Evidently, there is a major disconnect between what policy makers hope and wish for and what will actually happen.
The Santa Barbara City Council recently voted 4-3 to continue to discuss stopping all future development for rental housing. Actually, they did not vote ON it, they voted FOR it.
A moratorium on rent increases as well as other tenant protections is pretty much the same thing.
The hope is that it would lead to lower rents to assist those with lower incomes to live in Santa Barbara. Unfortunately, economics paints a much different picture.
Actually, scratch the word economics, let’s just say common sense. Spoiler alert: It won’t work. It never has. It will actually do the opposite.
So, what does this have to do with chicken over rice?
In the nearby video, New York City Mayor-elect Zohran Mamdani talks about “Halalflation” and why it is so expensive to buy chicken over rice from a food truck.
Mamdani finds out that the city is not issuing new permits for Halal food trucks, possibly because they do not want too many food trucks on the street.
What that means is that to get a permit to sell chicken over rice, you must find someone with a permit who is willing to sell it.
The price for such a permit is roughly $22,000, while it is about $400 if you could buy it directly from the city. Therefore, the price for a plate of chicken over rice is $10.
He then asked the sellers, “If you could buy a permit from the city for $400 how much would chicken over rice cost?” Answer: $7 or $8.
It seems like Mamdani kinda gets the idea of supply and demand for chicken over rice.
The restriction on permits means the return to investing in a food truck is lower and so there will be fewer food trucks and fewer people eating chicken over rice due to the higher prices.
Common sense.
This chicken over rice scenario, it turns out, is not much different than any other product, whether food or cars or the housing rental market.
The puzzle is, why doesn’t Mamdani — and almost all other policy makers — see the connection between chicken over rice and housing?
What happened in the food truck case is what happens with rental housing. Decreasing the return to investing in apartment buildings — through rent caps, permitting, eviction regulations, etc. — will lead to fewer rental units and higher rental prices.
It seems obvious that if you want fewer food trucks, stop issuing permits. Analogously, if you want fewer apartments, put on a bunch of restrictions to dissuade builders to increase the supply of housing.
Could it be that our policy makers actually don’t want more housing and lower prices? Food (not chicken over rice) for thought.
Of course, any policy choice has both winners and losers.
Who are the winners here? Those who won the rental lottery and live in a rent stabilized unit.
But (yes, there is a but) it turns out that the win is somewhat offset by the decline in maintenance and care due to the decline in potential revenue from the unit.
Wages of construction workers have risen about 27% since the end of the COVID-19 pandemic. Apartments will fall in disrepair as costs of labor and goods rise.
Wait, you say, we can hire apartment inspectors! Indeed, we’re already headed in that direction.
And who are the losers? Pretty much everyone else.
Those wanting to move to Santa Barbara as nurses or teachers or wait staff … there will be fewer and fewer apartments available.
Businesses will be hurt — like hospitals and schools and restaurants — since they will find it hard to hire employees willing to move to a place where it is difficult, if not impossible, to find housing.
Our community at large will be hurt due to the decline in services, quality of apartments, etc.
Such policies retard the natural churning in rental markets and labor markets. Without impediments, there is a constant flow of new people moving in and people moving out.
People moving to bigger and nicer apartments. People coming for jobs and people leaving for jobs.
Interrupting these flows means preventing people from getting better apartments and jobs.
Finally, this scenario has played out across the globe for decades. The latest and greatest example comes from Minneapolis/St. Paul. The two cities sit across the Mississippi River from each other.
Here is a brief snippet from a recent Wall Street Journal article:
“In 2022, St. Paul enacted one of the strictest rent-control regimes in the country. The ordinance capped annual rent increases at 3% for most apartments, even empty ones. It didn’t adjust for inflation.
“Across the Mississippi River, Minneapolis steered clear of rent control. Instead, city officials strictly focused on creating new housing. A package of land-use revisions in 2020 made it easier to build apartments, in part by removing restrictions that limited housing to single-family homes.
“Now, the results are coming into focus. Permits to build apartments in St. Paul plummeted by 79% in early 2022 from the year before, according to data from the Department of Housing and Urban Development. Real-estate investment activity nearly froze. Developers halted new projects as lenders pulled back.”
What that meant in the Twin Cities was development basically stopped in St. Paul, and boomed in Minneapolis. Even though rents are higher in the latter, the increase in rents were markedly different.
Here’s more from The Journal article:
“In Minneapolis, meanwhile, developers kept building. Housing permits surged nearly fourfold in early 2022 from the year before. Downtown hubs blossomed as new apartments hit the market and attracted young professionals.
“During the pandemic, Minneapolis rents grew more slowly than both St. Paul and the United States overall. From 2022 through 2024, Minneapolis rents rose 0.7% on average to $1,506 a month, according to CoStar.
“That was lower than the 3.3% national average in those years. In St. Paul, rent growth averaged 1.8% during that time to reach $1,338.”
This is real-world stuff. Don’t let your hopes and dreams get in the way of clear thinking. There are better solutions.
