As people talk about the rent freeze in Santa Barbara, with some blaming landlords and some blaming the renters, in fact, the increases in rent are the fault of neither of them.
The rise in rent mirrors inflation, a product of supply and demand not unlike eggs increasing in price by 10 times a year ago due to supply chain interruptions and increases in demand. But another phenomenon arose that affected rents across California.
First, inflation has driven real estate values up 83 percent over 10 years. The coastal town of Santa Barbara, at 89 percent, closely mirrors the state. Our town’s real estate inflation is higher than Bakersfield’s, of course, but there is nothing special about Santa Barbara’s rent prices. They’re higher everywhere.
But even worse for rents was Proposition 33 in 2024. This was rejected by voters but greatly influenced the market. Prop 33 was to repeal property owner protections and would have removed rights to raise rents in between tenants. To explain the importance of that in reverse, if a landlord liked a renter — they paid on time, took care of the place, etc. — oftentimes the rent was only raised when needed. Certainly not every year and in normal increments. Later, when that renter moved, the owner would start someone new at market again.
This was my experience. And working with the Santa Barbara Housing Authority and discussing this with them the other day, this was also their experience with their 900 landlords.
The Prop 33 attempt explains one of the worst and most inept examples of unintended consequences ever for California renters. Just the threat of Prop 33 alone set in motion a rushed need to raise rents as quickly as possible by every landlord in the state. Why?
The value of a rental property is a factor of its rental income, often about 10 times the total annual rent. So if you were lazily not raising rent, rewarding good renters, and were then blocked from returning to a market rate when they moved, your entire investment would be “capped” at a far lesser value. This was not about $20 or $90 or $200 a month. This affected hundreds of thousands if not millions of dollars of investment per landlord! Suddenly it was critically important to bring rents up to pricing before the cap.
But worse, not only did California see maximum rent increases caused by this intervention, it trained all landlords to raise rents every year. The calm, and the intent, of the Costa-Hawkins Act from 1995 was broken.
Now the city councilmembers Sneddon and Santamaria will apply even more government intervention to contain the disgusting landlords. Santamaria verbalized her disgust of landlords at a meeting I attended. It’s on record. Layer on layer of interventions is the response as they work to “plug every loophole” and entrap landlords into government’s will. Apparently clueless, they are fixing government’s own mishandlings and now adding even more.
History can demonstrate the unintended consequences of policies and laws.
In 1971, President Nixon imposed a 90-day freeze to combat inflation. The policy instead created widespread shortages and the now famous gas lines.
In the early 2000s Spain implemented housing construction incentives, tax breaks, and lax lending standards. Construction grew to 16 percent of GDP by 2007. When the global bubble burst, prices collapsed over 30 percent, unemployment soared above 26 percent, and banking required massive bailouts. The growth unraveled spectacularly, leaving Spain with ghost towns.
Hugo Chávez implemented strict pricing on basic goods in 2003 to make essentials affordable for poor citizens in Venezuela. Production became unprofitable, with chronic shortages from toilet paper to medicine. Combined with printing money, inflation rose to a global historic of nearly 1,000,000 percent in 2018.
On October 31, 1963, John F. Kennedy signed a bill to free thousands of Americans with mental illnesses from institutions. It envisioned outpatient mental-health centers for community-based care. This “progressive” move came after the influx of many new medications in the 1950s. To bureaucrats, it made sense! The asylums were closed; money was sent to the states for clinics, and the schizophrenic and other patients were released into cities and neighborhoods.
Any nurse could have told you what these patients would do regarding going weekly to a clinic for their meds. None thought they needed it. None did it. The whole thing collapsed. Few clinics were built, just to go unused. Most of the patients were evicted into the streets for behavior issues. We are still watching the affected wander the streets 60 years later, and it is heartbreaking. They pitch tents now. Reagan ceased the flow of clinic funds which states had simply kept. Propaganda worked to blame Reagan.
Landlords and renters do not need to blame one another. Let’s supply the needed housing to meet demand, which shapes a prosperous world on every side — people in supply or demand — without blame or taking from one group for another. Rents are lower when there is supply to meet demand. Get just a pinch more supply than demand, and rents competitively plummet. Eggs are a buck again. Let’s stop the madness.
