House Flippers

The two perennial complaints about California real estate are that it's both too expensive and in short supply. This objective, observable reality fits neatly into the established dogma of economics; as supply dwindles, prices inevitably rise. Likewise, the expense and supply narrative fits neatly into the polarized ideology of American politics, with each end of the spectrum shaping an emotional, sometimes compelling argument from a very narrow set of "facts". But economists, politicians, and talking heads, in general, all fail to understand both the broader picture and the ugly details of the housing situation in California. The powers that be seem incapable of wrapping their heads around the systemic inequity of profit-oriented cash buyers over families financing a home to live in, and the solutions that politicians propose completely miss the mark. In other words, house flippers are fucking up the housing market in California and everyone trying to "fix" the problem is only making it worse.

There are two big schools of thought, aligning more or less with political religiosity, on how to address housing costs in California. The reaction on the left is to build "affordable" housing. Democrats, and others that have a vested interest in pandering to the working poor, like to push the idea that California is inherently too expensive for anyone to live in without giving any reason for the high prices save for some vague dog whistling about one-percenters. And this makes sense because making promises to subsidize the largest item in most familys' budgets is a winning strategy. But in effect, low-income housing institutionalizes poverty, creating ghettos where poorer people are shoved into and forgotten. Low-income housing doesn't address the root cause of why housing is so expensive in the first place, and it necessarily segregates society into groups of haves and have-nots - a move with far-reaching implications that affect a person from birth to death (public schooling, criminal and police activity, food scarcity, job opportunities, infrastructure, mental and standard healthcare, etc).

On the other hand, the reaction on the right is to slash regulations so that, or so the argument goes, housing can be built quicker and more economically. Republicans and others with a vested interest in the financing of massive real estate developments (commercial and residential) like to pretend that there are literally zero properties for sale and that the only solution is a mad building spree on every square inch of land in the entire state - especially lands with some environmental significance. As with the Democrats, this is a move that panders to a specific voting block and does nothing to address the root cause of high housing costs. First and foremost, there is always housing on the market. There exists NO large city with exactly ZERO houses, condos, townhomes, or multiplexes on the market. Secondly, ignoring environmental and zoning regulations is a short-sighted move with long-term costs likely to outweigh any short-term economic gains. Examples that come to mind include building developments on floodplains, in regions prone to drought and fire, or entire cities below sea level.

The problem isn't that there aren't enough homes on the market, nor is the problem that the real value of homes is out of reach of the average Californian. The problem in California real estate is speculation and house flipping. The problem in California real estate is that cash buyers with no intention of living in the homes they purchase are taking homes from families, doing a nominal amount of superficial work on the home, and then putting the homes back on the market at super-inflated prices. The market should be able to correct for this, right? Prices are too high, a surplus exists, so that should drive prices down. The reason that the market is failing to stop this sort of behavior is that there is a critical mass of flippers that are doing this; they're over-paying for properties and then over-pricing them when they put them back on the market. In essence, flippers have created a sort of monopolistic hive of assholes that, while not necessarily colluding together, are still fucking everything up for the rest of us.

I'll give my own anecdotal experience as an example. I spent nearly two years looking for a home for my family. It was incredible to watch the market heat up, with prices rising literally by the week, far outpacing our own income growth - because who the fuck has an income that grows with each passing day? I would lose every bid that I made, sometimes by bidders that would come in at over $100k over asking. It was insane. But the most unbelievable part came when, one to six months later, I would see the same houses back on the market, freshly painted and with a price tag $50k to $150k over what the home had been bought for only a few months before. In some cases, houses would literally sell for twice the price they had gone for less than six months before.

The reason I had so much trouble buying a house wasn't that inventories were low, in fact, as I've already said, there are always homes for sale. Nor was the reason that I don't make enough money. Our household income is far above average, even in California. I have few expenses and a healthy amount of savings. I could easily afford a home that was reasonably priced. The reason I had so much trouble buying a house was that flippers, with tons of cash, would swoop in and pick up properties, give them a paint job and a granite countertop, and then dump them back on the market at an astronomical price that I couldn't afford... but that another cash buyer would gladly pay to repeat the flipping process again on the same property. The home buying process is set up to favor people with cash, people that will over-pay, and people that are well connected in the industry - in other words, the market is set up to reward speculation and disadvantage real home buyers.

At one point, I was talking to a real estate agent at a house showing and I started to complain to him about cash buyers scooping up reasonably priced homes and flipping them for insane prices. His advice to me was something along the lines of "you can be angry at the market and never get a home, or you can go with the market and make some good money by buying and selling properties". He was completely missing the point. I'm not a house flipper. I didn't want to flip a fucking house. I wanted a place to live in, where my kids could run around in the yard and develop fond memories of their childhood. I wanted a home, not an investment. But in this country, in this state, in this market, it seems that everyone has been hard-wired to look for a get-rich-quick scheme. Everyone is hustling to cash in, and those that are cashing in are ruining it for the rest of us by exploiting weaknesses in the bidding process and driving up prices.

In our current system, we have a perverted dichotomy of both unrestricted capitalism and heavy-handed, ineffective government intervention which ends up simply institutionalizing poverty and not addressing the root causes of the problem. Liberals want to shove all the poor people into projects while conservatives want to milk every last penny from this state's natural bounty and fuck the consequences. Meanwhile, economists are sitting back, twiddling their thumbs, assuring everyone that the market will find an equilibrium, ignoring the human factor that's running the train straight off a cliff.

If we want to fix the cost of housing in California, or anywhere else, then we need to end the practice of house flipping. Homes should be bought by families that intend to live in them, not by assholes that are only looking to turn a profit.