The conceit of the free market is that generally it supplies most things efficiently to most people. Whenever it fails to supply, it is a market failure.
There is, unquestionably, a market failure at play in California’s housing market. This market failure has managed to place California as one of the richest states with the most homelessness. The question is simple: why has the market failed to provide enough affordable housing to Californians? The answer is simple: not enough housing is being built.
The California legislature has just passed a bill to limit rent price increases, which, while well-intentioned, will ultimately fail to help the housing problem. The problem in California is not that existing housing is too expensive, it is that this expense happens because there is simply not enough housing options in the first place. If it were just a rent price problem, then there would be a surplus of empty apartments and homes in California, with people just unable to rent there. The simple truth is that not enough housing is being built.
This is not just a practical question in California – rent controls have time and time again proven ineffective in reducing housing costs and homelessness. In fact, the Washington Post referred to rent controls as “the one policy all economists can agree is bad,” as it is fundamentally inept at solving the real problem at hand; there are not enough places to live.
This is not a carte-blanche, conservative, anti-government intervention argument. In fact, there is a state intervention in the California housing market that would actually do a whole lot to address this issue. Furthermore, it is contained in a bill already proposed in the California State Senate.
California Senate Bill 50 would attack existing zoning law in California. Outside of the very center of California’s major cities, local zoning laws prohibit housing that is not single-family housing. This is because the constituents deeply involved in local governments want to see their home values go up and have misaligned incentives that lead them to pass zoning law to keep others out of the market.
This bill would forcefully change much of the zoning law in California to allow for the spread of more urban housing, including apartment and condominium complexes. Doing so would dramatically increase the amount of people who can live in these neighborhoods and, as the vehement opposition of local homeowners associations tell us, would decrease property value (and, therefore, rent).
A secondary benefit of this policy would be reducing the environmental impact of these neighborhoods. With urban expansion, the need for cars would decrease and maybe finally the famous LA traffic would start to be reduced. Furthermore, the people living within California’s largest cities have some of the lowest environmental impacts in the U.S. This comes from a combination of not needing air conditioning, being less likely to drive cars and environmental regulation in the cities and California. Increasing the size of urban parts of these city areas would dramatically reduce the carbon footprint of California as a whole.
This bill has sat stagnant for months, as it has divided the California legislature. Some are scared that the increased development could price people out of the market, as developers may elect to build high-cost places to live rather than homes that could be afforded.
With all due-respect to California’s politicians, this idea is at best ignorant and at worst pandering spurred on by a detestment of any and all of the economic literature on the topic. When looked at in a contemporary or historical lens, the development of and creation of more housing in a market with a constant demand will always decrease price. Gentrification is already a massive problem in California’s urban centers and suburbs, specifically because not enough housing is built to satisfy the demand.
If the California legislature wanted to actually make movement on solving California’s housing crisis, they would pass the bill they’ve already written: California Senate Bill 50.
Lila Graham ’23 is from Warrenville, Ill. Her major is undecided.
