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.

Read More

More crisis on the horizon as capitalism prepares the way.

Detroit: Motor City

by Richard Mellor

If there’s one term that sickens me it is “flipping”.  When I first saw the word in relation to housing I wondered what it meant.  It is the term that describes the buying and selling of human shelter, (houses).  A gambler enters this market with the sole purpose of taking advantage of the misfortune of others like the 5 million people that have lost their homes (shelter) in the last six years.

Detroit and its environs has a proud history in the making of this country. Generations of workers broke their backs in the factories of Detroit and Flint.  In the aftermath of the rise of the CIO and the civil rights movement more black workers came north for a better life and found themselves in the worst jobs but even that was an improvement from the impoverishment and racial violence they faced in the South, and they had a Union.

Last time I was in Detroit and Flint it reminded me of a third world city. The auto bosses have shifted production to less Union friendly areas of the US and the world.  The militant history of Detroit and Flint was not a good influence, it must be eradicated. The Great Recession also took its toll; jobs and population declined so did the communities and along with that, property values. But the speculators are back and are gobbling up homes by the hundreds.  “Detroit is the hottest thing happening” one of them tells Bloomberg Business Week as she accumulates 332 homes in two years (average price $2500).  She rents some out and sells others to fellow speculators as far away as Australia and Cambodia.

Along with individuals, there are the organized coupon clippers like the private equity thugs who have taken similar opportunities buying up thousands of foreclosed homes in order to rent them out.  These characters don’t normally like to buy single-family homes as they like their victims to be in one place like an apartment building. With single-family homes, if things go wrong, or tenants need throwing on to the street for some unfortunate reason like losing their income, owning individual rental units that are miles apart can become inconvenient and more costly.

This activity is extremely socially destructive bringing misery and uncertainty in to the lives of millions of people. It has all sorts of side affects, crime, alcoholism, the destruction of family and personal relations and with it increased domestic violence and child abuse as our humanity breaks down.   It also has a negative affect on home prices as they rise artificially, we saw that in the housing bubble just passed and we are seeing the whole process emerge from the ashes once again. Blackstone is one of the groups. 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. Like Goldman Sachs, these characters are closely linked to government service through their affiliation to one of the two Wall Street parties.  This makes it easier for them to plunder the wealth of society legally.

So the coupon clippers love Detroit, a city where 25% of the city’s housing is vacant and 36.2% of the population live below the poverty line compared to 14.3% nationally according to the Census Bureau. The insanity of the market; poverty is rife, unemployment high, jobs scarce, but the coupon clippers call this an upturn. “There’s going to be a big turn around in Detroit and I want to be part of it” one of them tells BW.  He paid $90,000 for 29 homes, will rent them out for ten years or so then sell at a profit.  Maybe he will sell at a profit, maybe he won’t.  But this is one small example of the parasitical, unplanned and irrational capitalist system.

This is not civilization. It can be avoided.

The same activity is going on in Phoenix AZ paving the way for the next and more destructive crash.  Business Week has an extensive piece on this activity and it is worth reading. Like health care, education, transportation and other social necessities in a civilized society, housing or human shelter has no rational plan to its construction as housing humans is incidental to this activity as is human health to the health industry, profit is the driver.

Crashes aren’t accidents they are built in to capitalist production.  In Phoenix during the height of the boom, human shelter speculators were building 4000 houses a month, “bulldozing one acre of land an hour” as the city’s population doubled in 20 years according to BW.  There is another side to this activity, the destruction of the environment as well as indigenous land. Real estate agents, or land pimps as some call them  “wrote contracts on the hood of their cars”business was so good. This activity is such a waste of human talent as well.  One woman, trained as a mechanical engineer got a real estate license and decided she wanted to “flip homes”.  The search for riches through unproductive labor.  “Flip homes”; I find the term disgusting and the activity parasitical.

Another “flipper”borrowed $600,000 from his father-in-law and started flipping homes to the tune of 60 a year accumulating $4 million, all on the backs of the folks who were thrown on to the street. There is some depressing news though for guys like him, foreclosures are declining so him and father in law are buying up homes in Florida to wreak some havoc there.

Nationally, private equity firms have spent $8 billion buying up homes people have lost except they’re not really lost, they have been evicted from them by the banksters.  Blackstone has spent $2.5 billion buying some 16,000 of these properties.

One final example in this tale of capitalist anarchy and that’s the oil and gas boom, what is referred to as the new “fracking economy” in states like North Dakota.  It is the gold rush reborn. North Dakota has been America’s least visited state but the place is swarming now with thousands of people looking to make some quick cash. This has aided the state’s banks as more and more money flocks in to the ND communities. The number of new businesses in the Bakken oil fields of North Dakota and Montana have risen 50% in three years and the bankers are rolling in it.  Leaving aside the pros or cons of fracking or oil production, even if there were no environmentally questionable impacts in the process itself, the environmental damage caused by the unplanned influx of human activity is significant.

Investors and speculators are rushing to build malls, apartment complexes, hotels (and brothels) to accommodate the increased population. The effect of all this activity------and we know that fracking is an extremely toxic activity when it comes to nature-----is extremely damaging socially and environmentally. And here too, indigenous people’s and their communities will suffer greatly. In a civilized society, a democratic socialist economy in which production and our needs are based on a democratic rational plan in harmony with nature not in conflict with it, this would never happen.  Like a tsunami, capitalism comes in and leaves destruction in its wake.  A few reap extreme wealth as the many find themselves drowning in an environmental morass, in poverty and despair.  The high is a brief one.

We must reject this method of social organization. While we fight it, we have to recognize that within the framework of capitalism, of a social system in which the means of producing the necessities of life is owned by private individuals and set in to motion for personal gain with no democratic plan to it, we cannot stop it, the forces are too powerful, the riches too vast. Capitalism is truly on the road to ruin and taking us all with it.

Society needs new managers.

Read More

Capitalism at work: Tragic shack fires in South Africa

From Martin Legassick in South Africa

This video was taken some 30 hours after a fire caused by a paraffin stove or a candle overturning devastated the shack settlement BM section in Khayelitsha, causing at least 3 deaths, with 800 shacks destroyed and 4000 people displaced. On average there are ten shack fires a day in South Africa, killing someone every other day. This is one of the bad fires -- in January 2005 12000 people were left homeless after a fire in Joe Slovo settlement in Langa, Cape Town. Here people are painfully starting to rebuild. Many will have lost everything save the clothes they are wearing. This video was taken some 30 hours after a fire caused by a paraffin stove or a candle overturning devastated the shack settlement BM section in Khayelitsha, causing at least 3 deaths, with 800 shacks destroyed and 4000 people displaced. On average there are ten shack fires a day in South Africa, killing someone every other day. This is one of the bad fires -- in January 2005 12000 people were left homeless after a fire in Joe Slovo settlement in Langa, Cape Town. Here people are painfully starting to rebuild. Many will have lost everything save the clothes they are wearing. Such fires -- which cause the majority of fire deaths in South Africa -- can be prevented. Electrification of shacks eliminates the danger of paraffin and candles. (Yet in some parts of the country -- though not, so far, in Cape Town -- municipalities are de-electrifying shack settlements!). There needs to be adequate water supply, to every shack -- instead of a few taps for thousands as is the case at present -- with fire hoses and fire extinguishers. There need to be adequate access roads built instead of shacks squeezed next to each other with only a path separating the walls. There need to be brick buildings built to replace the shacks. The millions of unemployed need to be trained and put to work building houses. But the capitalist ANC government cannot do this, it serves only the system of profit.

 

Here is a report on shack fires and a statement of the Abahlali baseMjondolo Durban position.

Abahlali baseMjondolo Western Cape 1 January 2012

As residents of QQ Section shack settlement and members of the movement Abahlali baseMjondolo, we would like to say that we are not happy about what happened early this morning across the street from QQ Section. A massive shack-fire, which started at around 4am, swept through almost the entire shack settlement of BM Section leaving thousands homeless and at least three (but possibly as much as six) people dead. We have a few Abahlali members in the settlement and, as residents of QQ Section, we also have a large number of friends and family who also were affected by the fire.

We therefore remain in living solidarity with all those affect by the fire in BM section and other shack fires in WD Section and in Du Noon. The scourge of shack-fires throughout all of Cape Town's shack settlements and the delayed and uncaring response by the city clearly shows that shackdwellers have been isolated socially, economically and politically. If the government would give us the respect of a citizen of this country, this kind of incident would not have happened. The immediate cause of the fire remains uncertain (either a cooking accident or a knocked over candle by a drunk community member).

Yet the resulting massive fire is beyond our control as residents of the shacks. In other words, these fires are not only preventable, but they are caused by uncaring and anti-poor government policy. As citizens of this country, we have a right to decent housing, to efficient sanitation, to affordable electricity and to well-planned roads. Yet even though residents of BM section as well as numerous settlements affiliated to Abahlali baseMjondolo have been protesting for these things for years, the government has delivered almost nothing we have demanded for our communities.

• If we had electricity, dangerous paraffin stoves and candles would be a thing of the past and shack-fires would be a rare phenomenon.

• If we had piped water into our homes, we would be able to quickly fight the fires ourselves.

• If we had proper access roads in our settlements, fire-fighters would be able to stop fires much quicker.

• If we had brick house and our own plots of land, fires would not spread from one home to the next. If we had all these things, or even some of them, an accident by a drunk neighbour would not affect the livelihood those around him. Shack-fires in Cape Town, just as this report shows they are in Durban, are the result of government policy that denies us the basic things we need to live healthy and safe lives. Instead, shack-fires have now become an opportunity for the city to pretend it cares for us by giving us a few food parcels and blankets each time a fire rips through one of our communities. And yet, even the city's contingency plan is lacking:

• Disaster Management has failed to provide emergency accommodation to all the victims of the fire in BM Section.

• Despite claims to the contrary, Disaster Management has failed to provide all victims with food, clothes, blankets and other necessary emergency items. We therefore appeal to Mayor de Lille to sit down with Abahlali baseMjondolo and other shackdwellers throughout the city to discuss the role that the City of Cape Town plays in creating the conditions of the current shack-fire epidemic. We as AbM-WC are also asking for solidarity with the victims of the BM Section fire.

Please contact us if you'd like to help. For more information, please contact: Thembelani @ 0712604119 Mr Qona @ 0713518483

Read More