Recently I spoke to Pacific Beach Realtors about the benefits of Prop 13. Well received, of course. I’m seeking more such speaking engagements.
But for me the most interesting aspect was a private discussion I had with a knowledgeable lobbyist for the CA apartment industry. The rep made the solid observation that their clients — real estate trusts — LOVE to invest in California apartments (and other commercial property) because they can count on the state and local governments to do everything they can to keep out future competition. The resulting scarcity drives up rents, and increases the resale value of such properties.
It’s a point I’ve been making for decades: The free market is good for CONSUMERS, but not necessarily welcome by INVESTORS. For instance, the free market in Houston is great for home buyers and renters, but lousy for real estate investors. Any increase in demand is shortly matched by an increase in supply.
All investors and business people seek to provide goods and services that have limited competitors. In a free market that works well, but when government gets involved, it can turn into crony capitalism.
My longtime Realtor friend Fred Schnaubelt said it best in a past letter to the editor:
MALIGN NEGLECT
San Diego’s Housing Policy
“Barriers to entry” in San Diego’s housing market are good for investors, according to a consensus of speakers at a real estate conference. The speakers represented several Real Estate Investment Trusts controlling hundreds of millions of dollars in real estate. A barrier to entry is an economic term meaning lack of competition due to government imposed regulations and restrictions. The result of these restrictions in San Diego is above average returns to investors in luxury apartments.
If San Diego’s new homes were oil, local politicians could be accused of conspiring with suppliers to raise prices or of being bribed.
The housing policies of the San Diego City Council and County Board of Supervisors and most of the other cities within the county can be summed up as one of “malign neglect.” Malign Neglect begets barriers to entry, which begets reduced competition, which begets less affordability and concomitantly, higher apartment rents than otherwise could be obtained in competitive markets.