.