back to article The good burghers of Palo Alto are entirely insane

El Reg treated us last weekend to the tale of the Buena Vista Mobile Home Park in Palo Alto, where the owner has a small ethical dilemma to deal with. The 4.5 acre site is apparently worth $55 million and the city council would like to buy it, but they've only got $39 million. The dilemma is that if he sells to the city council …

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  1. Steve Davies 3 Silver badge
    Boffin

    Surrey and its golf courses

    Whilst it might be true about houses and gold courses, a good few of them have gone bust.

    It is not only in Surrey that this has happened.

    Golf (and everything around it including doing biz whilst playing a round) is dropping in popularity.

    It is also fiendishly expensive the S.E. blighty.

    so much of what Mr W compares with Silicon Valley is true.IMHO.

    I seem to remember seeing one decrepit GF that was farmland 20 years ago that has been recently sold for development of 4-5 bed houses. No affordable housing in that neck of the woods. It is the Surrey Stockbroker Belt after all. The locals can't have the plebs lowing the tone of the place now can one?

    I can't help wondering if this was all planned. Build a gold cource, run it for a few years, close it down and build houses. A good way round planning restrictions then? A good few millionaires made in the process I should imagine.

    As for the US, the NIMBY's don't go out protesting. Over there, they just sue everyone in sight. That will make the local councils tread very carefully. My guess is that those emply plots might have a bit of dodgy provenance on them. More than their jobsworth to rish developing them then!

    1. Anonymous Coward
      Anonymous Coward

      Re: Surrey and its golf courses

      I once analysed the golf course thing as farmernomics.

      Farmers work like this: very few of them have original ideas. What happens is, they watch what their neighbours do, then copy it (a former gf remembered watching a farmer being driven by his wife in the pickup of their Land Rover so he could see over the hedge and find out what his neighbour was up to. Do not try this on a road with potholes. But I digress.)

      So one farmer with some originality converted some poor land to a golf course and became rich. When the other farmers saw what was happening they did the same. But the inevitable laws of supply and demand crept in. They had to cut prices, so golf became cheaper, but they made much less money. Before long, the huge joining fee became just turn up and play.

      Also some of them didn't have marginal land so they built their golf courses on good agricultural land, thus reducing their total income. Result, bustness.

      Meanwhile the first farmer has probably invested in the profits in a solar farm, high tech milking system, state of the art equipment, a farm shop and café and paying off his mortgage. So he makes money farming.

      1. Fungus Bob Silver badge
        Holmes

        Re: Surrey and its golf courses

        "Farmers work like this: very few of them have original ideas."

        So they're just like every other businessman...

        1. fajensen Silver badge
          Coat

          Re: Surrey and its golf courses

          So they're just like every other businessman...

          ... businessmen who sometimes carry guns to work.

      2. fajensen Silver badge

        Re: Surrey and its golf courses

        Oh - THAT is what all the hedgerows are for: Keep those spying eyes off My Land!

    2. Evil Graham

      Re: Surrey and its golf courses

      Golf (and everything around it including doing biz whilst playing a round) is dropping in popularity.

      Good.

  2. YetAnotherLocksmith

    Spot on!

    Good article - and something that hadn't occurred to me in this respect.

    1. Zog_but_not_the_first Silver badge

      Re: Spot on!

      A fascinating discourse on that most tantalising of subjects - value. I had this brought home to me on a business course long ago where the presenter piled up some everyday objects in no particular order. He asked the audience, "What's it worth?" Various estimates followed, generally close to "nothing".

      "Now", he said. "What if Andy Warhol had constructed this little sculpture..."

  3. Zog_but_not_the_first Silver badge
    Alert

    Ownership and liability

    What worries me rather more is the statement by someone in the Gov a couple of years back (I think it may have been IDS) when answering a question on the UK national debt. "Not to worry, our housing stock is worth much more than that".

    Now as someone in the fortunate position of having the deeds to my house, I thought I owned it.

    1. The Axe

      Re: Ownership and liability

      And to correct IDS (if it was him) further, the price of a house is nothing - until it is put up for sale.

    2. Pierre Castille
      Go

      Re: Ownership and liability

      Many years ago I was told that part of the post war success of Western Germany resulted from massive loans from the USA made by Adenauer's government using German private property (deeds to houses) as collateral.

      If this was true it was a smart move. Germany needed money and US banks needed surety. It is a pity that the Greek government didn't think of this earlier this year.

      1. Tim Worstal

        Re: Ownership and liability

        Well, sorta. Actually, the Rentenmark, and to deal with the Weimar inflation.

        https://en.wikipedia.org/wiki/German_Rentenmark

        And sorta, sorta, a pledge of the land values. But also sorta a pledge of the tax revenues to be had over time from those recorded land values.

        But Germany though.....

    3. Steve Knox Silver badge

      Re: Ownership and liability

      Two Points:

      1. Now as someone in the fortunate position of having the deeds to my house, I thought I owned it. Yes and no. You own the land, but your ownership rights derive from and are controlled by the state. See https://en.wikipedia.org/wiki/Eminent_domain (aka compulsory purchase in the UK.)

      2. To whom do you think possibly-IDS was referring when he said "our housing stock"? Since the question was on the UK national debt, the logical answer would be the nation of the UK, of which you are either a member or under the jurisdiction of vis-a-vis your property deeds.

      In both cases, reference to "your" property as part of "our" housing stock makes sense.

      1. Doctor Syntax Silver badge

        Re: Ownership and liability

        @Steve Knox

        If you follow your own link you will see that E&W practice nowadays is that the if the state takes the land then it must provide compensation. If, therefore, the state wished to clear all existing debt by compulsorily acquiring sufficient property & reselling it it would have to raise an equivalent amount of new debt to do so leaving no reduction in the debt but a tidy profit to the solicitors who carried out the conveyancing.

  4. graeme leggett Silver badge

    I'm sure that were any council to buy some land and then declare it buildable on, that someone else (a land owner or developer probably) would complain that they were being diddled out of something. And quite likely they would have an argument that it was some sort of abuse of privilege.

    And I wouldn't be surprised if having created more buildable land, council found it had to be sold "at market price" with the effect of inflating its cost such that only a developer creating 'executive housing' would be able to buy and Thu having little ameliorating effect on housing affordability.

    This example council could create a lot of land for building at once. Which ought to depress price and let other developers in. But would it be enough that lower priced housing occurred,or would it all get bought up for executive homes with garages for two cars and a hanky-sized garden?

    Add in the complaints about over development by owners of existing housing nearby, and who would want to be a councillor, or housing officer.

    1. Fibbles

      Pretty much what I was thinking.

      Planning laws are there for The Greater Good ®. The thing about doing something for the general good of everyone is that on a specific, individual level it might actually be against that person or organization's best interests. However, the council can't start moving the goal posts every time a decision goes against them. If they won't follow their own laws, why should anybody else?

      1. Charles Manning

        The Greater Good

        Sure, we must think of the Greater Good, but that needs to be balanced with the individual good too.

        As Tim has pointed, out, much - perhaps most - of the capital that individuals own is in property. That capital value is underpinned by a controlled scarcity caused by zoning laws.

        If the cities were to rapidly open up huge tracts of land for development through re-zoning then, in the short term at least, land prices will be driven down.

        That sucks for at least the following reasons:

        * If your house devalues from, say 600k to, say, 400k then that 200k shortfall is still real money for the individual. They're still paying mortgage on a 600k house that is now only worth 400k. Some people will end up owing more than the property value.

        * Cities charge taxes based on property value. When property values go down, they have a hard time pushing up the charges to compensate.

        So how does one act in the common good without ripping off the individual?

        1. JP19

          Re: The Greater Good

          "So how does one act in the common good without ripping off the individual?"

          You were ripped off when you paid too much money in the first place. You argue that we should carry on ripping off everyone so you can pretend that you weren't ripped off - common good my arse.

          I wish my house was worth £20 because I would go out tomorrow and spend £40 to get a much nicer one.

    2. Yet Another Anonymous coward Silver badge

      Remember though in small town America the local council is directly elected as individuals - not just a block of lib-dems or labour depending on which lot in Westminster you are currently mad at.

      So the local council is often stacked with local business owners (who else can afford to run and take an unpaid post).

      Our little town almost bankrupted itself 10years ago by buying a bunch of land to develop houses on. The sale of the houses would pay for the roads, water, sewage etc that it had to build first - it completed the empty lots in 2008 just into the housing crash.

      Now a block of local property developers got elected and not wanting any competition to their existing market - the lots are still empty, we are paying for the infrastructure, we are paying for the loans, and we still have a shortage of housing.

      1. Alan Brown Silver badge

        "So the local council is often stacked with local business owners"

        Same in New Zealand. one town (Palmerston North) had the council taken over by property developers - who then zoned flood ponding areas for housing and wrote themselves exemptions for minimum floor heights (In some cases, 5 metres below the expected ponding levels) - in the face of major objections by the regional river management board (catchment board).

        Eventually the whole mess got exposed by a major storm which came within a whisker of making 10,000+ people homeless when a levee (stop bank) started to fail under the load.

        1. Yet Another Anonymous coward Silver badge

          We have an extra terror here = Lawyers.

          If the council pass a bylaw that restricts development in any way they are threatened with a lawsuit where even if they won it would cost our small town $$$$ to defend itself. And whenever they pass a bylaw that might allow any development they get hit by a threat of an environmental objections that would take years and cost $$$$.

          The result is that nothing has happened for years - we might have invented the perfect form of government.

      2. JLV Silver badge

        >So the local council is often stacked with local business owners (who else can afford to run and take an unpaid post).

        and in Roman times unpaid senatorial or governor positions were heavily and expensively sought after. Because they gave the title holder all sorts of lucrative ways to stuff his pockets once in place.

        Remember that next time you evaluate pay for your elected officials. Which can be surprisingly low, but in some countries lead to all sorts of pension goodies, a form of remuneration which provides no value whatsoever to taxpayers.

        Re. Palo Alto, it would be unethical, and possibly illegal, for "zoning controllers" to purchase un-housing land at low cost and then rezone it into a higher bracket. This is a prime source of corruption by local (& low paid) officialdom in China.

        A low-cost housing only zoning classification would be fairer and more transparent.

    3. nijam Silver badge

      Exactly so. And in fact, the phrase "The answer is for the council to buy some land not currently zoned for such housing and then so zone it." is a pretty accurate description of insider trading.

      But apart from that, I'd generally agree that the whole lot of them are insane.

  5. Gordon 10 Silver badge

    so why can't

    The council just rezone the land back to lowrise use or mandate some mix of social housing like they do over here?

    Seems batshit crazy one way or another.

    I presume the rezoning laws are a little less simple than SIM City has led me to believe?

    1. Tim Worstal

      Re: so why can't

      Taking away the permission in US law would be a "taking". Something that they must compensate for at full value. Creating new stuff they can do.

      1. Peter Simpson 1

        Re: so why can't

        Taking away the permission in US law would be a "taking". Something that they must compensate for at full value.

        Uh...true, except they define "full value" as the value at which the property is appraised for tax purposes, which is often significantly lower than the market price.

        // this does vary by state, though

  6. LDS Silver badge

    The issue is tha building on 'virgin' land...

    ... is far cheaper than buy, demolish old buildings, clean up and build new ones (unless a war helps you). Thereby 'investors' prefer to destroy new land while leaving behind old building areas which soon turns into slums - which has a negative economic impact also. Unluckily, the only way to stop this is through 'zoning', and then, yes, the 'artificial' value created can be good, if it puts constraints to redevelop areas instead of abandoning them while exploiting new ones in larger and larger circles - land in not an infinite resource...

    1. Zog_but_not_the_first Silver badge
      Trollface

      Re: The issue is tha building on 'virgin' land...

      Only in Yorkshire?

    2. Yet Another Anonymous coward Silver badge

      Re: The issue is tha building on 'virgin' land...

      So on one side of a road you have houses so astronomically expensive that people are spending 2/3 of their income paying the mortgage, leaving them too poor to spend anything in the local economy, leading to stagflation.

      And on the other side of the road you have fields that the farmer is being paid to keep empty because the crops they would grow are already so cheap it wouldn't be worth adding to the stockpile.

      And yet the government can't give planning permission to build houses on the land because ?????

      1. Anonymous Coward
        Anonymous Coward

        Re: The issue is tha building on 'virgin' land...

        Oh, I know. Is it because the fields are full of straw men?

      2. LDS Silver badge

        "fields that the farmer is being paid to keep empty"

        Just as long as you can import cheaper crop - which may not be true in the future... I'd be careful to build houses everywhere, you can't grow nor eat concrete... one day those fields could turn very useful.

        Houses prices have nothing to do with availability, in a few countries there are *more* houses available than people and demand, still builder/owners tries to keep prices far too high for the available income (and many houses stay unsold) - even if building is now cheaper than ever, especially since workers are mostly low-paid immigrants from East Europe and Africa - but it was a quick way to make money, together banks for which mortgage loans have been a huge, easy, no-hassle affair in the past years - far easier and less risky than to invest into other kind of businesses - which also explains part of the enduring crisis in many European countries.

    3. jake Silver badge

      Re: The issue is tha building on 'virgin' land...

      "... is far cheaper than buy, demolish old buildings, clean up and build new ones"

      Uh, no. Clearing land is clearing land. The cost is always the same, virgin or not. Bring in heavy equipment for a day or three, haul off the unwanted to a landfill. Houses, trees, brush, concrete, asphalt, whatever, it's all the same cost when clearing land for re-use. And in fact, older properties bring in the specter of asbestos and lead-based paint, which is REALLY spendy to clean up.

      For the record, a major cost of developing land is infrastructure. Water, electricity, gas, sewer. If these already exist, the developer is ahead of the game.

      I could tell you how I know this, but if I did you would probably shoot me.

      1. Anonymous Coward
        Anonymous Coward

        Re: The issue is tha building on 'virgin' land...

        In the UK you have to pay VAT on brownfield sites while greenfield sites are exempt. The brownfield site will also contain utilities etc that while totally unsuitable for your purposes will still be included in the valuation, again something you avoid with a greenfield site.

        BTW - I am not familiar with the situation in Surrey but many golf courses in the UK are legalised dumps for builders waste. Here is a link to the Adam Smith institute article on it: http://www.adamsmith.org/blog/planning-transport/why-golf-is-a-rubbish-sport/

      2. Naughtyhorse

        Re: Houses, trees, brush, concrete, asphalt, whatever,

        Let's add asbestos and cadmium to that list...

        although to be fair, prolly not much in the way of Japanese Knotweed which is equally outrageously expensive to remove from site.

  7. Pen-y-gors Silver badge

    Insurance value?

    IANA Insurance Broker but...I think you'll find that your insurance company actually insures you for the 'rebuilding cost' of your house, not the market value of the house (less land value etc). In expensive areas this may be a lot less than the market value of the entire site, but in cheaper areas may be a lot more than the market value, as it includes the cost of demolition and clearing the site, plus the cost of doing a one-off build (rather than perhaps building an estate all at once)

    1. Tim Worstal

      Re: Insurance value?

      Yes, you're right, sorry phrased that rather badly. Maxima culpa etc.....

  8. John Savard Silver badge

    Free Market Consistency

    If someone owns land in Palo Alto, then in a true free market system, of course he would be able to build on it. Preventing him from doing so is an act of interference in the free market system by the government. So the ability to build on land is not value created by the government of Palo Alto - it is value the city council has merely omitted to destroy.

    1. Tim Worstal

      Re: Free Market Consistency

      Umm, true, but I fear it's a little bit Randian even for me.....

      1. Yet Another Anonymous coward Silver badge

        Re: Free Market Consistency

        It's also where the free market and Bentham-ism align.

        If you wanted to create the greatest good for the greatest number of people you would sell the land to the highest bidder and let them create as many apartments as they could fit onto the land. The poor disposed would then benefit from the drop in house prices in surrounding areas as people there are able to move into the city.

        Deciding that some tiny minority of the poor are allowed to live in rent controlled apartments in Manhattan or a council house in Chelsea is silly. It's like solving the problem of public transit by giving 1 person in a million a free Rolls Royce.

    2. DougS Silver badge

      Re: Free Market Consistency

      If schools were truly equal, this would be less of a problem. One of the reasons people (both rich and poor) want to live there is that Palo Alto has great schools, due to the huge property tax revenue flowing in. If the schools were the same in Palo Alto as in any other city in California, there would be less demand to live within Palo Alto and property prices wouldn't be quite so high.

      1. Greg 16

        Re: Free Market Consistency

        Are the schools really that different, or does the wealth of the area lead to the good schools becoming a self-fulfilling prophesy? i.e. the area attracts parents who care about their kids education and are also presumably of above average intelligence themselves (they're high earners). That means the teachers will have a much easier job than teachers working in an 'average' school.

        1. jake Silver badge

          Re: Free Market Consistency

          "or does the wealth of the area lead to the good schools becoming a self-fulfilling prophesy?"

          Yes.

          Palo Alto native, born at Stanford Hospital.

        2. codejunky Silver badge

          Re: Free Market Consistency

          @ Greg 16

          "Are the schools really that different, or does the wealth of the area lead to the good schools becoming a self-fulfilling prophesy?"

          Almost certainly and would we want to change that? Do we drag everyone down in the name of equality or do we allow people to group up and gain a reputation of their own? Some place must always be at the bottom of the pile but it allows others to excel at their strengths.

          1. This post has been deleted by its author

            1. codejunky Silver badge

              Re: Free Market Consistency

              @ Arnaut the less

              "So tell me - did you get a scholarship to Eton or did Daddy just buy a place as usual?"

              This is where I really want to pat you on the head while looking at you with sympathy. Cmon Arnaut, dont feel like less, we cant all be like that.

              In fact I didnt go to Eton, no scholarship nor daddy buying me a place anywhere either (not much hope of that). The conversation was about good schools in a wealthy area which I am sure includes private schools but I doubt it excludes state schools. Either way I still wouldnt have a problem with it.

              I got the wonderful state education (UK) and the hell it was until finally being released. The aspirations of the fellow inmates was to get a crap job, preferably the dole or (if female) knocked up for the free house and money. But instead of feeling sorry for myself and looking with green eyes at anyone I may accuse of having it easier/better I did what I could to get away from that life.

              So when I say I wouldnt want to change good areas having good schools etc what I am saying is I wouldnt want a hell hole inflicted on everyone in the name of equality and at least with good areas and good schools there is hope of good education until the others can be dragged up and improved. Regardless of how much money people have.

        3. Naughtyhorse

          Re:above average intelligence themselves (they're high earners)

          Greg 16, let me introduce prospective candidate for POTUS donald trump, you have clearly never met!

  9. Identity
    Boffin

    I'm shocked!

    "given that it's the good burghers of Palo Alto – through their city council – who decide on which pieces of land you can build on in that fair city, then they're fucking insane to be paying for something which they themselves created for free."

    Is TW serious? Since the current owner has undoubtedly paid for the property, for the city council (et al) to simply withdraw permission for anything other than the current use amounts to government seizure by eminent domain. Surely that does not jibe with Worstallism. In fact, the US Supreme Court (in Kelo v. the City of New London [strangely by majority of the liberal justices]) ruled that a higher tax value is sufficient reason for such seizure.

    Not that I'm recommending this. Among the other problems with this week's screed is externalities. When we say, "for our wealth stock is, by definition, our capital, and GDP is the annual income that we gain from employing that capital. If we're getting less GDP from the same capital, or we've more capital producing the same GDP, then the society is becoming less efficient," we are saying that things like environmental preservation have no value, primarily because they are not monetized.

    And I will say again that rises in prices (too often confused with value) are more often than not synonymous with inflation, and are not really growth.

    1. Tim Worstal

      Re: I'm shocked!

      ERM, I've not suggested that the current permission be withdrawn, which would indeed be a taking.

      Instead, that they grant new permission on another piece of land.

      1. This post has been deleted by its author

        1. Tim Worstal

          Re: I'm shocked!

          It's not " a taking" in law, no.

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