> Why can’t we try different combinations of that and let people self-optimize?

In an ideal free market, this would work fine.

This is not an ideal free market. Many of the students coming to UCSB will be relatively poor—as in, can't realistically afford to pay any extra for a better living situation. So rather than being able to choose whether they value a better living situation or a cheaper one more highly, they will simply be forced into the worst—ie, cheapest—living situation available to them short of a cardboard box.

Stop trying to apply idealized free-market logic to real-world problems with much, much stricter constraints on the real, living people involved.