This is a tale of why and how the citizens of Berkeley got scammed by voting for the 2010 Measure R, and then scammed again when they voted against the 2014 Measure R. Let’s start with “why”. Why is the 2010 Measure R really a high-rise, luxury condo development plan that won’t help Berkeley’s housing problems or the environment? The answer is found in the global condo market driven by speculators parking some of their $30 trillion in liquidity (see Jack Rasmus’ “Epic Recession”) in luxury housing. These mostly foreign speculators are inflating a bubble identical to the mortgage backed securities bubble that popped in 2008. Developers are not building housing that will relieve the housing crisis for moderate and low income workers in the bay area. Instead they are catering to high-end demand from both speculators and techies.

But you might ask, doesn’t 2010 Measure R at least demand “green” construction? And the answer is NO. There is no such thing as “green” luxury condos. It’s an oxymoron — like green yachts. They waste resources. They drive up housing prices and force people who actually work in Berkeley to live elsewhere – leading to more waste from commuting. Expensive condos rented at $3k-$4k per month will result in other landlords also raising rents forcing more people to commute from outside Berkeley. Teachers, firefighters, police, hospital workers, city workers, and small business employees – they can’t afford to live in Berkeley. The city needs to demand that all new construction requiring a zoning variance be directed toward moderate or low income housing. New development should be used for public benefit, not to maximize profits.

So how does the developer’s scam work? First, venture capitalists (VCs or vulture capitalists) find a city in a desirable area with zoning laws that limit building height and density. They buy up property on the cheap and then influence with the City Council to change the city plan. Who are these developers? One of them is a guy by the name of Sam Zell – a name worth checking out. Tactics used to fool the public include misleading mailers. But some people in Berkeley were paying attention and understood that the 2010 Measure R was greenwashed. They tried to correct this with the 2014 Measure R (confusing name). Unfortunately developer and VC money was funneled into the No on Measure R (2014) campaign which threatened their scam.

Once the developers’ city plan was in place, they needed fixers to assure that the high rise development would go to the correct developers. A former city planner and someone who had a hand in writing the city plan appear to be the most useful in this process of funneling zoning variances to the right developers. And the revolving door between government and business helped. Those connections to ZAB staff, the Landmark Commission, and City Council members grease the wheels of development.

Once the high rise permits are in place, the VC will generally sell to a developer and walk away with a hefty profit – properties can double in value making millions for the VC. The developer will find other speculators who front the capital to build the project. The most profitable developments (luxury condos) are selected to feed the speculation bubble whether the city needs them or not (ever notice those luxury condo vacancy signs). Upon completion the condos are sold to new speculators inflating the bubble further and providing hefty profits to the developer and his development speculators. Each level of asset selling inflates the bubble and makes it more difficult for a city to enforce even minimal community benefits that the original VC may have promised. This is especially true for a city strapped for employees who could follow up on agreements with a myriad of new owners (many of whom don’t even live in the country). The promised community benefits evaporate, the public’s memory is short, and developer/speculator profits grow even bigger. The net result is that valuable land that could be used for moderate income housing near public transportation is instead used for speculative condos that may remain vacant.

The City Council, by siding with developers and failing to protect our interests, will destroy the fabric of our city. Developers are driving up housing costs, producing environmentally wasteful luxury construction, and destroying the mixed blue and white collar community that we all love. The public needs to understand this scam and investigate any collusion between developers, the City Council and the ZAB, in particular the mayor who sold us this pig in a poke. We need to slow down the ZAB permit process and educate the public on this critical issue that impacts our city’s future. We need to make changes to the city development plan that places creating a livable, sustainable, diverse Berkeley ahead of developer and venture capitalist profits.

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James McFadden is a Berkeley resident and research physicist at UCB whose interest of economics, bubble markets, and market manipulation date back to the 2008 economic collapse.
James McFadden is a Berkeley resident and research physicist at UCB whose interest of economics, bubble markets, and market manipulation date back to the 2008 economic collapse.