Growth, Sprawl, and the Contradictions of Capitalism:

San Diego Suburbs and the Speculative Frenzy, 1970-1991

Abstract

San Diego has become the most beautiful place where nobody can afford to live because speculative growth drives housing prices regardless of the level of supply or demand. How this happened in San Diego County is fairly clear. Marx explained that ground rents (and thereby land prices) increase when capital and labor are invested in the most valuable land and when investment is intensive, with vast amounts of labor and capital focused on the high yield properties to the virtual exclusion of less productive or less valuable lands. In fact, speculative growth between 1960 and 1980 conformed to what Marx identified as the ideal case for speculative growth in land prices. The speculative growth of housing inspired environmental, tax revolt, and no-growth movements, but the demand for affordable housing was short lived and of limited impact. Nevertheless, there is no reason why land in San Diego must be overpriced, except for the desire to profit from speculation in land use futures.

Richard Hogan

Purdue University

March 2010

Keywords: ground rents, speculation, San Diego suburbs

Growth, Sprawl, and the Contradictions of Capitalism:

San Diego Suburbs and the Speculative Frenzy, 1970-1991

San Diego has become the most beautiful place where nobody can afford to live. There are no jobs other than real estate speculation that will provide adequate salaries to purchase or rent adequate housing in San Diego. Why? Because land speculation combined with tourism has become the industrial base for economic growth. Although speculators dominated the local political economy even in the good old days of the military industrial complex, the postmodern political economy, beginning with Mayor Pete Wilson's growth control policies (in 1972) and culminating in Governor Pete Wilson's state habitat protection plan (in 1992) has elevated land speculation to a fine art, indeed a science, whereby capital accumulation no longer requires the production of goods and services. Thus housing futures become the object of speculation in master plan development, where prices increase even when overbuilding has doubled the vacancy rate and even when environmental and growth control movements, economic and political crises reduce population and housing growth to almost zero. In other words, speculative growth drives housing prices regardless of the level of supply or demand.

How this happened in San Diego County is fairly clear, based on Marx's theory of ground rents. Specifically, Marx explained that ground rent (and thereby land prices) increase when capital and labor are invested in the most valuable land and when investment is intensive, with vast amounts of labor and capital focused on the high yield properties to the virtual exclusion of less productive or less valuable lands.

Here we will rely on a simplified social geography as the context for applying Marx's theory to suburban sprawl in San Diego County between 1960 and 1991. Simply stated, between 1960 and 1990 (and to a large extent still) blacks lived the Southeast corner of the San Diego Central city (and near the marine base in Oceanside). Latinos lived in the South Suburbs, between the Central City and Tijuana, and in the eastern, rural region. Rich people lived on the coast, north of the Central City. Suburban affluence was situated near the estate of Ed Fletcher, in the East Suburbs, especially in the Mount Helix region of La Mesa and El Cajon. Native American Indians lived in the South East wilderness area.

Given this somewhat crude social geography, we can appreciate how speculative growth between 1960 and 1980 conformed to what Marx identified as the ideal case for speculative growth in land prices. In shopping center and freeway development between 1960 and 1991 there was a Northern bias, a Coastal bias (particularly in La Jolla, West of Interstate 5 and State 52, which forms the base of what is now called the "golden triangle" with the eastern perimeter defined by Interstate 805, between U.C.S.D., the Scripps Institute of Oceanography, and the surfing beaches north of Pacific Beach). Even in the interior region there was a focus on the relatively valuable land in La Mesa, and El Cajon, including Fletcher Hills, located between Mount Helix, Grossmont College, and San Diego State University, while the peripheral regions of Santee and Lakeside boomed as suburban housing tracts but remained isolated in the freeway and shopping center development. More central to the Seventies boom was San Marcos (in North County), where the medical industrial complex and the new California State University campus created a second city of sorts, adjacent to the luxury golf and tennis resorts of Carlsbad, with its high-priced estate lots featuring ocean views.

As we shall see, the speculative growth of housing, to the point of overbuilding in the high priced regions, inspired environmental, tax revolt, and no-growth movements, particularly in the North County Suburbs, which were experiencing the most rapid and most ruinous growth. Nevertheless, as we shall see in more detail, the demand for affordable housing was short lived and of limited impact. Ultimately, in the aftermath of the rebellions the new policy of smart growth exacerbated the problem by increasing the scale of speculation in land-use futures and the capital intensive nature of development while simultaneously increasing the local government's dependence on the developer (or the private sector investor).

As we can consider in conclusion, there is no reason why land in San Diego must be overpriced, except for the desire to profit from speculation in land use futures. If we wish to save paradise, we must banish the speculator, not just from the coastal and wetland regions but from sea to shining sea. To understand why, we must review Marx on ground rents and land prices. Marx offers an admittedly difficult and often less than inspiring analysis, but thanks to the valiant editorial efforts of Engels and the critical scholarship of Harvey (1973) this might provide the base for a simple explanation of why speculative growth increases land prices and how housing growth might be effected without inflationary prices.

Marx on Commodities and Ground Rents

The structural economic version of this argument is complex (see Harvey 1973), but it is rooted in Marx's assertion that land "is not the product of labor and therefore has no value" (1967 [1867-1894], volume III, p. 623). Theoretically, the purchase price of land is a function of the prevailing rent divided by the interest rate and multiplied by the length of the rental period (how many years it will sustain tenants). Different lands may rent at different prices because some are more productive than others (given soil fertility, access to water, or whatever). However, since land is a commodity, its price (including its rental price) is not determined by its productivity or "use value" but by the "laws" of supply and demand. Since landowners can keep land off the market until the demand exceeds the supply (and the price rises), the inflation of rent and property values can be totally independent of productivity. Thus Marx concludes, "Landed property is here a barrier which does not permit any new investment of capital in hitherto uncultivated or unrented land without levying a tax" [that is, without claiming a profit] (1967 [1867-1894], volume III, p.762).

In fact, the purchase price of land tends to increase over time for a variety of reasons that are not directly related to use value. When interest rates decline or consumer savings increase, when banks (or governments) offer long-term, low interest, unsecured loans to first-time home buyers (or veterans) or when the supply of land declines relative to the demand of consumers, land prices increase. For this reason, land tends to increase in price over time and tends to become the object of speculation, particularly during times of economic crises and de-industrialization. Thus the market value of land increases without any accompanying increase in the use value of the land. This is, in fact, why farmers are hardpressed to buy farm land on credit or, in some cases, to pay the taxes on the land they own. The market price of the land (what speculators will pay per acre) far exceeds the market value of the crops that the land will yield, even if the farmer is extremely industrious (see Marx 1967 [1867-1894], vol. III, p. 812, on small scale agriculture).

There is, however, an alternative to speculative growth and inflated land prices. Marx explains that there are two types of differential rents. Type I is rooted in differences in productivity. The least productive (worthless) land provides the base for calculating the differential rent for more productive land. In this case, as Marx (1967 [1867-1894], vol. III) explains, "[S]urplus profit is transformed into ground rent when two equal quantities of capital and labor are employed on equal areas of land with unequal results." (p. 649). The difference in the value of the product between least productive and more productive land is the value of differential rent (type I). Usually, labor and capital are invested in more productive land, which increases rent per acre (since relatively more acres of rent-bearing land are being brought into production) and thereby increases land prices. If, however, capital and labor were invested in worthless (least productive) land—clearing swamps or renovating ghetto housing—then the value of the land would increase without a corresponding increase in rent. All else being equal, property prices would not increase in this case.

In fact, this sort of capital improvement might yield differential rent of a different variety. Type II, the second form of differential rent discussed by Marx, reflects differences based on capital investment and the appropriation of these improvements by the landowner(pp. 674-709). Here too, however, there is a way to avoid inflationary growth. If capital investment is extensive (as opposed to intensive) there is an increase in rent that corresponds to the increase in capital but there is not an increase in rent per acre. As Marx (1967 [1867-1894], vol. 3) explains,

This is a phenomenon peculiar to differential rent II, distinguishing it from differential rent I. If the additional investments of capital were made successively in space, side by side in new additional soil of corresponding quality, rather than successively in time in the same soil, the quantity of the rental would have increased, and, as previously shown, so would the average rent from the total cultivated area, but not the magnitude of the rent per acre. (p. 691).

[T]he concentration of capital upon a smaller area of land increases the amount of rent per acre, whereas under the same conditions, its dispersion over a larger area, all other conditions being equal, does not produce this effect. (p. 692).

In other words, more intensive investment increases ground rent, which explains why differential investment strategies can affect the price of land, as Marx illustrates in comparing two countries with similarly fertile land and the same amount of capital, in which the one that invests more intensively has higher land prices than the more extensively invested nation (p. 692). "The additional capital, then, is always the cause for the relatively high rent, although absolutely it may have decreased." (p. 709) "So long as additional capital is invested in the same land with surplus-productivity, even if the surplus-productivity is decreasing, the absolute rent per acre in grain and money increases." (p. 733). "The investment of additional capital yielding only the average profit, whose surplus-productivity therefore=0, does not alter in any way the amount of the existing surplus-profit, and consequently of rent." (p. 734).

The investment in land that yields less than average (negative) profit actually reduces rents (p. 734), but, as we shall see, capitalists seek to invest in profitable enterprises. This is, of course, why tract homes in San Diego are selling for one million dollars and why foreclosures are a growing problem. My inclination would be to use the northern and eastern suburbs to raise avocados (which grow there in abundance), but it is more profitable in the postmodern economy to accumulate capital without providing goods or services (Harvey 1989). In fact, speculation in land, in Southern California, matches speculation in oil in the international market, as an attractive investment for multinational corporations. In both cases, potentially productive land not yet approved for drilling or housing is kept out of production in order to claim exorbitant "monopoly" rents on a small segment of available land that is actually available for use. How this booming market rose and fell between 1960 and 1989, when the savings and loan companies crashed and the bankers stole the money, is worth considering in some detail. Then, in conclusion, we can return to the larger theoretical issues that should clarify the legacy of smart growth and the prospects for the future of "yuppie heaven," the new San Diego, emerging from its ashes as "the unconventional city." First, however, a little social geography will be helpful as context for the analysis of freeway and shopping center development, 1960-1980.

San Diego County: Paradise Lost?

San Diego County is a vast Mediterranean paradise that runs from Tijuana, Mexico, to Camp Pendleton, USMC (the Marine Corps base that protects San Diego from the cancerous growth of Orange County). In between are 70 miles of sandy beaches, with large bays in the south and lagoons in the north. As seen in Figure 1, most of the cities in San Diego County are close to the coast, extending 15-30 miles into the interior grasslands, where tumbleweeds and then scrub oak and Manzanita extend upto the wet side of the coastal range, where Cuyamaca Rancho State Park (about 50 miles east of downtown), Mount Palomar, and Laguna provide forest and even skiing at 7,000 feet (see Figure 2). In fact, for senior ditch day at Monte Vista High School (located between La Mesa and ElCajon, about 15miles east of downtown San Diego) in 1969 half the senior class went to the beach while the other half went to play in the snow. Across the mountains is the Anza Borrego desert (about 90 miles east of downtown), which is no longer part of San Diego County. The desert, however, is the final piece of the Mediterranean paradise. If the beach is overcast (as is common in June),1 the wilderness area to the east is likely to be warm and sunny. If one can't find the sun there the mountains are sure to be above the cloud line. On the rare occasion when even the mountain town of Julian is cloudy and cool, the road to the desert is sure to lead to sunny skies and rising temperatures. If you like to play outside in 70 degree (F) weather, it is hard to find a place on earth more inviting than San Diego.

(figures 1 & 2 about here)

Although San Diego County is largely white, there is a black ghetto, Logan Heights, just south and east of downtown. There is also a modest black population in Oceanside, just below Camp Pendleton. As seen in Figure 3, the South Suburban and East Suburban areas, from South Bay (just south of Chula Vista) to Ramona (just east of Poway) were less than five percent black in 1990, and in North City, from Mission Beach to Del Mar, through North County East (Vista, San Marcos, and Escondido) and extending out into the Mountains in East County, the unincorporated area of the county, there were virtually no (<3%) blacks in 1990.

(figure 3 about here)

As seen in Figure 3, however, the SouthSuburbs (Chula Vista, Sweetwater, and South Bay) were largely (over 43%) Latino in 1990, and the central city, which was 15% black,was between 20% and 43% percent Latino. Most of the unincorporated, rural East County and all of the North County (above Del Mar) was 15 to 23% Latino. That leaves only the North City beaches, especially La Jolla (thewestern protuberance into the Pacific Ocean), and inland housing tracts, extending north and east toward Poway,that remained pristine white middle class suburban enclaves,during the population and housing boomsbetween 1960 and 1990.2

(figure 4 about here)

As we shall see, these pristine white middle class suburbs were the focus of the first wave of suburban growth, between 1940 and 1970, before the speculative growth of housing in the Seventies.

Shopping Center and Freeway Development, 1960-1989

Beginning in the 1970s there was a hue and cry against uncontrolled or unplanned growth in San Diego County, particular along the coast, but growth was neither unplanned nor uncontrolled. Initially, federal, state, and local governments cooperated in providing the infrastructure, most notably the freeways, but also the public schools, parks, and utilities that allowed for suburban growth. The private sector provided the tract housing and the shopping centers that were the terminus for the freeways that were gradually reaching the northern and eastern suburbs. There were serious gaps in the provision of infrastructure and, particularly in the early years, a tendency to ignore the city planners. The biggest problem, however, was not population growth but speculative growth in housing units in the 1970s, during Pete Wilson's tenure (1972-1982) as Mayor of San Diego (Davis 2003, p. 83; Hogan 2003, pp. 45-48).