To Speed Recovery, California Must Let Markets Work
Anyone who thinks state regulatory agencies will help them doesn't understand how these agencies actually operate.
A week doesn't go by that I don't get at least one unsolicited offer for my property, typically from investors who don't use a company name or last name. They often claim to have driven by the house and want this particular one. On occasion, a legitimate real estate agent will contact me with a potential buyer, but I assume most of these are fishing expeditions from low-ballers and scammers.
It's annoying, but people have every right to offer to buy stuff. They get the information from public records, but the value of having public records outweighs the annoyance of dealing with aggressive property seekers. I ignore and block them. I remember when the government claimed to protect Americans from unsolicited calls via the Do Not Call Registry. Since then, I get more calls from "Potential Spam" than anyone else.
In the wake of the devastating Los Angeles area wildfires, Gov. Gavin Newsom signed an executive order vowing to protect devastated owners in affected ZIP codes from unsolicited offers for their burned-out properties. This is the governor's latest act of performative policymaking. It will offer no real protections and might even harm homeowners who are looking to cash out rather than go through years of rebuilding.
"As families mourn, the last thing they need is greedy speculators taking advantage of their pain," the governor said in a statement. "We will not allow greedy developers to rip off these working-class communities at a time when they need more support than ever before." Specifically, the order bans for three months "unsolicited undervalued offers" and directs the Department of Real Estate (DRE) and other agencies to inform owners of their rights.
It's easy enough to understand "unsolicited," but how does one define "undervalued"? What is the value of a destroyed property that will require demolition, remediation, permitting reviews, and total rebuilding? It's whatever the market will bear. In many cases, property owners will take their insurance settlement and be thrilled to sell the distressed property to a developer. Such offers might even speed up the rebuilding process.
Anyone who thinks state regulatory agencies will help them doesn't understand how these agencies actually operate. I once filed a complaint with an agency and eventually received a form letter telling me that there was nothing it could do. The best advice usually is to find a good attorney. Newsom is offering phony protections that provide the patina of "doing something."
The news coverage plays on this. "Real estate vultures are circling the middle-class community of Altadena and other burned-out parts of Los Angeles, hungry to turn a profit from fire victims," according to MSN. "Investors are reaching out to people…as well as to local real estate agents who've fielded inquiries from across the country." Vultures? Again, this might be annoying but "reaching out" to owners and real estate agents is hardly a nightmare.
To his credit, Newsom's executive order exempting affected properties from the California Environmental Quality Act (CEQA) and the Coastal Act are good and meaningful measures that likely will spare fire victims from months of fighting with regulators and "stakeholders." Some urbanists are using the fires to ride their hobby horse. They want the rebuilding to prioritize condos and apartments, so at least the exemptions will spare homeowners that drama.
As I argued in Reason, maybe the rush to suspend rules that lawmakers have spent years passing offers the obvious lesson that many of these laws are unnecessary and serve as an overall impediment to building housing even during normal times. CEQA lets virtually anyone file a lawsuit to stop a project and requires reams of environmental paperwork. The California Coastal Commission has a no-growth bent and slows projects miles inland from the coast.
Fortunately, Newsom is on point with this part of his order. However, he quickly showed that his understanding of free markets is limited. He also included this gem: "Extend protections against price gouging on building materials, storage services, construction, and other essential goods and services to January 7, 2026, in Los Angeles County." No one likes "price gouging," but allowing prices to rise is a crucial part of rebuilding given that contractors and materials will surely be scarce.
I lived through a few (wildfires in Southern California, flooding in Iowa) and many basic, inexpensive items become impossible to find. Let's say you need a shovel but there's been a run on them at the hardware store. Wouldn't you rather pay $100 for one rather than not get one at the usual price of $15? You can then altruistically share it with your neighbors. Because of high prices, shovel sellers will rush into the danger zone, and then prices will fall as supply increases.
At least there's no prohibition on unsolicited advice. I'd urge Newsom to brush up on market economics if he really wants to help residents rebuild.
This column was first published in The Orange County Register.
