New York elected officials think they can use regulation to bend the laws of economics. And sometimes they can. Rent stabilization, for example, uses price controls to keep rents artificially low on 1 million apartments.
Usually, however, the government must heap regulation upon regulation and build a robust enforcement infrastructure to defy natural market forces — and even then, there will be cheating. The marijuana industry is discovering this now.
When New York lawmakers legalized weed, they didn’t just revoke criminal statutes. They insisted that all weed sold in New York also be grown in New York.
But weed grown elsewhere is cheaper. California, for example, has more farmland, more sun, and a mature industry. Economies of scale makes West Coast cannabis less costly than New York’s, even with the transportation expense and the illegality of shipping it here.
As a result, between 50 percent and 80 percent of weed sold by licensed retailers in New York is not grown here, contrary to the law, Crain’s reported. Market forces are strong, and cannabis enforcement is too weak to overcome the Pollyannish ideal imagined by New York legislators: an entirely in-state, seed-to-sale system.
The big takeaway is that as supply has flooded in from beyond our borders, the price of cannabis biomass has fallen by 45 percent.
Wouldn’t it be nice (for tenants, homebuyers and employers) if New York could reduce rents and home prices by 45 percent?
Of course, we cannot simply import dwellings (except for modular homes, but we cannot import land to put them on). We could, however, boost housing supply by reforming property taxes, zoning, rent stabilization, the “scaffold law” and other regulatory schemes.
Just to take one of a thousand examples, think about the process for replacing a small, decrepit apartment building with a larger, modern, energy-efficient one.
Because of tenant protections, it takes years and sometimes decades to empty a building. For all that time, units sit empty while the owner waits for a few remaining tenants to move, die or accept a buyout.
Perhaps that helps tenants in that one building, but it doesn’t help tenants overall to keep units empty in the teeth of a housing shortage. The bigger issue is that the process is so costly and onerous that most undersized, aging buildings remain in place year after year.
It’s a classic case of how lawmakers have made housing more expensive in an effort to make it cheaper.
At the very least, the state should let developers replace small apartment buildings with large ones if they keep the same number of rent-stabilized units, house tenants during construction and give them the right to return.
But the biggest supply boost would come from putting the interests of all tenants over those in a particular building.
Legislators should think about the housing crisis as they try to fix the marijuana cheating problem that they created.
The economic lesson is simple: Weed sellers (and some farmers) are bringing down the cost of cannabis by buying it from states that have a surplus.
Housing would be cheaper, too, not to mention nicer, safer and more energy-efficient, if we allowed developers to create a surplus. And it’s a lot better for you than weed.
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