September 30, 2008

California vs. Texas

I want to expand on something I mentioned briefly in my last article on Karl Rove and the mortgage disaster. Sorry if some of it already appeared in VDARE, but the full thing will help the residents of the two polar states understand each other's situation better.

In defense of Bush and Rove, it was natural for them to misunderestimate the financial scale of what they were propagating because they are from Texas, where land prices have been saner than in California ever since the bursting of the first oil bubble a quarter of a century ago. At present, Texas ranks only 15th out of 50 states in per capita foreclosure rate, far below most other highly Latino states. That's because land costs in Texas are dramatically lower than in most other states with heavy Hispanic concentrations, keeping recent homebuyers from getting in over their heads so badly. I visited San Antonio in April 2007, at the height of the housing bubble, and saw billboards advertising new 3000 square foot, five bedroom homes for $162,000.

In the flat, well-watered eastern half of Texas, there's an enormous supply of buildable land. Moreover, there aren't many environmental or other restrictions on home development. In contrast, California has a thin strip of exquisite coastal land, mostly locked down tight by strict environmental controls, backed by uninhabitable mountains. The level inland areas become increasingly miserable for year-round habitation the farther east you go (for example, the aptly named Death Valley). Likewise, Nevada and Arizona have significant water limitations, restricting growth to certain areas.

Texas Republicans are prone to blame the limited supply of housing in California on leftwing Not In My Back Yard politics used by greedy homeowners to raise their home values and keep out undesirables. Some of that is true, but there are topographical reasons for limiting development in mountainous California, such as smog and traffic, that aren't easily understood on the Texas prairie.

For instance, the northern exurbs of Los Angeles County, the Santa Clarita Valley, are connected to Los Angeles almost solely by Interstate 5 through the rugged Newhall Pass. The only proposed alternative to this chokepoint would require colossally expensive tunneling through 15 miles of the earthquake-prone San Gabriel Mountains. So, the current residents of the Santa Clarita Valley, who tend to be more Republican than Los Angelenos, raise a stink about exacerbating commute times to their jobs in LA whenever anybody asks for approval of a new development. Thus, the posh Valencia TPC golf and housing development was proposed in 1985 but construction didn't begin until 2000. Other planned developments have been vetoed after long years of hearings.

Therefore, in California, unlike in Texas, it takes many years for increases in housing supply to catch up to increases in demand. That's why the loose credit policies of the Bush years turned into higher home prices in California than in Texas. To be precise, a Los Angeles home averaged 2.6 times the price of a Dallas home in 2001 and 4.7 times in 2005. Even in 2005, the median Dallas home only cost a sane 2.8 times the local annual income, while the median Los Angeles home cost a ridiculous 12.7 times what the median Angeleno was making.

From Bush & Rove's Texas-centric point of view, if some guy named Juan with no assets besides a 1979 Datsun pickup truck gets a liar loan for a house in Texas, his mortgage is, what, $100,000? He might be able to scratch together enough money to meet his payments. If he can't, well, Juan is gone, but that's just $100,000 down the drain. No biggie, Bush and Rove would assume.

What they apparently didn't realize in 2001 was that when his cousin Jose, who is equally broke, gets a mortgage in California, that was, say, $200,000. And by Bush's second term, the Administration's easy money-easy credit "affordable housing" policies meant Jose had to worm his way into a $400,000 mortgage to get a crummy house in California. No way, Jose is going to be able make the monthly payment after his two-year teaser rate runs out. And when he defaults, that's $400,000 down the rathole.

My published articles are archived at -- Steve Sailer


Anonymous said...

From Bush & Rove's Texas-centric point of view, if some guy named Juan with no assets besides a 1979 Datsun pickup truck gets a liar loan for a house in Texas, his mortgage is, what, $100,000? He might be able to scratch together enough money to meet his payments. If he can't, well, Juan is gone, but that's just $100,000 down the drain.

From the Bush/Rove perspective it's not $100k down the drain, because there's still a $100k house backing up the paper. Mexifornians, Nevadans, Floridians and others were getting $500k loans at the top of the bubble for houses that, post-crash, were only worth maybe $400k (or less). That's an automatic $100k loss for the owner of the mortgage, not even counting their other costs.

This whole mess, and that Bush video in particular, show how multiculturalism and belief in the "blank slate" hypothesis of human nature was at the source of so many failures during the Bush years: mass immigrations, the mortgage crisis, education and NCLB, the Iraq War. No matter the president, no matter the party, we're going to keep seeing mistakes like this in the coming decades so long as we keep electing TBMs (True Believing Multiculturalists).

Anonymous said...

I would add that immigration is one more reason we should NOT want the government owning hundreds of billions of dollars in real estate. We already hear (constantly) about the need for mass immigration to shore up Social Security. We don't also want to be hearing the argument that we need immigrants to buy all these homes the government's trying to sell.

Anonymous said...

To go off on a complete tangent, Somali pirates took control of a Ukrainian vessel carrying weapons several days ago. Today three of them were killed. By the Ukrainians? No. By the Russian or US Navies? Nope.

Who killed them, then? Other Somali pirates. You just can't make this stuff up. And these are the people, I'd add, coming to this country as refugees by the boatloads. (Though I'm sure that with a little education they'll all turn into fledgling Linus Torvalds's and Albert Einstein's overnight.)

albertosaurus said...

Bubbles can be fun!

I was intimately involved with the Internet Bubble and more recently with the California Housing Bubble. Its true that after they burst there were casualties all over the field but realize that after Pickett's Charge there were three new openings for Brigadier General. Three former Colonels benefited greatly.

In three years of the Internet Bubble I was promoted six times. I worked for four different companies - three of which went bankrupt. It was like having your horse shot out from underneath you in battle.

I always got out with a severance package. Others weren't so lucky and ended up suing the bankrupt companies. But that's how battle works. Some are casualties others are lucky.

I also did OK in the Housing Bubble. A year or two ago I looked on the Web and discovered that I was a millionaire. My $200,000 house was worth about a million. My house had appreciated that year for much more money than I had earned in the job market. I was able to capture a good deal of that equity inflation.

I wasn't clever just lucky. Survivors in the crazy worlds of battle and bubbles are like that.

Anonymous said...

You know, it’s interesting how, taking the long historical view, St. Franklin is the gift that keep on giving and giving and giving, until one day there is a snap-back, and St. Franklin comes to take it all back.

The New Deal established an austere program for supporting widows and orphans until Democrats and lefty Supreme Court justices turned it into swag for unmarried welfare mothers for 30 years, until we finally ended that game in the mid-1990s.

Social Security was similarly a limited program for ensuring a decent old age for several decades until it became a perpetual motion, headed-for-bankruptcy machine in the 1970s.

And the original New Deal programs for enabling hard-working and regular–saving married couples to buy their own homes became in the late 1990s another Affirmative Action swag machine, driving up housing prices and practically soliciting massive defaults, with its current consequences.

Thank you, St. Franklin.

Anonymous said...

@Captain Jack Aubrey

Dear Jack,

You wrote:

"(Though I'm sure that with a little education they'll all turn into fledgling Linus Torvalds's and Albert Einstein's overnight.)"

The last two apostrophes in the above are indefensible. If you are unwilling to recast the sentence to obviate the pluralization of these surnames, then Torvaldses and Einsteins must be made to serve.

Enclosing the entirety of ultimate sentence in parentheses is also unwarranted given the jocular, first-person tone of the paragraph as a whole.

I recommend these trifling cosmetic alterations in the friendliest of spirits.

I remain, as ever, your most obedient servant,

- Stephen Maturin

Anonymous said...

California needs to divided into two states so that the Governator and co. have a more manageable problem.

Anonymous said...

I used to watch "Flip This House" shows and there was one guy who was featured on a number of episodes. I've never forgotten one show.

This guy bought a trashed, garbage strewn concrete block building the size of a one car garage with a patch of dirt and chain link fence, in South Central LA.

He painted the walls, replaced the plumbing fixtures, the wall to wall carpeting, the kitchen cabinets, and cleaned up the yard.

At the end of the show he claimed that he'd sold it for $300,000.

I guess it's possible that someone from ACORN convinced some Section Eight renter that they could move into this garage for no credit, no money down, interest only loan. And the guy who sold it made money. My guess is that when it turned out that Section Eight wasn't paying the mortgage, the so-called home owner went into foreclosure.

In situations like this, the so-called buyer isn't a home owner. They're renting the house from the bank and will be evicted if the rent isn't paid.

But that guy who flipped that house made out like a bandit. Or maybe not.

I wonder how many of his flips didn't flip.

Anonymous said...

I recommend these trifling cosmetic alterations in the friendliest of spirits.

I remain, as ever, your most obedient servant,

- Stephen Maturin

Ha. As soon as I get done w/ the Flashman papers, I might re-read some of the Paddy O'Brian stuff. Damn fine literature, that. Anyone know any other good historical fiction along these lines?

Anonymous said...

Your Texas example shows what housing should cost almost everywhere if it were not for regulation. It is the regulations which prevent land being used & often prevent the use of mas production methods. Look at the costs of midular housing or the costs of housing 100 years ago compared to other goods.

Thus the housing bubble is what happens to any good when supply is restricted irrespective of price (eg the art market regularly has bubbles).

This is the real reason for panic. That in a free market most housing would be a fraction of even its current value. Of course without high house prices & thus mortgages most banks would be a lot leaner. Poor things.

Anonymous said...

Compliance Tech's website announces a timely meeting next week: the 4th Annual Mortgage Lending Industry Strategic Markets and Diversity Conference. Any journalists going?

John Thacker said...

It's fashionable for Californians and others to blame geography more than regulation, but the research of Ed Glaeser provides several interesting ways of showing that, while indeed geography does limit the usable land in California, it is nowhere near as strong as the effects of regulation and zoning.