Gov. Newsom's Price Controls Will Slow LA's Recovery

California’s wildfires have been devastating for households, displacing families and destroying entire neighborhoods. The months ahead will require a massive rebuild effort, with construction materials and labor in high demand, and housing scarcer. Decisions about the best use of land will need to happen quickly to enable recovery.

Yet two executive orders from Governor Gavin Newsom will slow this adjustment by distorting market price signals. These measures will do little to protect affected families and will instead make rebuilding slower and less efficient.

Anti-Price Gouging Law

First up, Newsom signed an executive order extending anti-price gouging provisions in LA County through January 2026.

These rules cap price increases for emergency supplies, building materials, housing, and other recovery essentials at just 10 percent above pre-wildfire levels—unless firms can prove higher costs. Even for new goods or services, prices can’t exceed a 50 percent markup over costs.

Already, a raft of journalists have taken it upon themselves to help the state government enforce these laws. They’ve hunted to harass landlords who have had the temerity to raise rents significantly, at a time when the supply of housing has collapsed due to the fires and many families are displaced and in need of temporary accommodation.

Holding down rents by government diktat? Sounds great to the economically illiterate. But these price caps ensure shortages, not fairness. Why? Because prices are more than numbers—they’re signals about the reality of the balance between supply and demand.

When rent prices spike after wildfires, they reflect the brutal truth: the available housing supply has collapsed, and displaced families are willing to pay more for scarce accommodation close to their damaged communities.

These signals have useful incentive effects to encourage a fast recovery. On the demand side, they encourage households to try to get their properties back on line quickly to avoid hemorrhaging cash, so creating an impetus to rebuild.

On the supply-side, higher rents encourage other property owners to rent out more of their rooms, houses, and apartments - increasing the quantity supplied. In fact, the higher prices encourage a housing recovery too by increasing the returns to landlords who repair or rebuild quickly.

Dampen these price signals, in other words, and you slow the rebuild efforts.

The same applies to construction materials. With demand for materials soaring, higher prices would ordinarily prompt producers to ramp up production, run overtime, or source extra supplies from out-of-state. They would also discourage over-ordering or waste for households rebuilding their properties.

Price caps dampen these incentives to economize, creating bottlenecks and producing shortages of materials just when they’re needed most. The result is that it will take longer to rebuild homes than necessary.

Unsolicited Land Offer Order

But if capping prices from soaring too high wasn’t enough, Newsom also decided to crack down on prices he perceives are too low.

His latest executive order order bans “unsolicited” offers below "fair market value" for land in wildfire-affected zip codes, with violators facing misdemeanor charges. California’s Real Estate Department gets carte blanche to decide what counts as “predatory” as an offer. In reality, they are likely to use pre-fire prices as a guide.

This might sound noble—protecting vulnerable homeowners from being “exploited” by vulture-like developers looking to swallow up their land on the cheap. But it’s just another needless price distortion - in this case, a sort of quasi-price floor - that will slow LA’s recovery further.

Many homeowners were uninsured or had only bare-bones FAIR Plan coverage. For them, selling land—even at a discount—might now be a rational choice, freeing them from the financial burden of rebuilding and letting them move on.

Other households might just have decided that LA is a less attractive place to live now they’ve endured this tragedy. Developers’ unsolicited offers could actually accelerate recovery by transferring land to those with the resources and will to rebuild faster.

Moreover, no government officials knows what “fair market value” is, given value is inherently subjective. A piece of land in a high-risk area may genuinely have lower value now for many due to updated priors on the probability of natural disasters, high home insurance costs, or higher rebuilding costs. Having the government effectively ban people making offers to buy land at lower rates just introduces new uncertainties, clogging up the process of getting land to the best-valued uses given the new reality LA faces.

And all based on a petty, paternalistic premise. Newsom’s implicit message: homeowners are too naive to negotiate their own deals. But in a free market, property owners are the best judges of their own circumstances. They can always say no. But a homeowner who has no intention of rebuilding or lacks the resources to do so may view an unprompted developer’s offer as a welcome opportunity to cut their losses and move on. Banning people from making an offer without the governments’ approval stops the discovery process that produces accurate market prices.

This restriction ultimately puts unnecessary barriers to mutually beneficial transactions between willing buyers (developers) and sellers (homeowners). By labeling lower price offers as "predatory," the Governor infantilizes homeowners, assuming they cannot make rational decisions about their own property.

The Bigger Picture: Recovery Delayed

Both orders share a fundamental flaw: they treat certain prices as the result of exploitative actions rather than a reflection of broader market supply and demand forces. Higher prices signal scarcity, encourage additional production, and help allocate scarce resources efficiently. Lower land prices can reflect changes in land useability or homeowners’ circumstances. Interfering with these signals—whether by capping rents or banning unsolicited offers—distorts the discovery process essential to a market economy.

California’s wildfire-stricken areas need flexibility, speed, and clear market signals to rebuild quickly. Instead, Newsom’s war on prices ensures bottlenecks, uncertainty, and delay. It’s another chapter in the state’s long history of regulatory overreach, where progressive intentions produce bad outcomes.

For more on price controls, see The War on Prices.