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Solimar Research

It's Time to Stop Demonization of Developers

Josh Stephens on
Apr 18, 2017

A few years ago, Charlie Munger ended up with a piece of property in my neighborhood. He decided to develop an upscale retail center: restaurants, boutiques, nail salons, or whatever. His architect came up with an elegant design of an appropriate scale, and his development company set about getting approvals. 

To make a long story short, neighbors bent over backwards to kill the project. Four years later, the site consists of an empty lot and an abandoned building surrounded by chain link. 

I thought of Munger whenever I heard an activist rail about "greedy developers" during the recent battle over Measure S in Los Angeles. Munger insisted that he had no interest in profit and just wanted his project to be something "nice for the community," as he put it at a meeting I attended.

I believe him. See, Munger is Warren Buffet's business partner. He's worth $1.4 billion, and he's ninety-three years old. He has no use for greed.

Needless to say, not every developer is a Charlie Munger. Unfortunately, many people in Los Angeles talk about developers like they're all Charles Manson. 

Among the grandiose promises, half-truths, and outright whoppers that sponsors of Measure S proffered, one of the most consistent messages concerned the depravity of real estate developers. They affixed “greedy” to the profession the way the president affixed “crooked” to his opponent. Perhaps most damningly, they referred to developers as “Trump’s pals.” (Munger, for one, isn’t.)

To hear the Measure S coalition tell it, developers, be they individuals or companies, want to exploit the city, corrupt the politicians, and build the biggest, ugliest structures they can, everywhere and anywhere. They foist “luxury” apartments upon and invite gentrification into unsuspecting neighborhoods and drive up rents, as if gentrification depends purely on supply and has nothing to do with demand. 

Left unchecked, Los Angeles would suffer “Manhattanization,” as if resembling the most prosperous, most exciting city in the world would be a fate worse than death. 

***

These accusations came from two angles. Traditional NIMBY’s consider anything that blocks their view, slows their commute, or makes it easier for “those people” to live nearby to be a nefarious deed.

On the other end of the political spectrum, advocates for social justice implicate developers in all that is wrong with capitalism. To hear them tell it, every developer is, if not Charles Mason, at least Henry Potter, gleefully putting up shacks and gouging the good people of Bedford Falls at every turn. Of course, the greedy developer stereotype is grounded in reality. Like many other city-watchers in Los Angeles, I’ve taken my shots at people like Geoff Palmer. Mall developer Rick Caruso is an affable enough guy, but no one would accuse him of pursuing a modest lifestyle. Don’t get me started on Donald Stirling. 

Are developers aggressive? Many are. Do they come off as slick rather than earnest? Sometimes. Are they trying to make money? Of course. What I don’t get is why their efforts are so much more nefarious than anyone else’s.

Grocery stories don’t sell food for free. Doctors don’t perform surgery for free. Teachers don’t go to class for their health. Movie stars don’t act for free. Even staff members at charities are entitled to earn a competitive salary. (More on that later.)

Developers make money because they produce something that people are willing to pay for. Unless you built your own house, you are living someplace that was, by definition, built by a developer -- or at least by someone willing to make that knotty leap from use value to exchange value. If you don’t like developers, I’m sure A16 has a few tents they can sell you. 

Developers get special attention — and special derision — for two related reasons. First, their products are literally visible. We see what they are doing, and we can decide immediately whether we approve or not. Second, their business inherently depends on the public trust and impact the public realm. Land, sky, and infrastructure are public goods, in the strictest, Economics 101 sense of the term. They are not to be handed over wantonly. Developers who manipulate the public process — maybe, as the Yes on S coalition claimed, with the occasional campaign contribution or secret handshake — are classic rent-seekers. I get it: that’s not cool. 

And yet, if we’re going to get all huffy about capitalists, I’d submit that real estate developers are the least of our worries. Sure, you might hate the Hollywood Palladium towers. But at least you see what you’re getting. The very quality that makes real estate threatening is the same quality that limits the damage it can do. I’m far more concerned about, say, greedy drug companies, greedy food companies, greedy financiers, and greedy defense contractors than I am about greedy developers. 

***

The Carusos and Palmers notwithstanding, many developers are more like regular white-collar professionals than they are captains of industry. They put in crazy hours — nay, years — partly to navigate our regulatory morass, often with uncertainty every step of the way. Many of them make good livings, but few of them make killings.

With that said, from a purely psychological standpoint, do we really expect developers to do good work and to want to cooperate with the city if we’re berating them all the time? If you call people “evil” and “greedy” often enough, they’re either going to get really uncooperative, or they’re just going to say to hell with it and conform to the labels they’re given. 

In the middle of all of this, you have the pot calling the kettle black. If anyone has committed the sin of avarice, it’s the AIDS Healthcare Foundation. They’re the ones who created, sponsored, and overwhelmingly funded (if you consider 99 percent overwhelming) the Yes on S campaign. You have to wonder how a nonprofit company manages to sock away so much money that it can spend $6 million on billboards. (The answer: you can do it when you have annual revenue of $900 million, an annual budget of $160 million, and pay the executive director $380,000 per year. How many developers would love to have that kind of balance sheet?)

It’s usually easy to claim the moral high ground when you're an AIDS charity. Until, of course, you stray so far from your mission that you start seeming like a plague on the city.

And let’s not forget about the real power brokers in Los Angeles. In many ways, the Measure S campaign was a smokescreen for homeowners’ own greed. Indirectly, their properties become more valuable as supply is constrained. There’s rent-seeking capitalism, at work yet again. More directly, homeowners associations are pretty adept at extracting concessions from developers. Developers lop off a few stories from their buildings and add community amenities all the time. Sometimes they even cough up cash payments that fund HOA's own war chests, to be deployed next time someone proposes 22 stories rather than 16. 

***

Developers, like the grocery store and the doctor and plenty of other capitalists, serve crucial functions in society. In fact, planning and development — the very name of this publication — are inextricably and symbiotically linked. Plans mean nothing without someone to build them.

Of course, a city’s plans can be lousy. That’s why Measure S was so potent. It called out Los Angeles’ antiquated plans and rightfully highlighted the absurdity of “spot zoning." But, whether plans are outdated or enlightened, most developers are just trying to do their thing. 

For too long in Los Angeles, developers have been the only ones actually advocating for more housing. The vast majority of Los Angeles’ rent-burdened residents have sat by (probably because they’re working three jobs) while slow-growth interests have lobbied against every additional unit. This situation has left developers to fend for themselves, pleading their cases before roomfuls of indignant homeowners, praying that planning commissioners and zoning administrators will see through their protests and acknowledge the greater good. And, yes, I’m sure they make occasional campaign contributions.

My point is, no one is entirely guilty in this mess, and no one is entirely innocent. 

***

We who live in the new, ascendant, post-Measure S Los Angeles can choose how to understand each other and how to relate to each other. If we restrict development just because developers are “greedy” or fail to implement policies to reduce their temptations, then the joke’s on us. As rents keep rising, it’s the landlords – not the developers – who win big. 

The way to prevent this is to reject the divisiveness of the Measure S campaign. We 4 million people live in close quarters on a small piece of this earth. We are neighbors, whether we like it or not. And, contrary to the city’s history and culture, we’re going to have to embrace each other a little bit more. We’re going to have to stop the name-calling and tone down the distrust and put aside the rivalries so we can all work towards a better city, compromises and all. 

No matter how high the towers of the future rise and no matter how dense certain neighborhoods get, it’s the attitude — more so than any single development or any citywide policy — that will help Los Angeles put its past behind it and embrace a new era. 

To paraphrase the president, some developers, I assume, are terrible people. But most are not. In this new era, developers deserve the benefit of the doubt. Charlie Munger certainly does. As for the Donalds – Stirling, Trump – and their ilk, not so much.

Author's note: This piece has been edited since its original posting.

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