Why Your Skyrocketing Rent Is Bad for the Economy Emily Badger Mar 22, 2013 http://www.theatlanticcities.com/housing/2013/03/why-your-skyrocketing-rent-bad-economy/5069/ Michael Lind is in the midst of a three-part series over at Salon on the rise of rentier capitalism in America, with some pretty unambiguous headlines (yesterday: “Private sector parasites”; today: “How rich ‘moochers’ hurt... [more]
Why Your Skyrocketing Rent Is Bad for the Economy
Emily Badger
Mar 22, 2013
http://www.theatlanticcities.com/housing/2013/03/why-your-skyrocketing-rent-bad-economy/5069/
Michael Lind is in the midst of a three-part series over at Salon on the rise of rentier capitalism in America, with some pretty unambiguous headlines (yesterday: “Private sector parasites”; today: “How rich ‘moochers’ hurt America”). His premise is that the true “takers” in America are not the impoverished families on food stamps or the retired workers using medicare. They are, among other people, the landlords who've been sitting comfortably on the other end of the astronomical uptick in rent prices we've been wringing our hands over here, here, here and here.
Last spring, The New York Times reported that rents in Manhattan had reached an all-time high. By September, our own Richard Florida noted that it had become cheaper to own a home than to rent one in every one of the country's 100 largest metros. Earlier this year, it appeared as if the average rent for an apartment in San Francisco had finally leveled off... at $2,741 a month.
We've thought a lot about what all of these numbers mean for families and young professionals who would like to move into (or stay within) increasingly unaffordable major metros. But Lind's writing puts a whole different perspective on the problem: What about all of the landlords who are now depositing this windfall, and without lifting a finger or remodeling a bathroom to get it?
While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.
Landlords aren't the only "rentiers" in our economy. Lind uses the acronym FIRE to reference the broader sector of rent "takers" in the finance, insurance and real estate sectors. The fact that all of these people are doing so well right now means that massive flows of wealth in our economy are changing hands without the production of new tools or services or products, or really without the creation of any new value. Wealthy rentiers are growing wealthier without producing anything. Meanwhile, while you sit in your $3,000-a-month Manhattan studio, you're not funneling that money into sectors of the economy we would ostensibly like to spur, like technology (buy a new computer) or local business (try a new restaurant).
Lind again:
All of this suggests that, if we want a technology-driven, highly productive economy, we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate and energy and energy and mineral deposits) or artificial (chartered banks, professional licensing associations, labor unions, patents and copyrights). This is a valid distinction between “makers” and “takers.”
In the United States, he laments, we tend to view all money-making enterprises "as if they were equally productive and socially useful" simply because they make somebody money somewhere. And we seldom distinguish between wealth accumulated through passive means like rent collection or active (and riskier) efforts at doing... anything productive.
The fact that your rent is rising is hardly the fault of greedy landlords. They're extracting what the market will pay, and the market has gotten a lot tougher as more job-seekers have moved into certain cities, and as many people have been scared off of homeownership. But it's worth noting that as you dash off your next rent check, you're not the only one hurting. This isn't good for the economy, either.
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Response by greensdale
almost 13 years ago
Posts: 3804
Member since: Sep 2012
By the way, the above does not reflect my POV or that of any employees or residents of Greensdale.
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Response by Triple_Zero
almost 13 years ago
Posts: 516
Member since: Apr 2012
"And we seldom distinguish between wealth accumulated through passive means like rent collection or active (and riskier) efforts at doing... anything productive."
Making money by renting out property that one owns is no more "passive" than making money by investing in stocks. It certainly involves more work.
My question for Emily Badger is this: Consider two people who each save their first $200,000. One buys an apartment and rents it out, receiving $10,000 in rent every year. The other buys stock and receives $10,000 in dividends every year. Both use this money to fund their daily lives and reduce how much labor they have to do in order to live. Do you see a difference between these two people? Is the stock investor not a "rentier" just as much as the landlord is?
How is the apartment owner a "taker" in a way that the stockholder isn't?
"we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate..."
Land may be a natural product of geography and geology, but the ownership of land isn't, unless the landlord inherited the real estate. If the landlord bought it with earnings, from a moral perspective it's no different than any other investment.
"“rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive. "
'Profits' is a misleading word. It can refer to what you get when you sell something you've produced, but stock dividends and stock market gains are also called 'profits'. I fail to see a substantial difference between these two words when they're both the fruit of an investment.
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Response by financeguy
almost 13 years ago
Posts: 711
Member since: May 2009
TZ, in the standard terminology, passive shareholders are rentiers. They live off of other people's work, just like passive landlords. The point is that neither is being paid for productive work, and the profits (rents) they earn are not the disequilibrium profits of economic theory that reward entrepreneurs for spotting and filling needs that others have not identified but are, instead, payments above the marginal cost of providing whatever they supply that they are able to obtain because of monopoly or government granted privilege.
Of course, to the extent a landlord is paid for providing services, rather than for owning land, the landlord is not a rentier.
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Response by greensdale
almost 13 years ago
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I knew this thread would attract financeguy.
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Response by rb345
almost 13 years ago
Posts: 1273
Member since: Jun 2009
Greensdale:
1. what you have cited and written is total horseshit
2. landlords like me work overtime to make our properties attractive
3. for example, like many similarly enlightened landlords, I provide a free
roll of toilet paper to new tenants who sign up for a two year lease
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Response by rb345
almost 13 years ago
Posts: 1273
Member since: Jun 2009
Greensdale:
1. you turned grey awfully suddenly
2. did my last posting upset you that much
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Response by greensdale
almost 13 years ago
Posts: 3804
Member since: Sep 2012
1. rb, I copied an article, I did not write it. I specifically stated in the subsequent post that it does not reflect my point of view.
2. Congratulations
3. Scumbag
1. I am green, not grey
2. Do you know how to use a computer?
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Response by Riversider
almost 13 years ago
Posts: 13572
Member since: Apr 2009
The Times article is flawed. It just rising rents without taking into account the general price level. If the price of food, cars , and the price for seeing a movie can go up, why not rent?
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Response by Brooks2
almost 13 years ago
Posts: 2970
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RS, did you read the article?
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Response by ANagin
almost 13 years ago
Posts: 68
Member since: Dec 2010
I understand most people do not like to pay rent and it may seem easy for many to view the activity as economically unproductive without further inquiry. Isn't the spread between the cost of the housing service provided and the actual market rent price - or the 'monopoly windfall' greatest in places where the housing stock is artificially restricted by draconian zoning regulation and/or price controls such as stabilization and control (i.e. San Francisco or New York)? Undermining the landlords 'monopoly' by increasing the housing stock - or renters options - would reduce this windfall directly proportional to the amount of new housing units created or freed from regulation. Instead, and I am not surprised to see it at all, it is more convenient to create an unhealthy market through artificial controls and then blame the effects of that market on those who are the target of the regulation in the first place.
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Response by ANagin
almost 13 years ago
Posts: 68
Member since: Dec 2010
#2: To fix the 'monopoly windfall' of our current marketplace the Real Estate Taxation system in New York needs to be brought in line with modern economic theory. We currently live under a 'income tax' model on Real Estate in New York based on the gross rents of income producing property. This means that two identical neighboring buildings - the first with an income of $ 100,000.00 p/yr and the second with $ 200,000.00 p/yr, the seconds taxes will be approximately double the first, even though both are the same property. This encourages uneconomic behavior such as a disincentive to spend on improvements. By taxing every owner based on the square footage of buildable space, after taking into account historic district zoning regulations, this will greatly reduce the 'monopoly windfall' of rents collection. The system is broken - look at the cause causal factors - not the symptoms.
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Response by Triple_Zero
almost 13 years ago
Posts: 516
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ANagin -- A fellow Georgist!
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Response by financeguy
almost 13 years ago
Posts: 711
Member since: May 2009
Since there are no price controls on new construction in NYC, it seems highly unlikely that price controls -- RS/RC -- reduce rental housing supply.
On the contrary. One key problem with the rental market in the entire country is the ABSENCE of the sensible rules that make rental markets successful -- in particular, tenants need protection against arbitrary rent increases and guarantees of tenure on good behavior. The best way to provide these protections is with the sort of sensible rent regulation that is found in cities where nearly everyone rents.
NYC's second best solution is to have the tenants own the landlord (a coop), which, however, requires abandoning one of the key advantages of a rental, namely that it is easier for a large landlord to diversify than for individual tenants to do so.
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Response by financeguy
almost 13 years ago
Posts: 711
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The reason why development lags demand in NYC is not zoning -- NYC is already high density, and the high density is what makes it attractive. This is not to say that our zoning rules are terrific: many of the suburbs are artificially suppressing dense development near mass transit, and zoning throughout the metro area demands vast subsidies to automobiles.
The problem is, instead, a grossly underfunded public sector. If we had adequate public transit, so that outer Brooklyn and Queens were 20 minutes from the center instead of 1.5 hours, and Philadelphia was within commuting distance, the land available for intensive development would be vastly larger and the popular dense neighborhoods could be far larger.
Subsidies to cars don't help either. If car users had to pay market value for parking and zoning allowed builders to omit it when buyers don't want to pay for it, we'd have more room for people instead.
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Response by MAV
almost 13 years ago
Posts: 502
Member since: Sep 2007
This article is so one sided, I will not even waste any time argue the individual points here. Any adult with common understanding of the world knows the world does not work like this article. Looks like someone is pissed at their lease renewal increase!
Sorry, the market went up....
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Response by greensdale
almost 13 years ago
Posts: 3804
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>The problem is, instead, a grossly underfunded public sector.
Chavez!
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Response by Triple_Zero
almost 13 years ago
Posts: 516
Member since: Apr 2012
"Subsidies to cars don't help either. If car users had to pay market value for parking and zoning allowed builders to omit it when buyers don't want to pay for it, we'd have more room for people instead."
Financeguy, I can't express how happy I am to see other people notice the subsidization of automobiles and their drivers (and, consequently, a crippling, but nearly invisible, discrimination against non-drivers in nearly every area of society, starting with place of employment that are accessible only by car). Have you read Donald Shoup's "The High Cost of Free Parking"?
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Response by AvUWS
almost 13 years ago
Posts: 839
Member since: Mar 2008
Please elucidate me on the many areas of Manhattan in which a car is required in order to be employed, and how that is more relevant to housing prices than the limitations on increased density and improved housing stock due to zoning limits like those recently imposed on the Village and the Upper West Side?
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Response by AvUWS
almost 13 years ago
Posts: 839
Member since: Mar 2008
Financeguy - are you aware that those same rent regulations of which you are fond are also applied to parking spaces in NYC? So the regulations are subsidizing car ownership and use in NYC.
Do people also not realize that "modernization" of apartments also reduces the sq. footage used by a tenant? What sells for higher $/Sq. ft, the 1910's classic 6 or a modern convertible 3BR? How does increased FAR not make better use of already installed infrastructure, especially with declining household size?
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Response by Triple_Zero
almost 13 years ago
Posts: 516
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"Please elucidate me on the many areas of Manhattan in which a car is required in order to be employed"
There are none, thank God, which is why Manhattan, despite its higher prices, is a very desirable place to live if you can't drive a car.
It's the rest of the United States that's the problem. The Brookings Institute estimates that 70% of all the jobs in the country are inaccessible using transit, even if you're willing to commute 90 minutes each way:
Many suburban towns have requirements that businesses and even residential developments offer a certain number of parking spaces (and in the case of businesses, to offer them without charging separately, meaning that every customer must pay for the parking that only drivers use). This creates a vicious circle which ends with everything spread out and everyone going everywhere by car.
Cities built before the automobile was invented are typically high-density and can support mass transit as well as walking. This is one reason Manhattan is such a great place to live.
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Response by AvUWS
almost 13 years ago
Posts: 839
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Triple_Zero - Since almost all the rest of the US lacks the population density, cars ARE the most efficient and least costly mode of transport. You can get car insurance for as little as 500-600 in some places vs. the 2000+ you might have to pay in Manhattan, traffic is low, and so is the space for parking. While you need a car to get to work, having a car is not expensive. In those same places cars make for cheaper living since their flexibility means people are not required to cluster around transit lines.
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Response by deplucha
almost 13 years ago
Posts: 120
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I have money in real estate funds and I find this communist manifesto offensive. Also my pension fund owns real estate. The author is a bitter fool.
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Response by greensdale
almost 13 years ago
Posts: 3804
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What was your career deplucha?
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Response by tommy2tone
almost 13 years ago
Posts: 218
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they ended rent control in boston and i don't believe rents have done nothing but climb in boston
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Response by greensdale
almost 13 years ago
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Triple negative competes with C0lumbia C0unty.
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Response by deplucha
almost 13 years ago
Posts: 120
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Academics
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Response by Triple_Zero
almost 13 years ago
Posts: 516
Member since: Apr 2012
AvUWS, all those points you mention are true, but only for people who can drive. If you can't drive, you can't take advantage of any of that -- and if you can't afford to live in the city, you're going to be truly miserable in the suburbs.
The reason I'm heaping praise on Financeguy for pointing this situation out is that people so often "put the cart before the horse", so to speak. Cars are convenient and make for cheaper living in the suburbs because almost all post-WWII city planning was designed *specifically* to favor cars and their drivers and to ignore everyone else.
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Response by greensdale
almost 13 years ago
Posts: 3804
Member since: Sep 2012
>The reason I'm heaping praise on Financeguy for pointing this situation out is that people so often "put the cart before the horse", so to speak. Cars are convenient and make for cheaper living in the suburbs because almost all post-WWII city planning was designed *specifically* to favor cars and their drivers and to ignore everyone else.
Meaningless. We live in the here and now. Not in some ivory tower theoretical utopia recreated 70 years ago for purposes of making an impossible point.
By the way, the above does not reflect my POV or that of any employees or residents of Greensdale.
"And we seldom distinguish between wealth accumulated through passive means like rent collection or active (and riskier) efforts at doing... anything productive."
Making money by renting out property that one owns is no more "passive" than making money by investing in stocks. It certainly involves more work.
My question for Emily Badger is this: Consider two people who each save their first $200,000. One buys an apartment and rents it out, receiving $10,000 in rent every year. The other buys stock and receives $10,000 in dividends every year. Both use this money to fund their daily lives and reduce how much labor they have to do in order to live. Do you see a difference between these two people? Is the stock investor not a "rentier" just as much as the landlord is?
How is the apartment owner a "taker" in a way that the stockholder isn't?
"we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate..."
Land may be a natural product of geography and geology, but the ownership of land isn't, unless the landlord inherited the real estate. If the landlord bought it with earnings, from a moral perspective it's no different than any other investment.
"“rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive. "
'Profits' is a misleading word. It can refer to what you get when you sell something you've produced, but stock dividends and stock market gains are also called 'profits'. I fail to see a substantial difference between these two words when they're both the fruit of an investment.
TZ, in the standard terminology, passive shareholders are rentiers. They live off of other people's work, just like passive landlords. The point is that neither is being paid for productive work, and the profits (rents) they earn are not the disequilibrium profits of economic theory that reward entrepreneurs for spotting and filling needs that others have not identified but are, instead, payments above the marginal cost of providing whatever they supply that they are able to obtain because of monopoly or government granted privilege.
Of course, to the extent a landlord is paid for providing services, rather than for owning land, the landlord is not a rentier.
I knew this thread would attract financeguy.
Greensdale:
1. what you have cited and written is total horseshit
2. landlords like me work overtime to make our properties attractive
3. for example, like many similarly enlightened landlords, I provide a free
roll of toilet paper to new tenants who sign up for a two year lease
Greensdale:
1. you turned grey awfully suddenly
2. did my last posting upset you that much
1. rb, I copied an article, I did not write it. I specifically stated in the subsequent post that it does not reflect my point of view.
2. Congratulations
3. Scumbag
1. I am green, not grey
2. Do you know how to use a computer?
The Times article is flawed. It just rising rents without taking into account the general price level. If the price of food, cars , and the price for seeing a movie can go up, why not rent?
RS, did you read the article?
I understand most people do not like to pay rent and it may seem easy for many to view the activity as economically unproductive without further inquiry. Isn't the spread between the cost of the housing service provided and the actual market rent price - or the 'monopoly windfall' greatest in places where the housing stock is artificially restricted by draconian zoning regulation and/or price controls such as stabilization and control (i.e. San Francisco or New York)? Undermining the landlords 'monopoly' by increasing the housing stock - or renters options - would reduce this windfall directly proportional to the amount of new housing units created or freed from regulation. Instead, and I am not surprised to see it at all, it is more convenient to create an unhealthy market through artificial controls and then blame the effects of that market on those who are the target of the regulation in the first place.
#2: To fix the 'monopoly windfall' of our current marketplace the Real Estate Taxation system in New York needs to be brought in line with modern economic theory. We currently live under a 'income tax' model on Real Estate in New York based on the gross rents of income producing property. This means that two identical neighboring buildings - the first with an income of $ 100,000.00 p/yr and the second with $ 200,000.00 p/yr, the seconds taxes will be approximately double the first, even though both are the same property. This encourages uneconomic behavior such as a disincentive to spend on improvements. By taxing every owner based on the square footage of buildable space, after taking into account historic district zoning regulations, this will greatly reduce the 'monopoly windfall' of rents collection. The system is broken - look at the cause causal factors - not the symptoms.
ANagin -- A fellow Georgist!
Since there are no price controls on new construction in NYC, it seems highly unlikely that price controls -- RS/RC -- reduce rental housing supply.
On the contrary. One key problem with the rental market in the entire country is the ABSENCE of the sensible rules that make rental markets successful -- in particular, tenants need protection against arbitrary rent increases and guarantees of tenure on good behavior. The best way to provide these protections is with the sort of sensible rent regulation that is found in cities where nearly everyone rents.
NYC's second best solution is to have the tenants own the landlord (a coop), which, however, requires abandoning one of the key advantages of a rental, namely that it is easier for a large landlord to diversify than for individual tenants to do so.
The reason why development lags demand in NYC is not zoning -- NYC is already high density, and the high density is what makes it attractive. This is not to say that our zoning rules are terrific: many of the suburbs are artificially suppressing dense development near mass transit, and zoning throughout the metro area demands vast subsidies to automobiles.
The problem is, instead, a grossly underfunded public sector. If we had adequate public transit, so that outer Brooklyn and Queens were 20 minutes from the center instead of 1.5 hours, and Philadelphia was within commuting distance, the land available for intensive development would be vastly larger and the popular dense neighborhoods could be far larger.
Subsidies to cars don't help either. If car users had to pay market value for parking and zoning allowed builders to omit it when buyers don't want to pay for it, we'd have more room for people instead.
This article is so one sided, I will not even waste any time argue the individual points here. Any adult with common understanding of the world knows the world does not work like this article. Looks like someone is pissed at their lease renewal increase!
Sorry, the market went up....
>The problem is, instead, a grossly underfunded public sector.
Chavez!
"Subsidies to cars don't help either. If car users had to pay market value for parking and zoning allowed builders to omit it when buyers don't want to pay for it, we'd have more room for people instead."
Financeguy, I can't express how happy I am to see other people notice the subsidization of automobiles and their drivers (and, consequently, a crippling, but nearly invisible, discrimination against non-drivers in nearly every area of society, starting with place of employment that are accessible only by car). Have you read Donald Shoup's "The High Cost of Free Parking"?
Please elucidate me on the many areas of Manhattan in which a car is required in order to be employed, and how that is more relevant to housing prices than the limitations on increased density and improved housing stock due to zoning limits like those recently imposed on the Village and the Upper West Side?
Financeguy - are you aware that those same rent regulations of which you are fond are also applied to parking spaces in NYC? So the regulations are subsidizing car ownership and use in NYC.
Do people also not realize that "modernization" of apartments also reduces the sq. footage used by a tenant? What sells for higher $/Sq. ft, the 1910's classic 6 or a modern convertible 3BR? How does increased FAR not make better use of already installed infrastructure, especially with declining household size?
"Please elucidate me on the many areas of Manhattan in which a car is required in order to be employed"
There are none, thank God, which is why Manhattan, despite its higher prices, is a very desirable place to live if you can't drive a car.
It's the rest of the United States that's the problem. The Brookings Institute estimates that 70% of all the jobs in the country are inaccessible using transit, even if you're willing to commute 90 minutes each way:
http://dc.streetsblog.org/2011/05/13/brookings-transit-access-to-jobs-is-the-missing-link/
http://www.brookings.edu/research/reports/2011/05/12-jobs-and-transit
Many suburban towns have requirements that businesses and even residential developments offer a certain number of parking spaces (and in the case of businesses, to offer them without charging separately, meaning that every customer must pay for the parking that only drivers use). This creates a vicious circle which ends with everything spread out and everyone going everywhere by car.
Cities built before the automobile was invented are typically high-density and can support mass transit as well as walking. This is one reason Manhattan is such a great place to live.
Triple_Zero - Since almost all the rest of the US lacks the population density, cars ARE the most efficient and least costly mode of transport. You can get car insurance for as little as 500-600 in some places vs. the 2000+ you might have to pay in Manhattan, traffic is low, and so is the space for parking. While you need a car to get to work, having a car is not expensive. In those same places cars make for cheaper living since their flexibility means people are not required to cluster around transit lines.
I have money in real estate funds and I find this communist manifesto offensive. Also my pension fund owns real estate. The author is a bitter fool.
What was your career deplucha?
they ended rent control in boston and i don't believe rents have done nothing but climb in boston
Triple negative competes with C0lumbia C0unty.
Academics
AvUWS, all those points you mention are true, but only for people who can drive. If you can't drive, you can't take advantage of any of that -- and if you can't afford to live in the city, you're going to be truly miserable in the suburbs.
The reason I'm heaping praise on Financeguy for pointing this situation out is that people so often "put the cart before the horse", so to speak. Cars are convenient and make for cheaper living in the suburbs because almost all post-WWII city planning was designed *specifically* to favor cars and their drivers and to ignore everyone else.
>The reason I'm heaping praise on Financeguy for pointing this situation out is that people so often "put the cart before the horse", so to speak. Cars are convenient and make for cheaper living in the suburbs because almost all post-WWII city planning was designed *specifically* to favor cars and their drivers and to ignore everyone else.
Meaningless. We live in the here and now. Not in some ivory tower theoretical utopia recreated 70 years ago for purposes of making an impossible point.