> The Result: the SRO format is more profitable ($6,000 vs. $4,500). If landlords can legally choose between the two, they will naturally favor creating SROs over family-sized units.

Yes, this is the whole point! And the reason it's more profitable is that there is pent-up demand for them. There aren't enough of them. We want them to be more profitable, so more are built/converted.

Here's the thing, though -- that's a temporary situation. As supply goes up, demand gets met. Once enough are built/converted, the price comes down, and an equilibrium is reached where a landlord will make the same profit whether it's a 3-bedroom or 4 SRO's. This means the market is now maximally efficient for both types of tenants.

In a free market, the most efficient balance of apartment types will naturally come into being. By prohibiting smaller units, we prevent that balance and discriminate against people who can't afford a full-size studio with bathroom.

So it's not cannibalization of family housing. It's just reducing the proportion of lots of other types of apartments a little bit -- including studios and one-bedrooms. Because this is desirable.