It’s no longer a secret that the Bay Area housing market is in freefall, and that this downturn is spreading nationwide. But this doesn’t seem to have occurred to the investor community. Consider a recent front page of the San Francisco Chronicle business section: “Hershey’s Transfers Production to Mexico.” “Bay Area Housing Market in 24 Month Decline,” “Business Expects Rosy Economic Outlook.” Please go back and read this again, and than ask yourself if there isn’t a massive case of denial happening here. But never fear. For there is a solution to this housing crisis. In a word: condominiums!
This belief, trumpeted by the likes of Tom Bates, Gavin Newsom, and Jerry Brown, is that condominiums are the magic bullet that will give new opportunities for home ownership in the ever-pricey Bay Area. However, what’s not said here is that these condos will still be way beyond the price range of low and middle-income people. And just who’ll reside in these new buildings? The newly affluent of the new economy, that’s who! Or so proclaims a recent article in the latest issue of San Francisco Magazine. But there‘s a hidden and dangerous flaw in this line of reasoning, for it ignores the fact that personal, corporate, and government debt is at an all time high, with no end in sight.
The present crisis had its origins about seven years ago. In the wake of the dot-com collapse, real estate soon became the hot investment commodity. The wild feeding frenzy that followed jacked up property values to the point where even so-called “blighted” properties in West Oakland were fetching high six figure sums. But yet, as the history of California is my judge, with every boom comes the harsh and inevitable bust. Last Tuesday’s 500-point drop on the New York Stock Exchange vividly shows the ever increasing fragility of global financial markets. It should concern anyone that the travails of an investment firm in a corner of China can cause earthquake tremors throughout the rest of the financial world. A good look at business web sites shows that even establishment economists are now stating the inevitability of a major recession throughout the United States. The debate now is not whether it will happen, but just when and how deep it will be. Of course, Wall Street, the Federal Reserve, and their media allies reassure us that there’s nothing to worry about. They do what they always do in times like this: damage control. They attempt to calm us with soothing catchphrases like “soft landing,” and “market correction.” We are again told: “Don’t worry! We have everything under control. The market will take care of itself!” But one doesn’t have to be a Nobel laureate to understand the depths of our present financial crisis.
The legacy of these condo projects is likely to be a lot of empty glass boxes standing vacant in the midst of once-vibrant neighborhoods, along with even more homeless on the streets. And, with an ever-shrinking pool of buyers, the overheated, over-leveraged housing market will likely continue to spiral ever downward. Perhaps more people may then come to realize that the recent real estate boom was resting upon a giant house of cards. The newly affluent of the new economy may soon wake up one day and find that wealth quickly gained is also wealth quickly lost.
So what can we all do? The first thing is to pay off our debts as quickly and expeditiously as possible. Next of course, would be to vote out of office those officials who advocate these misguided development policies. I would also take the advice of activist Joanna Macy and start setting up informal networks of people who can assist each other in the times ahead. While I in no way know exactly what the future holds, my beliefs can best be summed up by the actress Bette Davis: “Hang on everyone, it’s going to be a bumpy ride!”
John F. Davies is a Berkeley resident.