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historical_site.gif (3785 bytes) .. A Short History
of Los Angeles Real Estate

by Deke Keasbey, Real Estate Investment Specialist, Tierra Properties

Introduction

Throughout much of its history, Southern California has held an image as the land of golden opportunity and a place for new beginnings. It has also been perceived by much of the rest of America as a "laid-back" economy known for speculative real estate promotions and Hollywood film-making. In truth, Los Angeles is a city built on arid land. If the flow of imported water were to be stopped for a few weeks, this huge metropolis would be a hot, dry place like the desert out of which it grew.

Los Angeles is a city larger than life, the stuff of legends. This sprawling urban society embraces many contradictions. Not unexpectedly, its history is as colorful as its present-day reputation. As we shall see, the building of the city, through its various stages, has been largely the result of free-market forces.

From Spanish Haciendas to a Growing Coastal Town

The first shift of power away from the Mission culture and the Spanish land grant families occurred in the early nineteenth century. Ambitious Yankees married the daughters and hence into the families of the great cattle ranchos. They were handed a windfall with the beginning of the California Gold Rush in 1849. The thousands of miners who arrived during the subsequent decade created a large demand for beef. The price of cattle increased more than twentyfold. Then during the Civil War years, that is, the early 1860s, a terrible drought struck and hundreds of thousands of cattle perished. Southern California's cattle-based economy was destroyed.

Following the drought, land values in Los Angeles collapsed. An acre of land could be bought for about ten cents. The opportunity provided by depressed land values was seized upon by wealth created by the prosperity of the Comstock silver mother-lode and by the building of the Central Pacific Railroad. Southern California's bankrupt ranchos were gobbled up by wealthy railroad-connected investors from San Francisco. Once their investments were in place, a movement was initiated that was to set a pattern which would continue for a century; that is, a nationwide promotion of Southern California for its warm climate, wonderful beaches and valleys, and an easygoing life style.

Large tracts of Los Angeles land were now owned by an elite few Northern Californians; however, there was no market to sell off subdivided farm parcels and there was still no systematic irrigation system. Landowners dreamed of bringing irrigation to Los Angeles, but there was no local capital available to finance such a project. Irrigation would not be in place for another twenty-five years. In the meantime, sheep ranching succeeded for a while, and then wheat and barley farming.

The first Los Angeles boom was in the late 1880s, when many people came to Los Angeles County seeking their fortune and healthy sunshine. This land rush, kindled by a railroad-sponsored promotion, was followed by a collapse. The depressed prices that followed motivated the region's largest landowners (including Harrison Gray Otis and his son-in-law Harry Chandler, founders of the Los Angeles Times) to launch a large-scale campaign to "sell Los Angeles" as a land of opportunity. For more than two decades there was a mass migration from the Midwest and the East Coast. Farmers, ranchers, professionals, retirees, schoolteachers, speculators, and religious devotees came and brought their savings, which they invested in Southern California real estate.

Railroads and Land Promotions

The coming of the railroads changed everything. The Southern Pacific completed its Los Angeles route in 1883, and only three years later the Santa Fe finished its Los Angeles spur. With a huge investment in their new coast-to-coast rail lines and large Los Angeles land holdings, the railroads set forth a long-term plan for growth. Southern California citrus farming was born. Tourism and the building of towns were promoted to attract investors, to raise land values, and to increase the value of railroad shipments.

In the late 1860s there was a population boom as the promotions caught on. Thousands of tourists and land speculators hurried to Los Angeles. Lots were bought, sold and traded, and an almost instantly created industry of real estate agents transacted more value in land sales than the county's entire value of only a few years before. The boom proved to be a speculative frenzy that collapsed abruptly in 1889. Much of the newly created wealth went broke. The city as a whole, however, benefited. The build-up had created several local irrigation districts and numerous civic improvements. In addition, the Los Angeles population had increased from about 11,000 in 1880, to about 60,000 in 1890.

Becoming a Big City

The 1890s and the first decade of the twentieth century were highlighted by the construction of key city-building projects: the deep water port at San Pedro, the Los Angeles Aqueduct carrying water from the Owens Valley, and an intercity electric railway system. These and other projects were arranged and orchestrated mainly by two groups: Harrison Gray Otis/Harry Chandler and the railroad alliance between Isaias Hellman and Henry Huntington (creator of the Huntington Library and Garden in San Marino). These and other large landholders joined in partnerships to subdivide Hollywood, the San Fernando Valley, and northeastern Los Angeles.

In the early 1920s, after World War I, there was a real estate and oil boom. By 1925 there were more automobiles per capita in Los Angeles than in any other city in the nation. Suburban growth began. Property ownership became more decentralized. By the late 1920s numerous companies had opened manufacturing facilities in Los Angeles County, creating thousands of jobs. The Hollywood film business grew into a regional economic power. By 1930 an astounding 94 percent of all dwellings in Los Angeles were single-family homes. Today, by contrast, about 52 percent of all Los Angeles County residents live in rental housing.

The real estate speculations of the early part of the century transformed Los Angeles from a small West Coast town into a large metropolis. Then, unexpectedly, came the Great Depression. This protracted economic downturn shattered the dreams of most of the middle class.

The Post - World War II Boom

World War II marked the development of the defense and aircraft industries in Los Angeles. After the war, subdivision housing became a mass-production industry. This process exploded in the 1950s into a great suburban boom. Suburbanization continued rapidly into the early 1960s.

A rivalry grew up between the affluent Westside and the Downtown establishment. Westside wealth came mainly from entrepreneurial home builders and from mortgage lending in the savings and loan industry. Downtown interests were incessantly revising efforts to enhance land values and the significance of the Central Business District. In the mid 1950s, Downtown leaders launched a plan to build Dodger Stadium in Chavez Ravine, and in the mid 1960s the Music Center was built.

In 1955, with a population of nearly a million, Los Angeles was the biggest city in the West. Almost from its inception it had been a mecca for real estate investment.

By the late 1960s cheap and available land began to become scarce. As a result, land prices escalated. As this trend continued, land prices skyrocketed in the late 1970s. Prices shot up again in the late 1980s. By the mid 1980s, affordable land, the original raw material of dream making in Southern California, had become an endangered species. Developmental activity shifted mainly to the metropolitan fringe and to infill of intercity pockets.

Astronomically high interest rates in the recession of 1981-82 halted most real estate activity for a while. The strong market and appreciating prices that followed the recession were so spectacular that many homeowners and investors were too busy gaining wealth to bother being concerned about the recently passed recession. From 1984 to 1989 Los Angeles real estate was the pot of gold at the end of the rainbow.

The Politics of Slow Growth and Foreign Investors

Growth coalitions of Downtown and the Westside have had a long-term rivalry to promote their respective business centers. The Westside power centers of Beverly Hills, Century City and Westwood vied to attract businesses away from Downtown and into their fold. The Downtown establishment remained focused on redevelopment of the Central Business District.

Over the past decade and a half, there has been explosive growth in the Downtown business district. Between 1975 and 1990 over forty high-rise office buildings were constructed. About three-fourths of these are now foreign owned. The 1980s rush for trophy office buildings and the increase in international trade spurred on by Japanese, Canadian, and American capitalists made the Downtown high-rise landscape of 1991 second only to Tokyo as a financial center of the Pacific Rim.

This crescendo of prosperity felt the winds of change when the Japanese stock market began its nose dive in early 1990. Until then, Japanese capital had been a major factor in foreign investment in prime Los Angeles properties. It would soon become evident how much the price structure of local real estate had been supported by continuous infusions of foreign capital. Fresh capital at the top had acted as a partial support for the values of all types of property.

Meantime, another cross-current of change was beginning to ripple through the real estate community. In 1986 Mayor Tom Bradley had established a committee which, with significant community support, produced the "L.A. 2000" report (1988) emphasizing growth management. The idea of endless growth was losing momentum. Slow growth sentiment and anti-Downtown discontent were beginning to be felt in the suburbs.

Consequently, in recent years the land development industry, the most powerful economic interest in California, has been seriously encroached upon by a grass-roots ground swell of homeowners' associations intent on reining in the pace of development. The politics of controlled growth are now the order of the day.

Unique Social Structure

Scientists are one of Southern California's most important products. The aerospace industry and research firms have brought together the largest assemblage of engineers and scientists in the world. Consequently, the downsizing of that industry in 1991 and 1992 was a large contributing factor to the region's economic woes in the early 1990s.

Los Angeles is one of the most ethnically diverse cities in the world. Its population continues to increase at a startling pace. About nine million people now live in Los Angeles County. This population is expected to increase by twenty percent over the next two decades. The overwhelming majority of these new residents are projected to be non-Anglos, steering ethnicity toward even greater diversity with steadily increasing Latino and Asian-American components.

Conclusion

In its history, Los Angeles has experienced several cycles of growth and decline. In downturn periods, property was exchanged from weak to strong hands. There have been enormous rewards for those who bought property when prices were low, and who held long enough for the next growth cycle. The outlook for the future requires one to consider the present economic and social restructuring as well as the region's ability to encourage new business expansion and opportunities for employment.



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