Coyote Blog

Perhaps the largest barrier to housing availability and affordability in places like California are permitting rules, land use restrictions, and construction codes that make it absurdly expensive, or even outright impossible, to construct new single or multi-family housing.  Part of this is a conspiracy of current homeowners to protect and increase the value of their property -- after all, new home construction inevitably reduces their property value (or future escalation) by adding competing inventory and/or by creating congestion and loss of property-value-enhancing open space.  Another part of this is "everything bagel liberalism" where every program has to achieve every Leftish goal -- eg we want new housing but it has to have solar and appliances with a minimum SEER and use recycled materials and have a certain number of units set aside for protected groups and create a conservation easement on part of the land, etc etc -- until even units that can get permitted are too expensive for all but the very wealthy.

But another barrier to housing availability and affordability that is less talked-about is the combination of rent control and tenant protections for existing housing stock.  Alex Tabarrok links to a great video from a Santa Monica homeowner on why he would never rent his home given the local regulations.  The key part is only a couple minutes and Tabarrok has done a fact check on most of the claims and found them to accurately represent local real estate law.  If you are not a video person (I am not, as information density is often too low, Tabarrok summarizes the key points).

The narrator's proposed rent is clearly at the high end of the market, but all his arguments apply at least as well to less expensive rentals.  As some of you know, in my former business life I operated campgrounds on public lands under a lease/concession arrangement with the public authority.  Several of the larger campgrounds had sections that were basically trailer parks occupied by long-term residents rather than overnight visitors  (It is a little known fact that many famous National Parks had these trailer villages -- we operated one of the last ones on NPS land at Lake Mohave).  Some of these trailers were basically weekend homes for people living somewhere else, but many provided affordable living spaces in poorer rural communities.

All these same tenant laws in the linked article applied in these trailer parks, and management was a nightmare in California.  Every tenant had a tenant-rights lawyer on speed dial and any effort to take the smallest action against them -- even enforcement of published rules -- often met with a legal rejoinder.  But here is the ironic part -- the situation has become so hard to manage that several California county governments, themselves author of these very rules, were requiring us to slowly close down the residential parts of their campgrounds because the rules made operation impossible.  And by slowly close down I mean sssslllllooooowwwllllyyyyyy -- closing down the trailer park is not considered proper cause for eviction, so the only way to clear it out is to, over a period of literally decades, wait for the tenants to die or move away.  Even on Federal land, where state and local rules technically don't have to apply and one has the full power of the Federal government, the NPS gave trailer park residents 10-years notice the residential leases were going to end and they still have been in court having to fight for the change every one of those years.

Many people in California let their house sit empty rather than face these hassles, and it is completely understandable.

There is one simple answer to why housing costs rise faster than inflation and incomes -- restricted supply mated with subsidized demand.   In many locales the supply of housing is restricted by the government (rent control, growth limits, expensive and time-consuming permitting, etc) and in every part of the country housing is subsidized by the government (mortgage loan guarantees, tax deductibility of mortgage interest, section 8 housing vouchers, etc).  The net result HAS to be rising rents and home prices.

I bring this up because we are in the insane situation that both the Left and Right are proposing to attack housing affordability by.... subsidizing demand and restricting supply.  Trump's idea is to extend government mortgage guarantees to 50-year mortgages.  All this is likely to do is increase the prices of houses to absorb the new lending limits.  We saw this in another sector -- college tuition -- where there is hugely subsidized demand and increased student loan limits led to almost one for one increases in tuition.

The Left -- from LA to NY -- is advocating for the same thing it always advocates for: rent control.  Rent control is a boon for current renters who have their rents locked in at unreasonably low rates but is a disaster for new entrants to the rental market because the construction of new rental properties drops significantly with rent control (actually the supply can go negative as current rentals are converted to owned units).  Rental rates are nominally kept in check but homelessness soars.  In addition, rent control has the under-appreciated harm of reducing labor mobility, as one cannot afford to move out of a rent-controlled unit to seek better employment.