Over the past few decades, LA’s economy has been in the doldrums. From the public square of the Zocalo commentator Joe Mathews:
- “What plagues LA – stagnant wages, lack of economic mobility, and racial inequality – are part of a larger American failure, but the symptoms are particularly severe here.”
- “LA has not matched California’s gains in education, health and employment. Los Angeles has been the primary driver of rising inequality in the state since the recession of the early 1990s. ”
- “LA has lost jobs for the middle class and wages have stagnated. Systematic racial disparities cost Los Angeles more than $ 300 billion a year in GDP.” That is why News week called the LA civil unrest in 1992 a rebellion of the have-nots against the have-nots.
- The Los Angeles metropolitan area is no longer the headquarters of any major bank.
- In 2017, 53 Fortune 500 companies were headquartered in California, but only Three were in Los Angeles. The big list companies that have left Southern California includes Toyota, Nestlé, Carl’s Jr., Jacobs Engineering, Jamba Juice, Occidental Petroleum and Chevron.
- The wages of LA’s lowest-paid workers have declined 25% since 1979, and between 1980 and 2014, the percentage of LA’s black community employed in manufacturing fell from 19% to 5%.
- One in five Los Angeles residents during the Covid-19 pandemic struggled to pay the rent. LA unemployment rate reaches 17.7 percent, and the city still hasn’t fully recovered.
In response to this long-term economic decline, the city of Los Angeles government could have extended a slim economic development chapter within the framework of the general plan of 1996 into a comprehensive and carefully controlled economic development plan. Or, it could have fueled the local economy with beneficial public improvements, such as planting and maintaining drought tolerant trees, repairing dilapidated local streets and sidewalks, upgrading poor bicycle infrastructure. and LA electric scooters, and folding first last mile improvements in every METRO transit project.
Instead, the town hall rejected these approaches and adopted a blind definition of growth, which then became its approach to economic development. “Growth” has been reduced to private investment in high-end infill real estate projects, often in place of existing low-cost housing demolished. According to the Coalition for Economic Survival (CES), over the past two decades, real estate developers have demolished 27,000 housing units at stabilized rents in Los Angeles to make building blocks for their new high-profit luxury buildings.
The proof of this real estate boom is easily observable in the Los Angeles Development Map. This impressive database identifies neighborhoods in Los Angeles that are in the midst of investment bubbles, and not just scattered projects: Downtown Los Angeles, Arts Center, Chinatown, Wilshire Center, Koreatown, Miracle Mile, West Melrose, Hollywood, North Hollywood and Warner Center, as well as downtown Culver City, Santa Monica and Long Beach. Big surprise that these same nodes correspond to large concentrations of homeless people, a logical consequence of the intensive financialization of urban real estate.
According to urban scholar Samuel Stein, global investments like these in urban real estate are rapidly gentrifying big cities like LA. In Capital: gentrification and real estate state, Stein reports that 60 percent of all capitalist assets are now held in urban real estate. Stein also notes that the world is with trillions of underperforming capital, and it generates new real estate bubbles when it finances very profitable luxury housing.
Given the distorted definition of city hall growth and the large amount of private capital that is raining down on Los Angeles, major institutional and private real estate investors are creating an unforeseen, short-term and ultimately counterproductive solution to the economy. dying from LA.
Hoping to revive Southern California’s economy, Sacramento and Los Angeles City Hall are welcoming real estate investors by deregulating zoning laws. While allowing greater densities on existing plots generates a financial windfall for property owners and developers, cities like Los Angeles have also privatized low-cost housing to (unsuccessfully) replace scaled-down public housing programs. This new aid to the affluent allows real estate investors to legally circumvent zoning and environmental laws if they reserve around 10% of new rental units for low-income tenants. Fortunately for these developers, the town hall never sends inspectors to verify that the promised rental units exist or that approved low-income tenants live there.
It’s hard to make things up.
The outcome of this ill-concealed helping hand is another Los Angeles real estate bubble. Los Angeles home prices increased by 233 percent over the past two decades, similar to the real estate bubbles of 1975-1979, 1989-1997 and 1997-2006. The current bubble started in 2012, is still expanding, but is leaving more and more people behind. As Patrick McDonald reported in CityWatchLA last week, large real estate investors live upscale by extracting rents and mortgage payments from a population struggling to keep a roof over their heads.
What headwinds will eventually overwhelm LA’s latest real estate bubble?
The current Los Angeles real estate bubble is more than a by-product of the repetitive ups and downs of the business cycle. The bubble presented above has been carefully nurtured by public policies, such as allowing institutional investors to buy urban real estate as a financial strategy. Local zoning through lax enforcement of the code and ordinances on ancillary housing units and density bonuses has also played a major role. The big milestones, however, are the density increases imposed by California Senate Bills 9 and 10, as well as giveaways filling the back pages of LA. 2021-2029 Housing Element and updates to the community plan.
Together, these spin-off programs exacerbate economic inequalities. Big investors are getting off like bandits, as the number of Angelinos who can afford to buy McMansions, buy older homes or rent new apartments has fallen to 19 percent Population. In fact, according to the Wall Street Journal, these trends are already visible in much of the United States. When buyers of single-family homes and condos have to compete hedge funds that buy houses quickly and apartments as speculative investments, the financialization of housing condemns most Angelinos to rising rents, overcrowding and even homelessness.
When the booms generated by these real estate bubbles eventually burst, probably during the next deep recession, economic conditions will get even worse for most Angelinos. The combination of underinvestment in infrastructure and unlimited financialization of private real estate will push Los Angeles to breaking point. At the same time, the economic hardship will expand to include more than those previously shot down by Covid-19 or already out of the housing market.
Crossposted with permission from the author of CityWatchLA