PRICE GOUGING OVERSIGHT - Price gouging and profiteering are bad things. In the wake of Big Oil’s record profits off of record gas prices last year, California bill SBx1-2 aimed to stop Big Oil profiteering. When the state legislature couldn’t garner enough support for anti-gouging taxes and fees, the bill shifted its focus to transparency and oversight of the industry. When he signed SBx1-2 into law last month, California governor Gavin Newsom proudly declared: “California took on Big Oil and won.”
Attorney General Rob Bonta remarked about the new law:
“Record high retail gas prices — and record-breaking profits for Big Oil — hurt those who can least afford it most of all. For too long, Californians have been left in the dark when it comes to the practices of the gas industry. And while oil companies have been lining their pockets, many Californians are struggling to make ends meet. I proudly stand with the Governor as he signs into law our cosponsored bill to bring accountability and transparency to the gas industry. Together, we are fighting to even the scales for California consumers and take this burden off their shoulders.”
Along with over 150 other locally elected officials, outraged by oil company price gouging practices on our constituents and communities,” I signed a letter to the Governor urging action to deal with the greed of the oil industry. The initial draft of the letter urged a price-gouging penalty on oil companies, while the later version mirrored the watered-down legislation. To be clear: I much rather would have preferred a windfall tax and other profit-limiting measures than the “oversight” law that actually passed, and which may or may not be effective.
Others rightly questioned whether the “oversight” legislation that the governor signed into law would do anything more than provide an excuse for a photo op and tough-sounding rhetoric such as when Governor Newsom, echoing the words of Florida Governor Ron DeSantis about Disney, claimed there’s “a new sheriff in town” that “brought Big Oil to its knees.”
Let’s be clear. Price gouging and profiteering are morally wrong and should always be illegal. There should be severe penalties for price gouging and profiteering, and state legislation should be unequivocal in forestalling and penalizing offending behavior by corporate entities and individuals intent upon exploiting Californians.
But should our outrage be selective, and should it really depend on who is fleecing the general public and our individual communities?
Energy represents a basic human need, one whose consumption we need to reduce both on a per capita basis and overall (and, any energy corporation attempting to gouge or profiteer, including “green energy” providers, should be sanctioned). Housing, of course, also represents a basic human need. So why would be outraged when energy companies gouge and profiteer but not developers, landlords and other tools of the Urban Growth Machine?
In contrast to Big Oil, the state of California provides all kinds of incentives for developers to build housing and, in the process, line their own pockets. Everything from density bonuses to concessions, incentives, and waivers, fee reductions, and other forms of FSD (Free Shit for Developers).
When developers ask for any of these goodies, they don’t actually need to show that any of them are necessary for their project to “pencil out.” They don’t need to reveal their profit margins. They don’t need to justify their costs. And they know that they don’t need to do any of these things. All they need to do is ask.
If we think Big Oil profiteering is egregious – and it is – then we should also think that developers lining their pockets and profiteering off of housing, a basic human need, is itself egregious, especially if these same developers are effectively being subsidized by the general public in the form of incentives, concessions, and waivers.
There is a very simple fix to this, even simpler than dealing with Big Oil price gouging.
- Require developers to make their pro formas and financials publicly available if they are taking advantage of any public subsidies, including in the form of concessions, incentives, waivers, or any form of “bonus.”
- Limit the profit margins of all developers who take advantage of any public subsidies, including in the form of concessions, incentives, waivers, or any form of “bonus.” Many businesses operate successfully at much smaller profit margins than for-profit developers. Limiting developer profits to, say, 5-7% would help keep prices down and stop developers from profiteering at the public’s expense.
- Require that affordable housing covenants associated with any form of concessions, incentives, waivers, or any form of “bonus” be in perpetuity (or at least as long as a property is used for residential), rather than limiting affordability to a set period of time, which in numerous cases is 55 years. When developers are being given rich bounties of free shit, there is no reason for affordability covenants to expire.
Lest we lose sight of the bigger picture, we certainly also need to focus more on the direct preservation and production of affordable housing, as well as to create and implement a cocktail of robust anti-speculation housing policies aimed at ensuring that housing is primarily being used for people to live in rather than as an investment vehicle for Wall Street, private equity, hedge fund, and global capital. Such policies would also, importantly, have the benefit of allowing for a broader base of homeownership, and would help lift more people into the shrinking middle class.
But considering the level and magnitude of developer giveaways in California, the lack of accountability and the inducement to profiteer at the public’s expense, these two very simple measures – making developer pro formas public and limiting profits -- would create a measure of transparency and give the public a better chance to get value for its incredibly generous incentives. At the very least, transparency and profit limits might serve to curb abuses of the system, and that is something in and of itself.
When it comes to housing, however, some politicians seem singularly unconcerned about price gouging and profiteering on the part of developers and other special interests within the real estate industry. State Senator Scott Wiener once famously remarked: “I don’t care how much money developers make.”
Of course, he should care, just as he should care how much money energy concerns, healthcare providers, pharmaceutical corporations, and insurance companies make, especially if they are profiteering at the expense of real people.
Urban Growth Machine acolytes seem shocked when community members and groups oppose developer profiteering, and while they try coming up with all kinds of novel theories about why developers are (in their own minds) much maligned and unsung folk-heroes, they ignore the basic, obvious offense to people’s decency: developers who profiteer off of housing are no better than Big Oil companies who profiteer off of people’s energy needs. It’s perhaps even more offensive to community members when the profiteering and gentrification is happening within their own communities and when – in contrast to Big Oil – those developers are being subsidized at the behest of the state government, many of whose members were elected with a ton of money from Big Real Estate.
Despite all the false narratives peddled by the Urban Growth Machine, communities can see how politicians who profess to be so outraged at the profiteering of Big Oil stand by and do nothing while Big Real Estate colludes to make housing less affordable. It is positively Orwellian that these selfsame politicians continue to scapegoat local communities on housing, while protecting and providing cover for developers, real estate investors, and speculators. As if developers and real estate interests are immune to the allure of big profits; as if many of them are not opportunistically looking to line their pockets at the expense of local communities; and as if they’re not contributing to the “greedflation” that has been hurting ordinary Americans for more than the past year.
In short, price gouging, collusion, and greed are bad whether it’s about gas, housing, medicine, or food; and government’s job is to help people, not to enrich corporations, not to worry about shareholders’ profits, and not to boost developers’ ROI.
State Senator Nancy Skinner, who also authored SBx1-2, has proposed increasing state taxes on large corporations, while reducing them for small businesses. The increases for large corporations are meant to counteract the Trump corporate tax breaks. Not surprisingly, Wall Street and corporate interests are painting the proposal as “soaking” large firms.
As Senator Skinner has said:
“The Senate’s 2023 plan will provide much needed tax relief to those small businesses which are the backbone of our economy and that have been really whacked by inflation. But it also ensures that the biggest corporations that pocketed massive tax cuts under Trump will start to pay their fair share.”
Perhaps more surprising than the corporate hue-and-cry about Skinner’s plan are Governor Newsom’s objections to reversing the Trump corporate tax breaks.
Corporations are largely responsible for the state’s jobs/housing imbalance. Corporations, led by Big Tech, are also largely responsible for increasing income inequality, which is perhaps the single most important cause of the housing affordability crisis in the state, not to mention a raft of other social problems.
Some of these corporations are literally sitting on cash reserves of hundreds of billions of dollars. So why shouldn’t they be made to step up and pay their fair shares?
I would love to see the state implement a corporate wealth tax to address these issues, but in the meantime, Skinner’s proposal to increase taxes on major corporations while reducing them for small businesses makes a lot of sense in so many ways.
Governor Newsom can choose to stand with the state’s residents and our communities, or he can choose to stand with corporate America and global capital. He can’t stand with both.
If he really is serious about protecting ordinary Californians and our communities and is not just paying lip-service in the hopes of playing both sides with a presidential run in his sights, the Governor needs to step up and show that he means business in supporting small businesses and ordinary Californians in the fight against corporate greed.
Supporting Senator Skinner’s tax proposal and limiting profiteering off of housing would be a good start.
Limiting profiteering and finally holding developers accountable is a first step both to more affordable housing and to communities that are more accepting of reasonable, community-based housing solutions.
It’s pretty simple. People don’t just hate developers for no reason. They hate price gouging. They hate corporate welfare. They hate gentrification. They hate false narratives that claim, “gentrification will lower prices.” They hate profiteering, especially when it comes at the expense of their own communities, with public subsidies and FSD adding insult to injury. And they hate greed. They hate it even more when their own elected officials, i.e. those who are meant to protect them, are actively stoking that greed – and in some cases raising campaign cash off that greed -- rather than curbing it.
Enough is enough. This isn’t the movie “Wall Street.” Gordon Gekko was wrong. Greed is not good. And it’s time to finally do something about it.
(John Mirisch was elected to the Beverly Hills City Council in 2009 and has served as mayor three times. He is currently a garden-variety councilmember and a founding board member of the Los Angeles County Affordable Housing Solutions Agency (LACAHSA).)