L.A.'s economy cannot survive insanely high home prices.
By Joel Kotkin, Joel Kotkin, an Irvine fellow at the New America Foundation, is the author of "The City: A Global History" (Modern Library Paperback).January 28, 2007
"FOR THE LAST five years, speculators, big developers and homeowners have gorged on Los Angeles real estate. The huge run-up in prices — more than 135% from 2001 to 2006 — has greatly increased the spending power of property owners. Yet there has been a worrisome consequence: Working and middle-class families are moving out — and failing to move in — because they cannot afford a house here. Long term, that's not good for the local economy. As perverse as it sounds, what L.A. needs now is a real estate bust. "
"Recent history is illustrative here. The big and rapid declines in property values in the early 1990s, after the last real estate bubble popped, helped open the door to homeownership for a new generation, many of them immigrants. New owners of delinquent or moribund commercial properties, especially downtown, fueled a spike in business activity, much of it stemming from immigrant and minority entrepreneurship." Full Article.
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"But high-end buyers and elite workers alone cannot sustain large-scale economies. Most companies require a broad range of workers, from highly skilled tradespeople to technicians and middle managers. These are the workers, especially if they live elsewhere or don't own a home here, whom executives frequently complain are difficult to recruit or retain in Southern California.
When executives find their employees cannot afford houses in an area, they often move their companies to where they can. Nissan and Countrywide, for instance, have announced plans to shift operations or expand in less-expensive areas."
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