Which Came First... The Chicken, the Egg or Rent Control?
High housing prices and rents are the result of a supply demand imbalance. If you don’t believe that, consider the recent well publicized case of egg prices. In this case, the chicken really did come first, and legislators are egging housing providers.
Egg suppliers were forced to reduce the size of their flocks due to a nationwide Avian Flu outbreak. Fewer egg laying hens resulted in a lower supply of eggs. The demand for eggs, at least in the short term, did not change.
Any Econ 101 student could easily predict the result - egg prices skyrocketed. Egg prices have moderated because egg producers started to rebuild their flocks and increased the supply
of eggs. The demand for eggs dropped when prices were sky high. Our Econ 101 student also predicted this - More eggs produced, and fewer eggs consumed resulted in a lower market clearing price for eggs. Now to be sure, egg prices are not back to their pre-avian flu pandemic levels. Factors like increased shipping costs, new regulatory requirements for cage-free egg production, and other market pressures have reset the price of eggs at a higher level.
But the cold reality is the price of eggs is almost wholly dependent on the balance of supply and demand.
Now let’s compare the egg example to housing prices. Whether for-rent or for-sale, the supply and demand realities for the housing market is similar to eggs. The demand for housing of all types has increased due to population growth. The supply of housing has not kept pace with that increased demand due to everything from high production costs to NIMBYism to overregulation. Just like eggs, housing prices skyrocketed because of this demand/supply imbalance.
Like eggs, increased housing prices have slowed demand. Renters have taken roommates or moved in with family. Single family owners can’t or won’t move to protect their low interest rate or the high replacement cost. As demand slows more housing units become available. Reductions in rents and house prices are showing up in the market now. Admittedly modest
reductions, but reductions none the less. As more units come available, housing prices stabilize or decrease.
Also like eggs, legislative and regulatory mandates that make housing cost more and general inflationary pressures in the costs of production of units has reset the market clearing price
for housing at a higher level.
At this point, our intrepid Econ 101 student would start discussing relative price elasticity of eggs and houses, shapes of the respective demand curves, and other aspects of the Dismal Science. I am a simpleton and would just ask – Why Rent Control and not Egg Control or Chicken Control or Chicken and the Egg Stabilization Act? Both eggs and housing are necessities – food and shelter. Yes, you can eat something else instead of eggs. But inflation and other factors have made all food – and all housing – more expensive. Why are legislators and regulators picking on housing providers and not farmers and grocers?
Many proponents of rent control point to “corporate landlords” and “hedge fund home buyers”. What about publicly traded Fortune 500 grocery stores and Big Agriculture? Both food and shelter have their share of corporate entity influences, but they also both have Mom
and Pop landlords and family farms. In fact, I can now build an ADU for rent in my backyard next to my chicken coop and provide fresh eggs to a renter within steps of their front door. Doesn’t get less corporate than that.
All things public policy are not soundbite simple. But let’s not over think it either. More chickens reduced the price of eggs. More housing units will reduce the price of housing.
Controlling the price of eggs would never add one additional hen. Rent control won’t produce a single housing unit. In fact, rent control is proven to reduce the number of units and raising
rents. You can’t make an omelet without breaking a few eggs. You can’t build a house without breaking ground. Let’s move some dirt and bury rent control legislation of all types.