Everything Wrong with Rent - One of These Transactions Is Not Like the Others

25 October 2020

Calvin & Hobbes cartoon

This is part 2 of a series on rent.

One of the two reasons home rental is so problematic is the fundamental asymmetry of the transaction. It takes advantage of one party while unduly enriching the other. Forgive me if this seems obvious, but since it is not obvious to all, it is worth getting down to basic economics to see this clearly.

The prototypical transaction

Rental of all kinds is very different from the prototypical transaction, where A gives something to B, and B gives something to A of equal value. The “something” can be an object, a service, or money; but in any case, each party normally gives up what they give. They don’t get it back.

Case 1, barter: Say John gives Peter 10 apples, and Peter gives John 10 five pears. Assuming 1 apple is worth 1 pear, all each one did is switch out some of his stock for a different kind of stock. Neither participant ended up richer or poorer. It’s impossible to point out a winner or loser.

Case 2, purchase: Ikea gives Peter one of their chairs, and Peter gives Ikea some of his cash. From then on, Peter keeps the chair, and Ikea keeps the money. As with apples and pears, neither party comes out richer or poorer. Peter may have less money in this case, but he does have a product of equal value.

And crucially, if Peter did happen to return the chair, the store would return his money also, as a refund. If they were unwilling to give him a refund, then he would not return the chair. You could say that for each action, there must be an equal and opposite reaction.

How is rent different?

Rent breaks this rule.

Case 3, rent: Paul the landlord gives Peter a space to live in, and Peter gives him money. (Repeat each month.) At some point, Peter vacates the apartment and returns it to Paul. But Paul the landlord doesn’t give him anything back. There’s no refund. He keeps both the home and the money, while Peter is left with neither.

Barter and purchase are just — if entered into willingly, without coercion or deception — because of their symmetry. Each party gives something to the other on a permanent basis.

The asymmetry of rent is what makes it unjust: the tenant gives permanently (the money will never be his again), while the landlord gives only temporarily (he gets his house back to himself and the tenant loses all rights to it).

It works the same way whether the tenant rents for only half a year, or stays 50 years and ends up paying more than the value of the home: he never gains any equity. Though this unfairness is most glaring over a long period of payouts, in principle it present even over a shorter period.

It is not for nothing that tenants instinctively bemoan “throwing their money away,” even though they are receiving shelter for the time being. Everything else being equal, there is a clear winner and loser in the transaction. Presumably, the losing party would not agree to it unless they had some strong external motivation – such as a lack of viable alternatives. This is normally the case, and it is what make rent exploitation, rather than just a suboptimal deal.

There are many “but”s one could raise at this point:

“But the tenant is paying for a service”

This would provide a good counterargument if it were accurate. But letting someone exist in a space is not a service in any meaningful way.* A home is an object, and the landlord’s involvement is minimal and passive: he merely allows access to it. He does not follow the tenant from room to room and assist him in his use of the structure (whatever that would even entail). In fact, he could lie in bed dreaming for a month, and he’d still get a check.

Compare the landlord to a car mechanic. He does not merely provide wrenches and a lift for the client to use. The mechanic himself uses them to carry out repairs. He expends time and energy, applying specialized skills and perhaps talents. If he dallies in bed, the car won’t get fixed and he won’t get paid. This is the difference between a service, and access to an object.

When is it legitimate to pay for access?

Now, there are some services that are primarily based on allowing access — but in these cases the access is very limited, while the objects in question are very costly and/or require a high level of active input from the provider, even if each individual client does not experience all that input directly.

For example, a library provides access to books — but consider that far more books are purchased than are in circulation at any given time, in order to create a broad selection to choose from. For most individuals, it would be incredibly wasteful to acquire a large collection of their own. Paying for access to a shared collection with external or distributed ownership is a better model. And some money must also go toward book maintenance and repair, cataloging, assisting users, etc. So in this case, what’s being paid for is not merely access, but breadth of options and maintenance.

Of course, libraries are commonly publicly funded (“free”), and perhaps publicly owned. But in principle it would not be illegitimate for an individual who owned many books to charge others for access to them, without relinquishing ownership, in order to assist with maintenance costs, and to expand the collection beyond what he could otherwise afford.

A hotel is an even more comparable example. Like a home, it provides access to a place to eat, sleep, and generally exist. But like a library, access is shared by many users, both concurrently and sequentially. Each uses it only briefly, and this high turnover requires constant maintenance, cleaning, and laundering. Visitors are downright pampered: they don’t have to make their own beds, sweep, change light bulbs, or even take out the garbage. Again, payment without acquisition is justified by the ongoing high level of provider input in service and supplies, before, during, and after a guest’s stay.

“But the landlord maintains the rental property”

This is one of the most common objections I’ve heard. It’s true that not everyone wants to or is capable of mowing lawns, painting, fixing broken doorknobs, or repairing leaky air conditioners. And a landlord is indeed responsible for a certain minimal level of maintenance.

But the critical question to ask is, how much is the landlord’s involvement worth? The answer is usually: not much.

  • A home does not generally require much maintenance by someone other than the one living there. Unless the home is in a critical state of disrepair, the landlord doesn’t have to get involved frequently. Yet the tenant must pay, and pay a lot, whether or not any help is required.
  • Unless the landlord is very handy, and lives nearby, which often he does not, he will usually hire plumbers, electricians, and property managers to do the work. If that’s what the tenant’s money is for, why doesn’t the tenant just pay them and not the landlord, as needed?
  • Some tenants don’t even want to do the work of researching and making arrangements with repairmen. But is it worth paying thousands each month for someone else to be an intermediary? Certainly not. If you owned your own place, you could still hire someone else to play that role, for a comparative pittance.

Maintenance is not mainly what the tenant is paying for. If it were, rent would be a lot cheaper, and renting out homes would not be such a desirable source of income.

The occasional wallop

Sometimes, a disaster occurs and quite expensive repair work is needed, and the tenant may be glad to not have to pay for it — for example if there is water damage from flooding. But on average, landlords are still collecting more than they spend; and if you rent for more than a short time, you will pay more than the cost of maintenance.

Often, this is due to poor construction, or building in a disaster-prone area. To the degree that these problems are preventable, they should be addressed directly through better building choices. Rent is partly to blame here as well, for encouraging development that is just good enough to turn a profit, even if others will suffer in the long run.

And moreover, inasmuch as occasional high expenses are not preventable, it would be fitting to attack this problem directly — for example, by distributing unforeseen costs through insurance, or building simpler structures that are easier to repair — rather than by invoking a convoluted system where someone else owns the structure, just so the one who lives there does not have to pay.

* I suspect that most who claim housing is a service came to that conclusion simply because it is paid for as if it were a service. This would be circular reasoning.

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