Love to Hate California
Chuck Ponzi November 14th, 2005
The media has given California business a pounding lately. Between Countrywide’s Mozilo’s statement of “California Sucks”, tales of families escaping to Missouri, and a recent announcement that Nissan will move it’s North American Headquarters to Nashville, one would think that California will be a great target for derision for just about anyone.
What’s sad is that California used to be a great place for families and working people. What caused the shift? Was it solely the cost of living?
What’s perhaps even more sad are those Californians who lay claim to nothing more than being “Californians” as if it were somehow a blessing bestowed from on high. They claim the weather is unbelievable, diversity tops, and great jobs…
Opinions about the real estate bubble aside, California is a good place to live for most families. We don’t have anything against California per se, but the cost of living is definitely something to consider if you are not a multi-billionaire. Yes, even millionaires have to take out suicide mortgages in California.
The air is clean in some places (Orange County, LA Westside, and San Francisco to name a few), but deathly choking in some others (Bakersfield, San Bernardino, and Antelope Valley to name a few). There are cities with neighborhood after neighborhood of neatly manicured lawns and homes like Aliso Viejo and Rancho Bernardo, and there are nightmare areas like Watts and Compton, and soon to be nightmare areas like Panorama City, Van Nuys, and El Cajon. But no matter how much you try to escape the bad areas, they are still only a few miles away. Nowhere is this more pronounced than the LA area with BelAir/Beverly Hills in close proximity to Westside gangs and the homeless in Santa Monica.
The freeways are congested with no end in sight… When did the 405 start being gridlocked at 5:30AM on a Saturday?
Whatever the cause, it is clear to most that the businesses are the reason that the area holds its appeal. Sure, the weather is great, but most places have some great weather at some point of the year, and most of Southern California is a burning pit of fire for 6 months of the year. Besides, the weather has been great for all known history; nothing changed in the last 5 years. Diversity is nice, but most cities in the US are now fairly diverse, and besides, most SoCal residents try to keep the diversity to a minimum with economic barriers. No, the things that made Southern California great were the companies and the jobs they provide. During the mild 2001-2002 recession, SoCal created a large number of jobs in various sectors; most notably in banking and finance.
But, like any misguided and fiscally liberal state legislature, they found that the .com implosion left them little choice but to tax its residents and businesses into submission. The credit bubble took care of any possible problems related to declining state revenues. The wealthy weathered it well; their businesses did well enough. But, companies that had been attracted to the area are finding a sort of “double taxation”. On the one hand, they must pay their normal taxes, endure earthquakes, regulatory issues, rolling blackouts, and a gridlocked transportation infrastructure, but on top of all of these expected costs; wage inflation has been stronger in the past 2 years. Quite surprisingly, actually, wages have had to keep pace with local housing prices or lose some of their best employees to out of state opportunities to afford housing.
It’s no secret that employees with families tend to be stable, responsible, and reliable. However, families have the choice of staying in California and enduring micro-housing, 3-hour commutes, and broiling climates just to have a job, or leaving the state to deal with cold weather and lower pay, but a secure job and a well-appointed home in an area close to work. It’s a no-brainer for most families.
Some companies will make the jump and leave California, as Nissan did with their announcement that they will move their North American Headquarters from Southern California to Nashville. (Nashville has wonderful weather AND traffic, if you ask me). I believe we will see a lot more of this going on in the coming years.
A great piece was written by the Motley Fool jokers, in which they succinctly explained a fundamental rule that has been ignored by RE cheerleaders: “As for what to make of the exodus — if indeed it exists — it’s just more proof that although it might be painful in the short run, the system works. When stuff gets too expensive, we look for alternatives.” There are definitely alternatives to living and working in Southern California.
Their parting comment is exactly what has been discussed in numerous boardrooms across the region. “Around here, Juniper runs some pretty amusing newspaper ads — featuring commuters portrayed as trapped rats during rush hour — about cost and frustration savings achievable by using its products for telecommuting. How about all those companies selling us the Internet Utopia make better use of it to put more money in shareholders’ pockets? Maybe it’s time the owners of all these firms — that’s you and I, Fool, with our little stubs of paper — demand that they say farewell to the California dream and its nightmarish costs.”
Housing, after all, is about utility. Manias temporarily skew people’s perceptions, but over time the market always returns to equilibrium.
Great post. It’s sad but true. California used to be a nice place to live. But it is a victim of its success I guess. Why would anyone want to move here? If the cost of living comes back down to something approaching normal, then I could see it.
Like California, love OC, hate the (state) politics and the housing prices. But I’ll keep waiting and saving…
Southern California is a different monster when it comes to popularity and the “migration” of people, all who are in their teens and early 20’s. Seeking stardom, fame, and fortune in the infamous “business” of entertainment. The glitz and glamour of “Hollywood” that is ingrained on young people’s minds in Iowa, Minnesota, Alabama, etc etc. The entertainment industry, albeit having migrations of their own to places like Vancouver, B.C., isn’t going anywhere in the near future. There are new shows, movies, music, etc. produced every year, and new actors, writers, producers, directors, graphic artists, agents, the list goes on. One thing is certain, they make money. Lots of money. Sure a small percentage of SAG (Screen Actors Guild) members are among the fortunate, (myself and wife being members). However, when they make money, they make lots and lots and lots of money. More than enough to cover the cost of housing and living in Hollywood, or the Valley, West LA, etc. New money every year, and those who made their millions can afford to buy and stay. This is one big reason why housing will continue to rise. Yes there are many other factors and much more sectors than entertainment. BUT, this is the entertainment capital of the world, where multi-millionares are made every year, and the allure factor “why not me” just won’t end. Let me end with just one example, and is on a small scale of possibilities. My wife, who is an actor, did 2 commercials last year. She worked a total of 7 days for them. 2 for actual filming, 5 for wardrobe and auditions. After a full year of play, (which they can always bring back in some future date), made over $50,000!!! Not bad for a week.
To the reply that said his wife is an actor, check again buddy, you may be getting the wrong end of the “stick” (it’s actress you idiot)!
So what, when she or you are in you late 30’s or early 40’s, the money train will end and you will burn through whatever you have so fast you’ll wonder where it went … and then join the army of California’s who end up financially “f@8#ed”, and putting on a front for as long as it lasts!