I live in Santa Barbara, California, which by most measures, including my own, is a paradise. It’s also very expensive because everyone wants to live in paradise. The average home price in our south coast was $1,352,000 in 2016. There were 789 homes that sold for more than $1,000,000 in 2016. Trust me, if you could figure out how to make a living here, you would pay the price.
The reason things are so expensive is that we restrict growth. No condo towers or massive tract development for us. Which causes a problem for those who can’t afford to buy a single-family residence and must rent. Apartment rents are high because we aren’t building many new apartments either. Now, those of you living in NYC probably think $2,000 to $3,000 for a one-bedroom apartment is reasonable, even cheap, but … presently there are only 15 units available in town.
The result is that Santa Barbara has always had low vacancy rates (0.5%) and high apartment rents which is a problem for low-income workers, often Latino immigrants who come here and do the “dirty” work for the rest of us. They clean our homes and businesses, care for our children, cook and wash in our restaurants, build and repair our homes and buildings, and keep up our landscaping.
Santa Barbara isn’t unique in coastal California. Almost all coastal cities have these same problems. We can argue about immigration, but that isn’t going to change what is happening on the ground. Despite what President Trump thinks he can do, our immigrant workers are here to stay. Our economy would collapse without them. I’ve written about the benefits of immigration before but that is not what this housing argument is about.
If I were a tenant in Santa Barbara I would want rent control, stronger tenant rights so that my landlord couldn’t evict me without cause, a mandatory longer-term lease, a 120-day notice before eviction, mandatory mediation of tenant disputes, and a $5,000 relocation stipend if I were evicted.
This is the platform of CAUSE (Central Coast Alliance United for a Sustainable Economy) and they are lobbying the Santa Barbara City Council to enact a tenants’ protection ordinance containing some or all of their platform.
CAUSE, a Progressive advocacy nonprofit, complains that because of Santa Barbara’s low apartment vacancy rate poorer tenants are unfairly treated and often have no place to go if they are evicted. No one can argue that housing for these workers is not a problem. Average apartment rents went up 20% last year.
CAUSE recites the trials of an immigrant mother of three who was evicted and had a very difficult time finding a new home. Her children were affected by having to move to a new school, sleep with relatives or in their car. It’s not a pretty story but not uncommon among illegal immigrants (her husband was deported).
Everyone would like to see a solution to Santa Barbara’s tight housing situation, but that is never going to happen. We are no-growthers here and most of our politicians are Progressives. An expansion of low-cost housing in Santa Barbara sufficient to reduce rental rates would be a political dead-end. We like Santa Barbara just the way it is and no politician would stand up for mass development.
The City has an experimental program to foster workforce housing (Average Unit-size Density—AUD). AUD allows higher density and smaller units in apartment development. It is aimed at families with incomes at 120% to 200% of area median income. Median income for a family of four is about $77,100, so AUD housing would accommodate families of four earning up to $154,000 per year. There is the possibility of 966 new units under AUD, but progress is slow in Santa Barbara’s notoriously difficult development/entitlement process. This is hardly a solution for poor folks.
I once joked that the solution to Santa Barbara’s housing would be to build a 100-story skyscraper with 2.5 million rentable square feet. That would give you 2,000 new rental units. If that’s isn’t enough, build two! 4,000 new units would flood the rental market and drive down rents. Alas, no one seemed to see the wisdom in that.
There being no real solution to Santa Barbara’s housing problem, tenants will continue to double- and triple-up. Homeowners will continue to rent rooms, garages, and backyard sheds. Illegal units will be created out of old commercial and industrial space. This is an “underground” market solution to the problem. The City doesn’t exactly turn a blind eye to these units, but they know it goes on.
Apartment values have gone through the roof here. But this is the case all over California. If you buy a typical garden apartment here your return, assuming you pay all cash, is going to be about 3.5%. If you get a loan to finance your purchase, your return will be close to 0%.
These kinds of returns are typical in a boom-bust economy. When the Fed pumped about $3.5 trillion into the financial system after the ’08 Crash, the money went into financial assets like stocks (booming) bonds (booming), homes (booming), and investment real estate like apartment buildings (booming). As assets were bid up by the flood of money, returns were driven down, and investors began to invest in riskier assets to get decent returns (“chasing yield”). Investment real estate has been driven to new heights, especially in the apartment sector.
Investors love Santa Barbara with its tight market and history of rising values and rents. This stability is why an investor will pay all cash for an apartment building here and get little return, looking instead for longer-term gains and income. But … they don’t want a building that can’t pay for itself. No one likes to lose money every month.
So, we have the Fed and the City conspiring to keep housing expensive in Santa Barbara. How can you solve a problem that has no solution? Answer: you can’t. This is the reality of Santa Barbara.
Can you fix it by making it more difficult for landlords to make money on a marginal investment?
Progressive organizations like CAUSE think that’s the way we ought to go. Their solution is to take away landlords’ right and give them to tenants. They require landlords to be a kind of welfare agency and bear society’s burden for the social consequences of immigration, poverty, and tight housing.
Without dwelling on the philosophy of “rights”, depriving some people of their rights and giving them to other people is a violation of the concept of “rights” that were embodied in the founding documents of the most successful experiment in social organization in human history (the U. S. of A.).
I wish people who advocate heavy-handed government solutions had some background in economics. The study of economics is one of the consequences of human action in social situations. Actions have consequences. But nobody studies economics anymore. A recent study revealed that of 1,100 colleges and universities in America only 3.1% required liberal arts majors to take economics. Which leads me to believe that most folks, especially our politicians and activists, don’t know a thing about economics.
A study of economics would tell them that the history of government intervention into market behavior has been mostly unsuccessful where “solutions” usually do the opposite of what was intended. Economists refer to this as “unintended consequences”.
The unintended consequences of these “socially just tenant rights” will be less housing for poor people. In a very tight market, a landlord with less flexibility to evict a tenant will likely require even stricter standards for new tenants. My guess is that the unfortunate domestic worker cited in CAUSE’s literature would have even fewer housing choices under CAUSE’s Tenants Rights Ordinance. CAUSE will make the situation worse than it already is.
I fear that ignorance will prevail here as it has in other liberal cities. Some of these “rights” will be enacted into law. The history of tenants’ rights such as these as well as rent controls have done nothing to stop soaring rents in tight housing markets. All they have done is make poor people even more desperate.