Fear and Loathing in the Bay Area's Real Estate Market

One of the things that first piqued our interest in libertarianism was our effort to understand the concept of property taxes. To us, either you own property or you don't, and if the government can theoretically take your property without your consent if you don't pay those taxes, what does it really mean to say you "own" it? We had a similar set of thoughts during the run of the housing boom five years ago, when we knew lots of people buying properties all over LA and Orange Counties and selling them for quick profits, as well as others who thought nothing of trading up to new houses almost every year. Then, we thought: is your property still your home when you're able to treat it as disposable? And what does "home ownership" mean for highly-leveraged borrowers whose claim to the home doesn't go much beyond sleeping there at night? More recently, as California's housing market has imploded, we've wondered about the "stalling" effect of government programs that aim at averting foreclosures but have the effect of dragging the process out. What does "home ownership" mean when the glacial pace of bureaucracy is the only reason you have a roof over your head? And taking all of these things together, what does the concept of private property mean when so many forces are working to erode it?

If this story from the San Jose Mercury News is to be believed, the answer is "anarchy". And not the good kind. Interviewing realtors throughout the Bay Area, Patrick May weaves a crazy tale of "short-sale funny business, fake landlords, mold-slimed foreclosure properties, bogus real estate agents and yappin’ junkyard dogs", as well as "upside-down homeowners, overwhelmed banks and cash-toting low-ballers". All of it being the result of collapsing home prices, "Kafkaesque" lending practices by banks, and Federal regulations creating backlogs of repossessed homes. As a result, large numbers of underwater borrowers have been able to game the system, living rent-free for months or years while the foreclosure process drags on.

And the system-gaming May describes is simply epic. Some examples:

• Broke homeowners re-key the locks and rent their property out to unsuspecting tenants
• One home in Vallejo had its walls ripped out and the copper piping stripped away before the owner was removed
• Another home in Oakland turned into an unofficial neighborhood dump
• One San Francisco duplex had a church congregation of squatters, who even moved pews and an organ into the space
• Condo owners who run extension cords into shared hallways to take advantage of common-area outlets
• "Buy and bail" deals, where one half of an underwater-home-owning couple pays cash for a new home in his/her name, and the couple defaults on the first house once the new home has closed
• Owners who buy repossessed properties with cash, and turn them into marijuana farms

While these stories amused us, it is sad that this is what the housing market and the concept of property rights have become in California. And, of course, government intervention is responsible for incentivizing much of this behavior.