Dear California: Keeping Passing More Laws, Please!

From my inbox recently a familiar news update: “California-based 58Phases, an online affiliate marketing company, said it is moving its headquarters to Austin to take advantage of the lower cost of business here.” Article can be read on “We’re doing interviews from California by Skype and hoping to hire as quickly as possible,” said Dylan Ramsey , 58Phases co-founder and CEO.

California just keeps making it harder to do business there, for all types of businesses, which continues to drive new and existing businesses to Texas and Austin. There is a new Carl’s Junior burger joint down the street from me. I remember these growing up in San Diego but I had never seen one in Texas. When I read the writeup about Carl Juniors’ expansion into Texas, it had similar quotes about Texas’ business friendly environment.

We’re going to do a lot of restaurant development in Texas over the next 10 years,” Puzder (CEO) said. “We’re considering maybe moving some of the headquarters — or all of the headquarters — here if we have a good business reason to do so, because the tax structure is certainly right, and the business-friendly environment is right.” …

It’s much easier to build restaurants in Texas,” Puzder said. “There’s a lengthy list of regulations that you have to comply with in California that make doing business virtually impossible. If you’re going to grow, you want to grow someplace like Texas“.

And it seems there are news stories like this with quotes like this almost weekly in Austin. And this, during a bad economy. Wait until things turn around nationally.

That said, is the City of Austin itself becoming more like California than it is Texas? Is the City of Austin starting to overburden business owners with petty regulation and red tape? Absolutely. So, Cedar Park, Leander, Round Rock, Kyle and other surrounding cities in the greater Austin Metro area may come to see Austin as as good a source of new business as Texas now sees California.

What are some examples of Austin’s over-regulation and attempted over-regulation?

Rental Registration – Last year, the Austin Board of Realtors and Austin Apartment Association succeeded in getting the City of Austin to table the terrible idea of forcing mandatory rental registration of all rental property owners, along with registration fees to fund the new staff that would be needed to administer such a program. This would have been a complete over-reaction to problems caused by a very small minority of landlords.

Short Term Rental Registration – This one is on it’s way to happening. Short Term Rentals are a thriving business in Austin and help to augment the accommodation options of visitors to our city. A small minority of vocal complainers from a few neighborhoods are leveraging every resource they can to accomplish very restrictive regulation. I don’t think the city will actually ban these,  but the small and vocal group against STRs are very active in the neighborhood associations that support a majority of council members.

Plumbers and Trees – Live in an older home and need a new sewer line? One of my plumbers told me that a standard $2,500 job to replace a collapsed sewer line turned into a $10,000 ordeal for the home owner because of Austin’s rules disallowing cutting through tree roots. The new line had to be routed in a large circuitous route around trees to avoid cutting roots, which caused the new line to not have proper fall, which casued the city tap to have to be lowered, which caused the driveway to get busted up by a big tractor. Plumber says he’s been cutting through roots for over 30 years and has never killed a tree and this nonsense is about enough to make him want to retire. Ask any veteran plumber what it’s like to do business in Austin compared to surround communities and you’ll hear an earful.

ECAD Ordinance – The Energy Conservation and Disclosure ordinance went into effect June 2009 in Austin. At present, this ordinance is just an additional minor nuisance to the sales process and a roughly $200-$300 expense to the seller. It hasn’t fouled up any of our deals but I’ve heard other agents tell stories of problems it caused. Having it in place represents the City of Austin’s intrusion into the real estate sales process. for homes 10+ years old. There are those who would like to make the recommended repairs and upgrades suggested by the energy audit report mandatory at the point of sale. That was the original intent of the backers of the ordinance and there’s no reason to think they’ve given up. I agree with the intent of the ordinance, but fear that Austin will eventually try to further insert itself into real estate sales transactions.

Be careful Austin. Don’t become the “California of Texas”. There is a tipping point to all of this regulation.

14 thoughts on “Dear California: Keeping Passing More Laws, Please!”

  1. hi, Steve:
    Your Carl’s Jr reminds me of a Chick-fil-A story: Last year, one of my clients was a local franchise owner and we were having a conversation about the first Chicago area store being opened. He was helping the new franchise owners on behalf of the company, and was traveling back and forth, so we were discussing local restaurants, etc. from my old stomping grounds.
    Anyways, they were more than six months behind on opening due to several factors, including: State, County and Municipal codes and Labor issues. I think these States like CA and IL, which are heavy on “protection” laws and traditionally considered pro-Union, is that six months behind on construction can put a development out of business. That’s six months they are paying interest on loans, taxes, for materials (that are sitting due to labor issues – their issue: the concrete just wasn’t showing up), lawyers, “consultants”, and on and on, all while making no revenue. You would have to be a millionaire to be able to afford to open a business. And how long would it take to make enough profit to cover the building of the store? Not very business friendly at all. And to live there, it becomes normal, which is the point my client was making to me: this b.s. is barely worth the trouble.
    Austin City Council fails to understand the “Law of Unintended Consequences”. They only see that the idea is good and will be green, eco-friendly, increase revenue, pander to the vocal special interest group, etc… while failing to look at the bigger picture, or two to three steps further down the food chain from where they enact their municipal codes. Parking fees is their latest fiasco, which they seem to be backpedaling out of this week. Well, at least a little.

  2. I heard you could have an arborist cut tree roots for plumbing repairs. And you can cut your own tree roots (sure). It is surprising that a disclosure by the plumber that “he needs to cut tree roots and that he isn’t an arborist” and signed by the homeowner isn’t all that is needed.
    Regulations. They pop up hearsay and no one knows exactly how to look them up. Makes me want to go back to bed just thinking about it..

  3. I think it’s mostly just greenfield. Businesses will put up with any amount of regulation as long as they get to be near the consumers they want to target. What’s attractive to Californians is that Texas has plenty of space for building brand new housing and businesses free of legacy costs. As Texas becomes more like California and the nice places get fully built up I’m sure that businesses and residents will start looking for the next place to build new business and buildings. Building in Texas is just pushing your costs down the road for someone else to pay.

    I’m surprised Texas is still as attractive. We already have the cracks showing. We have tons of roads, buildings, and amentiteis that no one wants to pay for. Meanwhile developers are building tons of new amenities that as neighborhoods age the neighborhoods are going to try to turn over to cities to maintain, leading to more hemorgaging. Right now the City of Austin is dealing with exactly these sort of issues, having to close “neighborhood” pools, old houses, parks, and various other plots of land that have been given to the city to take care of.

    But blaming regulation is much easier than saying that there’s a much higher cost to living in an old house than in a new one.

  4. Agreed. And to be frank, Texas claiming to be getting more economic activity than California is largely an accident of high fuel prices. Far more actual innovation still happens there than here, even granted their problems.

  5. Rental registration is not an “overreaction to problems caused by a very small minority of landlords” if you live in a neighborhood where dozens of properties are being operated as stealth dorms by absentee landlords. The City currently has no means whatsoever of enforcing its occupancy limits; as a result, unscrupulous builders and property management companies are happily putting 8+ college kids in structures on single family streets with overwhelming noise, trash, and parking issues (but no dumpsters or off street parking).

    A rental registration program would allow the city to actually enforce its code. The “cost to business” you complain of would simply force business to comply with existing law and prevent unscrupulous landlords (who are far more than “a few”) from profiting from violating the ordinance and simply passing the externalities of that action on to the neighbors.

  6. “Stealth Dorms” are already against code:

    Number of People Living in a Residence

    No more than 6 unrelated people may live in a residence. In addition, there is a minimum square footage requirement for each person living in a residence.

    Why do you think adding a new department would help if it’s already currently against the law?

    • Tim, do you know how the City currently enforces code?

      It does not.

      And that’s because it can’t, without knowing how many people are living in a property, or making sure that 6 or less unrelated people live in a property. Which requires some form of rental registration.

      Steve, selective enforcement of a code or ordinance just for “near Breaker/IH35” but not for presumably moneyed areas like Steiner or Circle C is class warfare at its bleakest. Perhaps other laws need only be enforced in the Rundberg area because that’s the only place where we think crime happens?

    • I know a lot of people who would take issue with the statement that the city does not enforce code. Everyone hates the way codes are enforced whether under HOA or Civic rule. The code not being enforced the way YOU want it to be does not mean the code is not enforced.

      But how exactly would rental registration fix the problem? If I’m a college student and my dad signs the lease and then I bring in six of my friends you’ve got the same problem. Are you saying the landlord (who you’ve already tagged as a bad apple) is going to do better enforcement than the city? Or that the new city department (who you’ve also tagged as ineffectual) is going to somehow have enough resources to do stake outs and see who’s living in a house?

      It seems that ultimately the best thing would be to campaign for a law that would allow citizen observers such as yourself to compile evidence to present to the code department. After all no one is going to care as passionately about your issue as you do.

    • > class warfare at its bleakest.

      So, you think it would be a wise and prudent use of taxpayer dollars to have city code enforcement employees driving a new fleet of small (probably super expensive, alternative fuel) vehicles around in Steiner Ranch and Circle C looking for evidence of rental code violations just so there can be no accusations of uneven code enforcement throughout the city?

      Don’t you think it would be smarter to check for problems where they are known to exist, which is in the rat trap neighborhoods where rows of slum 4-plexes line both sides of the street like at Brownie Dr.?

      I don’t think there is one renter in Circle C or Steiner who suffers from a slumlord running a dilapidated rental dwelling, yet to create a sense of “fairness”, the city would WASTE money patrolling those areas equally even knowing it’s absolutely not necessary because the HOAs keep everything in check already.

      This makes absolutely no sense to anyone with pragmatic, frugal sensibilities who wants government to be more efficient and spend our money more wisely.

    • Tim, no landlord wants people living in his or her property who are not on the lease. That makes those tenants unaccountable to the landlord. Nor will Dad in your scenario accept the financial and legal responsibility for those extra tenants, such as paying their rent if they flake out and covering their damages.

      It’s not that the City doesn’t enforce it’s occupancy code “to my satisfaction,” it’s that it currently has no way to enforce it at all. As long as property companies build to code (and they are constantly working to avoid doing so), they can sign leases to any number of tenants with no fear of code enforcement because code enforcement doesn’t have warrant powers to come and search the house. Nor should they.

      Steve, if the rental registration code that was on the table was really as you represented it (fleets of expensive vehicles constantly roving neighborhoods looking for evidence of violations), then I agree that is a costly and cumbersome approach. What would those personnel really see from the street anyway? The solution is simple – require every tenant recorded on a lease to also be recorded with the city. Landlords wouldn’t ‘t be able to submit registration for more than six unrelated people per code, and also wouldn’t want or allow “unofficial” off-lease tenants (just as they don’t now).

      Finally, the Steiner/”rat trap” dichotomy you present is a false one. Enforcement of code really can’t be as selective as you want. But for the record, the problem isn’t just in the poor areas you colorfully describe. Ask anyone who lives near the stealth dorms cropping up anywhere within a few miles of campus, or in near-south Austin.

  7. The Rental Registration, which the city was sensible enough to kill (not to be confused with the ongoing Short-Term Rental Ordinance working its way through the process), was another Ft. Worth idea that our brilliant city manager from Ft. Worth thought would work well here. It would have had city employees driving city vehicles through neighborhoods like Circle C and Steiner looking for code violations. Talk about dumb.

    Those neighborhoods have HOAs that strictly enforce the rules. But the city bureaucrats think that if you patrol the 4-plex canyon along Brownie St near Braker/IH35, or the slum apartments in East Austin, you also have to give equal patrol time to Circle C lest the city be accused of “picking on East Austin”.


  8. > The solution is simple – require every tenant recorded on a lease to also be recorded with the city.

    This, if enacted, would become a prime example of the sort of government over-reach my article describes and undue regulatory burden. Not to mention a violation of the privacy rights of tenants and probably the US Constitution.

    I’ve written 27 leases in the past 6 months, averaging two individuals per lease. You actually want landlords like me to have to report the names and number of occupants on each lease to the City of Austin each time a property is leased? That would be a nightmare.

    Existing code solves all of your complaints. You don’t get to overburden the 98% of good landlords just because the 2% of bad actors are hard to catch. That was the crux of our opposition to Rental Registration and the city, thankfully, listened.

    I think your over-occupancy “stealth dorm” issue would best be solved with parking restrictions, such as those in place in West Campus requiring a parking permit to park on the street. That wold limit vehicles and in turn the number of occupants. That said, if 6 legitimate tenants were listed on a lease, they would all be entitled to a parking permit.


  9. I miss California. For one simple reason: 70-80 degree all year round vs. 100+ degrees for 80+ days. You can be the most business friendly environment you want, this junk science weather is killing it for all of us…

  10. Perhaps a pedantic point, but basic neoclassical economic theories about comparative advantage and trade suggest that while Texas benefits from businesses relocating in response to increased regulations in California, Texas would benefit even more if California deregulated, as utility is maximized when market actors make production decisions based entirely on their ability to maximize quality and minimize costs, so that everyone produces what they are best at producing.

    That said, when the product is housing, it isn’t really tradable, and there will always be a market for housing in places where housing is needed. But more to the point, demand for housing is pretty inelastic — regulatory costs are passed down to the tenants. The vast majority of people choose to live in a particular region for reasons other than cost — namely, because they have a job nearby. Housing is extremely expensive in California. So the higher level of regulation doesn’t result in a lower profit margin for landlords. Of course, the bottom line is that when regulations hurt consumers, they have less money to spend — regulatory costs are subtracted from the economy and have virtually no multiplier unless the state is making a large profit which it is reinvesting into public works projects…

    One final point — one industry strategy to stave off cumbersome regulation is to self-regulate via industry organizations setting standards and then censuring the non-compliant. It doesn’t solve all the problems but it solves situations like you mentioned for rental registration, where you have a regulation applied universally to a problem that is real and important but far from universal. Another strategy is to propose alternative public policy measures to specific regulations rather than merely opposing them. If a regulation has a public policy rationale that makes sense to people, but you also think it is clear that the regulation will do more harm than good, then there almost certainly is a better way to accomplish the policy objective through less costly means. Many politicians will jump on opportunities to both be on record doing something to solve a problem people believe to be important while also supporting a more pro-business / pro-economy measure.


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