BOARD PERSPECTIVE
BY ROCKY SUNDLING , AAMD ALLIANCE CHAIR
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 .
Rocky Sundling is the Senior Director at Greystar Real Estate .
6 | TRENDS APRIL 2023 www . aamdhq . org