After the Gold Rush

by Dennis Green

I’m hearing and reading a lot of stories lately from people paying the highest Property Taxes California allows under Prop. 13, which limits the amount taxes can increase over time, no matter what happens to property values. They complain that it is totally unfair for them to be paying so much more than their neighbors who just happened to buy their homes many years ago.

What they don’t mention is that they were also probably tempted into paying more for their house than it is worth in today’s market, if they bought after 2002, diromg the latest boom in real estate. That is also “unfair” I suppose, but as we say, “Let the buyer beware.”

These price inflations are all a part of California’s Latest & Last Gold Rush. In the first one, San Francisco went from being a tiny settlement with about 1,000 residents in 1848 to more than 25,000 people in 1850. This week, CalPERS, the state retirement pension fund, lost $91.2 million on a Boston commercial real estate deal, after losing $600 million in other such gambles in the past 90 days, while the California State Teachers Retirement System, (CalSTRS), faces a loss of $325 million invested in a Manhattan skyscraper project.

I saw the mythology around real estate build up over the years, buying my first home in Santa Barbara in 1974, a charming three bedroom tract house, for $36,500. At the time, my own parents were aghast, having bought their own home in Eureka for less than $8,000 many years before.

You begin to get a sense of how relative all this is? Life isn’t meaningless, or even random, but follows certain cosmic patterns, including the Gold Rush and the bust that inevitably follows it.

I kept that first house for two years, then sold it for $75,000 — twice what I paid for it — and bought a huge custom home on the Santa Barbara Riviera on half an acre with a view of the harbor for $86,500. And so on.

The Mythos of Real Estate goes like this: Only by owning your home can you enjoy real security, prosperity and success in this society. The bigger and better your house, the greater your standing in the community. Prices can only go up, so at the very least you’ve got a terrific investment, even if you don’t live in it. Speculation, churning, flipping properties is less risky than the stock market. Only this estate is real.

And millions of Americans bought the goods, and the real estate. That house on the Riviera recently sold for $3.1 million, and is now, along with 35% of California mortgages, “underwater.” That is, far more is owed on the home than it is worth in the currently depressed market. The Gold Rush is over.

California, for the first time in many years, is actually losing population, as factories close, government at all levels lay off thousands of public employees, and the unemployment rate reaches an estimated 14% and probably much higher when those who have been out of work longer than a year are added in. Grapes of Wrath indeed!

Many if not most of those jobs will not be coming back. The Nuumi Plant, being closed by Toyota, is a good example of jobs begone. Google, Pixar, eBay and Skywalker Sound are examples of the future, hiring only the finest digital and electronic engineers, and far fewer of them. Green energy technologies and nanotechnology jobs will also employ fewer people than traditional manufacturing.

But those “unfair” higher home prices and subsequent Prop. 13 property taxes reflect the history of that Last Gold Rush, and the way more bloated government payroll and supposed “services” got layered on like the bordellos of San Francisco’s “Barbary Coast.” Those who pay them take such services now for granted, and many older residents aren’t even aware they exist, don’t have children in the schools, wouldn’t know the “Office of Economic Development” if it bit them on their gnarly old elbows.

Neil Young still sings “After the Gold Rush.” There goes another one!

©2010 Dennis Green