Stop criminal activity, ban house flipping

We were not meant to live like this.

by Richard Mellor

Afscme Local 444, retired

There are some words in the English language, or any language for that matter, that are used to describe socially unacceptable or perverse activity or behavior.  One of them should be “flipping”.  I am not referring to flipping that describes the activity necessary to cook hamburgers, but “flipping” as it pertains to investors, many of them the major coupon clippers in society, buying human shelter (housing as it’s sometimes called) as a short term investment and then selling it again for a profit.  Depending on market forces, these investments are often rented to people, (sometimes former occupants who were evicted through foreclosure) until prices rise sufficiently to bring in a good return on capital.  I commented on this a couple of months ago.

These institutional landlords (real slumlords many of them) have not been in the habit of buying up single-family homes as they like their victims in one place, like an apartment complex.  Dealing with problems that might arise like evicting a tenant who is experiencing hard times like a job loss, or medical bills is much less troublesome when all the units are contained within one structure than individually spread out and miles apart.  The Blackstone Group, a gang of coupon clippers has been very active in this market since the onset of the Great Recession spending $4.5 billion buying up 26,000 homes. A Goldman Sachs report estimated the value of the 14 million leased single-family residences in the U.S. at $2.8 trillion.

As I explained in my previous commentary on this subject, “The head of Blackstone, Peter Petersen is worth more than $1.2 billion and in 2011 contributed $458 million of what is laughingly called “his own money” to advocate for cuts in social security and Medicare. Petersen’s partner, Stephen Schwarzman is worth $5.2 billion according to Forbes which describes them as "self made". If they are "self made" men. so was Muammar Gaddafi and Henry V111.”

What odious characters.

This activity is very destructive as it artificially inflates the prices of human shelter (I do not accept that human shelter should be a commodity to be invested in) and takes a huge portion of a working family’s hard earned income in the form of rent and swells the bank accounts of those who do no productive social labor.

These activities are described by many of those who live by them as “useful”. They are doing the “market a service” the Wall Street Journal says because they are “…buying homes..” that are “..overlooked by others”.  How thoughtful of them.  But we should be clear on the wording here.  When these characters talk about “the market” they mean society, for that is what society is, a marketplace. And when they say “overlooked” they don’t mean overlooked by human beings searching for a place to live, for shelter, they are referring to other speculators and investors who are their competitors in the buying and selling for personal gain of this important social need.

So as millions of people remain homeless or live under the burden of paying a huge portion of their income as rent to put a roof over their head, the “flippers” are ensuring that on the one hand, the cost of this shelter will increase so if they “flip” at the right time they can walk away with some cash or the whole scheme reaches saturation point and the bubble bursts. Then we can blame the poor indebted homeowner who goes to work every day.

Here in California this process is becoming more acute.  Over the recent period, the number of homes bought and re-sold within six months has reached its highest level since 2005 according to the Wall Street Journal with 6,000 homes flipped between January and April.  The real estate tracking firm Zillow reckons that the US cities with the ten largest price increase are in California with home prices increasing 25% in San Jose, San Francisco and Sacramento and 18% in Los Angeles. (WSJ)

What a destructive activity when we really think about it. We don’t accept pimping as a legitimate activity, why this? 

The increase in home prices nationally is forcing some coupon clipping outfits to reconsider.  “We just don’t consider the returns there,”says Bruce Rose, a manager at Carrington Holding, one of these firms that manages 25,000 rental homes that it owns. What he means by returns is that with market prices rising 11% and rental prices rising only 2.4% it’s not a lucrative activity. The actual use of this structure for those living in it doesn't enter their heads.

The Wall Street Journal gives one example of this parasitic activity on a relatively small scale.  A former Southern California mortgage broker turned real estate investor “flipped” 20 houses last year, double the year before.  He bought one property for $600,000, a short sale which is a home sold for less than the loan on it which generally means its occupant was forced out, and sold it for $755,000 a few weeks later after making a few “cosmetic renovations”.  

The Wall Street Journal points out that this activity which inflates home prices is, “unwelcome news for ordinary buyers” something every working person knows through experience. Even middle class buyers lose out, "I slowly realized that I can't compete with these investors," said Dr. Parviz Goshtasby, a plastic surgeon interviewed by the Journal.  These gangs, which is really what they are, also have the ability to pay cash for homes something that even plastic surgeons can’t afford to do apparently.

Human shelter would not be an investment opportunity in a civilized society.  I pass a complex built in an abandoned quarry when I drive up through Oakland.  It is an ugly complex overlooking the freeway with houses going for $400,000 to $500,000.  What happens here is a investors see a vacant piece of land, decide to throw up some buildings, make some money then move to another opportunity.  We don’t generally know who makes the decisions and it’s not easy to find out.

A home has a use; it provides security and shelter for human beings whether it’s an igloo or a condominium. Those that have political and economic power in our society ensure that a house has another function, as a bank, a source of added income or wealth for workers who hope to use that equity as added security in retirement or as a fund for medical expenses or a child’s education.  In this way we are forced to rely on the market for our added costs and for our retirement and such as opposed to the state to which we contribute our collective finds. We see the same with the elimination of defined benefit retirement plans as opposed to 401 K market dependent plans which are less secure. For the 1% it's not an issue, they've plundered society's collective wealth good enough.

We are not talking here about a worker or middle class person who may have the fortune to buy a second home or come in to possession of one due to the death of parents.  We all see how much we pay the moneylender in interest when we send them our mortgage payments. And one thing this crash has done, it has changed the American psyche.  The bank so many depended on was pulled from under them.  We saw who really owns our living quarters.

It is not its function as shelter that draws the coupon clippers in to this market, but an investment opportunity for them. For these investors, owners of capital, those that own enough they can borrow larger amounts from banks, financing home buying/building is no different than investing in a tech start up, a small business or bonds.  What they seek is added value and how they get it is secondary, they are accumulators of capital first off.  And as the rightful owners of capital, they determine its allocation in society. Our social needs are left to a bunch of speculators and gamblers.

There is no planning to how capitalism provides housing for the millions of people in society.  How housing should be constructed, how we build it with regards to the natural environment or in relation to work, these are secondary considerations at best. In much of California we see this in the extreme, huge 4000 square foot homes with lush lawns in a climate where such lush growth is unnatural.  How we house human beings like all of society’s critical needs, must be collectively determined by the consumer of them, the maker of them and include all the engineers and scientists that society educates and who now work for the huge profit making corporations from the sickness industrial complex to the defense industry.

Human shelter, like all critical social needs has to be planned, determined not on the basis of “returns”for a few thousand people who won’t live in or near them, not on market forces, but in a way that takes in to account the effect on our environment, both social and natural.  It’s the same with transport. As I drive the freeway sometimes I imagine a whole series of environmentally sound mass transportation instead of thousands of individuals sitting in the highly inefficient automobile spending three hours to travel the 40 miles to work sometimes. It doesn't take a rocket scientist to figure out there's a better way. But capitalism cannot provide it, it is not possible for the capitalist mode of production to solve the a global environmental and human crisis only a genuine democratic socialist world, a democratic world federation of socialist states,  can accomplish that goal.

I am not an environmental engineer, an urban planner, an architect, I'm not even a writer.  But I know that if we don’t change the way we manage society from production for profit to production for social need, our existence on this globe not in the long but relatively short term, and in particular the future for our children, is by no means guaranteed.