From the Horse's Mouth
This is not a quote from George, but from a landlord (via Of Kirk and Ale):
I had a telling conversation last night with a landlord. When I asked her how the rents where determined she responded that it was [a] function of how much they make. As a capitalist, she believed she should charge the most she could. I then asked her what would happen if her tenants received a pay increase. “I would raise the rents” she responded.
This is a most telling response made by someone who cares little about social justice issues.... Most landlords, when confronted on the issue, won’t disclose their true reasoning. “Maintenance costs [have] gone up” they might say.
I then asked my friend this question, “who is the true beneficiary of the pay increase?” Silence. Change of subject.
posted by Kevin Carson | 11:44 PM
8 Comments:
"I then asked her what would happen if her tenants received a pay increase. “I would raise the rents” she responded."
But whether she could successfully raise the rent would surely depend greatly on what competing landlords are asking for similar apartments, wouldn't it? And, if so, why won't competition among landlords tend to reduce their returns to simply the prevailing interest rate, as in any other market? Is there some institutional factor that prevents pure profits from being competed away?
In response to Gene:
I noticed a similar problem with this model of how prices are set. First, it assumes that the landlord knows the income of the tenants (as it changes over the course of occupancy), which most landlords do not know. However, the landlord may know the prevailing wage in the area, which is a more relevant figure anyway, as it sets the market conditions for the area.
Anyway, landlords (as owners and not managers) have to balance two considerations -- maximizing the rent check from each tenant, and minimizing the amount of time that a unit remains unoccupied. Tenants have a similar concerns -- minimize their rent check and keep shelter constantly.
However, in this situation, the landlord is in a far superior bargaining position because having an empty apartment or a turnover in tenants is much less damaging to him than a tenant being without an apartment or having to move. For the landlord, it is just a discrete amount of money and can easily be balanced against the gains of higher rental fees. For the tenant, being without an apartment or moving is a fundamental disruption to his life, so he will likely be willing to pay increased rents to avoid the cost and uncertainty involved.
Finally, there's also the consideration of the landlord as a manager of the property. Even here, the landlord has the upper-hand because he can change the level of service as it suits him, while the tenants will be locked in by their lease for months or years. Theoretically, the tenant could sue the landlord for breach of contract, but most tenants don't have the time or knowledge to file suit, and landlords are expert at dragging these sorts of things out.
Regarding interest rates--off the bat, I wouldn't expect landlords to make an exceptional return. If landlords in general can rake in the cash, then that will attract more investors to the landlord market, either driving up land prices or driving up general interest rates: so all owners/capitalists benefit from the landlord's ability to milk his tenants.
I'd only expect the landlord to make extra money because it takes a special type of person to effectively milk his tenants. Many landlords are slimeballs, and paid handsomely for it.
Gene said: "Is there some institutional factor that prevents pure profits from being competed away?"
Yes! That's precisely the point. There sure is.
The real estate market is one of the most cartelized in the entire economy. From zoning laws to agent licensure to rent controls, there are myriad regulations on what can be rented/sold and to whom. This creates a tremendous oligopolistic effect.
I worked for a company that tried to essentially arbitrage rents and sales in NYC and we got fucked over by REBNY (Real Estate Brokers of New York).
Adem, can you give us a description of that situation, or link to a website that describes it.
I don't understand how real-estate lends itself to arbitrage. I found this definition of arbitrage:
"The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy."
It doesn't seem like real-estate is transferrable across markets, so I don't understand how this would work.
However, I can see how the local oligarchy would feel threatened by such behavior. What tricks did they pull?
I suspect that a description of this scenerio deserves a blog-post of its own.
Nathan,
The government certainly contributes a great deal to the problem. Even if you don't accept Tucker's view of the landlord privilege, a major part of the practical cases he objected to also fall afoul of Rothbard's radical Lockeanism. Simply by upholding titles to vacant land never legitimately appropriated, and by holding large tracts of "public" land out of use, government drives up the cost of land and reduces the marginal returns on labor relative to land.
On the practical issues you raise, I don't think people renting rooms would be a problem any more than squatters taking over a house when the owner went to the store. The local legal system would be administered by a society of small property owners who wanted to promote small-scale owner-occupancy, not make things less secure for themselves.
On temporary accommodation, I don't have a settled opinion myself, but I'd be interested in seeing your ideas.
Gene,
The *process* of raising rents would follow the same pattern of feedback as any other form of price-raising: changes in demand would inform the seller what the market would bear. As for the substance of land prices, the idea is that land follows the rules of a collectibles market (i.e., of goods in inelastic supply), and that increased incomes and prosperity therefore simply drive rents up and put a larger portion of economic output into the pockets of landlords.
P.S. Thanks for the ad, Gene.
A cartel does not really explain this. The cartel explains why prices are higher than they would be in its absence, but not why the landlady can charge more at will. If a two-bedroom goes for $1500, maybe it would go for $1000 without the cartel. But why can she suddenly charge $2000 if they guy gets a raise? Why won't the tenant just go get a $1500 two-bedroom down the block from another cartel member?
I looked at the original post, and it appears that this conversation was originally about minimum wage laws. The point was that if these laws managed to put more money in the hands of the working poor, then it would soon find its way into the hands of the landowners.
It would be pretty easy for the landowner to anticipate the increase in demand resulting from the increase in the mandated minimum wage.
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