Put a Lid on Construction Caps

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Santa Monica is crowded. Walking on the jammed sidewalks is like a modern-day joust. Traffic is impossible, and lucking into an on-street parking spot is a once-in-a-lifetime experience.

So it is understandable that residents are frustrated and some want to slam a lid on commercial growth. They’ve managed to get a measure on the ballot this fall that would cap construction of most commercial space to a piddling 75,000 square feet a year.

The frustration is understandable, but the proposal is misguided.

Like many measures designed to fix one problem, it may well end up creating others. And it may not even fix the crowding issue.

For example, if the proposal passes, developers who want to build even a moderate-sized mixed-use building may well avoid Santa Monica. Instead, they would have a big incentive to build near Santa Monica, perhaps just outside the city limits. Of course, that would only increase the amount of car trips into and out of Santa Monica.

What’s more, a limit of 75,000 square feet presumably means that only small to medium-sized projects could be built. Is that what Santa Monica wants? Lots of little buildings? Is that the “smart growth” high density near mass transit stops that so many seem to want for Los Angeles?

Funny, but the growth-control advocates say they want to stop the upward spiral of rents. But the growth-control measure’s main effect would be to raise rents and generally boost the price of buildings and land. That’s because the extra time, hassle and risk of getting something built will be, inevitably, costly. Lenders, for example, will charge more to back projects, knowing that any developer faces the additional risk of standing in line for maybe years to get a green light. The extra hassle will create legal bills. All those higher costs will, of course, get passed to the tenants and customers.

Also, the 75,000-square-foot cap means that each new square foot of commercial space will become a scarce commodity overnight. Of course, when any commodity becomes scarce, the price zooms up. (See oil prices, 2005 to today.)

Actually, the scarce commodity aspect poses another big problem. If commercial square footage becomes a scarce commodity, then the people who control that scarce commodity become more powerful. (See OPEC, 1973 to today.)

That means developers will have to bow to the powerful. They will have to go to City Hall to get permission, waivers or any other blessing they need. That, of course, will create a climate in which the now-flattered political class will have increasingly abundant reasons to put their hand out for favors or money.

If you want an example of how scarce commodities that are controlled by political types can create a corrupting influence, you don’t need to go to Louisiana. You can look to City Hall in downtown Los Angeles to see how developers and unions have formed a power block with the politicians.

Developers who want to build on a parcel don’t necessarily need to negotiate a price with landowners if they can get the city to spend taxpayers’ money to impose eminent domain. (See the article on Page 1 of this issue to get a little version of how that works.)

Yes, Santa Monica is crowded and the impulse to stop the proliferation is understandable. But the growth-control ordinance could be a disastrous path to that end.


Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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