Monday, June 22, 2015

Looming Real Estate Crash in California?

A few days ago, it was reported that the planned community of Mountain House, California, was about to have its water cut off due to the drought. The community gets its drinking water from an irrigation district which has been ordered to shut down its canal. In April, it was reported that thousands of wells were going dry. And since there is less water to drive hydro-power generators, Californians will be paying more for electricity. The California housing market has been in trouble for awhile, but Mike Adams, writing at Natural News, thinks that the loss of water (or at least the dramatic rise in costs) may cause property values to plunge concurrent with a population exodus from the state.

I don't see California becoming a dust bowl soon. The large cities will certainly have enough water, even though the price of water may go up. Also, landscaping may have to transition to that found around homes and businesses in Arizona (lots of rock and gravel and very little grass). Small communities and rural areas will face the largest problems, and very well may depopulate as wells run dry and agricultural jobs blow away in the wind. It won't be rosy, but the drought, by itself, will not be the death of California.

The real issue is that California is so regulated and taxed that it has little surplus to deal with a crises. The pension crises means that California taxes have no place to go but up. Consequently, there will be a constant hemorrhaging of small businesses to other states, and the ability of the State to raise cash will be limited. But, with no surplus to draw upon, California is vulnerable to other shocks. So, an extended drought (as this appears to be) combined with a major earthquake or other disaster could see California and its citizens extended beyond their limits.

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