A recent essay in this paper named a real local pain. Teachers commute from Ventura. Workers drive in from Santa Maria. Young families grow up here and then leave because they cannot stay. Author Anabella Lehne was right about the symptoms. The diagnosis she offers, that Santa Barbara has too little housing and needs less regulation to build more, is the same diagnosis Derek Thompson and Ezra Klein make in their book Abundance. It is the same diagnosis behind Governor Newsom’s housing agenda, the campaign of likely next governor Xavier Becerra, and the housing positions of Trump, Biden, and Harris. It is wrong in a specific way, and the cost of getting it wrong is paid by our families.
The essay called Santa Barbara a sold-out concert. A concert is a one-time event with a fixed venue size. It is not a financial asset. No one buys a concert ticket as a yield-bearing investment or takes a 30-year loan on one. Housing is none of those things. Housing is the largest financial asset class in the developed world, roughly $45 trillion on the U.S. household balance sheet alone. The price is set by global capital weighing the risk-adjusted yield on owning the existing stock against every other financial asset on offer: real estate that pays rent, stocks that pay dividends, bonds that pay interest. Housing is not a concert. It is a bond that people live in.
First-semester economics tells us what to do when demand does not fall as price rises and supply cannot scale. The textbook answer is not to wait for the market to clear because it never will. The textbook answer is price controls and rationing. We do this for drinking water, for emergency medicine, for vaccines during a pandemic. The private sector, however, does it for housing by price. Wherever demand is rigid and supply is limited by market realities, the market is not the allocation mechanism. Shelter belongs in this category, in the same textbook.