I’m a landlord of a house in Washington DC that I lived in myself and now rent out. It was mostly ok for years but now I have tenants who haven’t paid rent since September. I’m working on the eviction process which has cost me $10k in legal fees. Their lease ended May 1 but I’m required to offer a renewal on their lease even if they are six months late on rent. And amazingly, they still make maintenance requests! My management company says that I still have to fix any issues that arise or it could be seen as retaliation which will count against me in the eviction. As soon as they are gone, I’m selling the place. One less rental on the market.
tl;dr: property profits for middle-class workers have been the foundation of the electoral success of reaganism/clintonism and that makes them very important to the "sponsors" of the political class.
«Some of it is that if you don’t own, you don’t have the incentive to drive up property values.»
Yes but the really big and important aspect of the war against renters is completely different and is political:
* Property ownership creates big political pressure for policies that increase property prices and increase rents redistributed from the lower classes and usually for property profits to be tax-free.
* People who can look forward to big tax-free property profits will vote for parties that promise to cut wages and cut social services and cut pensions even if they are workers because big property profits redistributed from the lower classes will more than compensate them for such cuts.
Fundamentally it has been big property profits that have turned middle-class property property owners against the New Deal and against labor unions and the working class and social-democracy in general.
In the jargon of social science the big profits of property turn property owning workers into rentier "petty bourgeoisie" voters who believe their interests are more aligned with those of the oligarchs than those of other workers who do not own property.
"big property profits redistributed from the lower classes"
WTF???? You do understand that the money for a property profit comes from the _purchaser_ of the property, right? From someone who has either the cash or the credit to buy a property. *NOT* from someone in "the lower classes".
only for the fraction of properties which are rented out
even for those, the direct profits (and the original line was specifically about profits) come from the payment by the to-be landlord to the owner of the property being sold. The to-be landlord may or may not successfully recover that payment as rent to someone who may or may not have above median income. ( I expect that, in high property value areas, the “lower classes” are probably priced out of the rental market too, and just don’t figure in to the market at all. )
On a personal anecdote: My late wife and I purchased and lived in a condo in Silicon Valley in 2013 and moved out, selling it to an individual purchaser in 2020. We made a modest profit, slightly above inflation - effectively paid for by the purchaser, who, IIRC, was either going to live there themselves or give it to a family member. No “lower classes” involved at all. I don’t think this is rare.
The pricing of the housing that could be rented, is based on the rents of the housing that is rented. If a worse house in a worse neighborhood have their rents up, that must means you could rent a better house at a better neighborhood for more.
If someone would less the house for less, than someone else would buy and rent it, or sell it again.
Basically the asset price is based on the services it can provide, which are measured as rent in dollar terms.
Thank you for your reply. Please remember that the original claim was:
"big property profits [were] redistributed from the lower classes"
Saying that the house could potentially be rented doesn't bring in "lower classes" as a factor in areas with high real estate values (and profits) because, as I already said:
( I expect that, in high property value areas, the “lower classes” are probably priced out of the rental market too, and just don’t figure in to the market at all. )
The "lower classes" (and I'm talking about people with below median wages, *NOT*, "working class" as Blissex defines them, which includes prosperous wage earners) are priced OUT of places like Silicon Valley with sky-high real estate prices. They are _neither_ able to rent _nor_ to buy, so they AREN'T having their wages "redistributed" to the "big property profits".
Now, the sky high prices are a problem, but they are a _different_ problem. They are a problem of e.g. NIMBY rules, and of just packing so much economic activity into such a small area of land (though I don't know if that one is fixable). As Zvi said, this restricts supply, and when lots of prosperous people bid against each other for a restricted supply of housing, prices go high. The problem is the restricted supply, _not_ from "redistribution" (which would, in any case be from the people who successfully bid for the housing, either by purchasing it, or, less directly, from renting it.).
The lower classes mostly rent. I hope you agree with me on this.
They also live mostly in lower quality places. When rents in those places rise, it raises the rents everywhere else, and so the prices also.
If the rent rise in lower quality places and not others, the people would move.
If prices in higher quality places wouldn't raise, then instead of buying a house in a lower quality place and renting it, investors would buy the higher quality place and rent it (for more money).
So basically, the price of all housing is based on the rents of the lower classes, and rising prices reflect redistribution from the lower classes to property profits. If they can't rent at all, because, like in your example, no one from the "lower classes" as you defined them can rent, then you just made them lose in another way - or they have to leave their jobs, families and friends behind and migrate somewhere else, or they have to become homeless.
"big property profits redistributed from the lower classes"
«the money for a property profit comes from the _purchaser_ of the property, right?»
The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth: rent and other profits from ownership define the upper class, however large or small they may be, and wages and other income from work define the working class, and income from charity or subsistence work defined the under class, and the working and under class are the lower classes. Note: some working class people may *also* be upper class if they own assets like real estate or stocks from which they derive some rents or profits.
Now it is very easy to prove that any property profits are necessarily paid by members of the working class:
* A member of the upper class who derives no income from work and has a net worth of $400,000 because he owns two properties with a price of $200,000 gets a capital gain profit because one of the properties rises in price by $200,000 and he sells it.
* With that profit he can consume $200,000 more than he did before in goods or services despite having produced none of them.
* Obviously that extra $200,000 in goods and services does not just *happen* like the $200,000 change in price they *must* have been produced by people who work, who collectively therefore will no longer be able to consume at the same level as before.
* Therefore the $200,000 worth of goods and serviceds has been necessarily redistributed from the lower classes, in some way or another.
"The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth: rent and other profits from ownership define the upper class, however large or small they may be, and wages and other income from work define the working class"
a) What you wrote was "lower classes" not "working class"
b) If you are going to talk, instead, about working classes, then affluent programmers selling condos to other affluent programmers in Silicon Valley, all of whom live primarily off their wages, count as "working class", which is so massively misleading a use of the term, when writing for a general, non-marxist-economist, audience, as to essentially count as lying.
"A member of the upper class who derives no income from work and has a net worth of $400,000..."
Where the hell did you get the idea that typical real estate transactions are between people who don't earn wages?
"Obviously that extra $200,000 in goods and services does not just *happen* like the $200,000 change in price they *must* have been produced by people who work, who collectively therefore will no longer be able to consume at the same level as before."
This is very deceptive. When an affluent programmer buys a condo in Silicon Valley with their savings from their wages, sure, they no longer have the $200,000 (the portion of the purchase price due to the increase in the current market value) available for other purchases. So what?? That's the same as any other purchase.
«Where the hell did you get the idea that typical real estate transactions are between people who don't earn wages? [etc.]»
I am sorry that I did not make explicit that I was writing in the aggregate and net across the aggregate and not related to any specific pair of buyers and sellers (but the example I made seemed to clearly imply that to me) and explained what that means.
«an affluent programmer buys a condo in Silicon Valley with their savings from their wages, sure, they no longer have the $200,000 (the portion of the purchase price due to the increase in the current market value) available for other purchases. So what?? That's the same as any other purchase.»
That is not how ordinary purchases work: someone has $100 in cash as their net worth and then they buy a $10 bowl they still have a net worth of $100 the only thing that has changed is that some of it is now as a bowl instead of cash. Instead of consuming $10 cash on something else he has chosen to consume the bowl instead, but he still can consume as much as he could before (as in consume the book and the cash). Since the bowl is produced using work in a competitive market (the bowl is not a "collectible") its price cannot increase delivering a windfall to the bowl vendors.
Then suppose someone has $300,000 cash and there are two identical houses in time or space and one has a price of $100,000 which is is cost and another of $200,000 simply because there was a general price increase for the latter: in one case after buying the house the someone has a house and $200,000 cash and in the other they have an identical house and $100,000 cash and their ability to consume including the house has gone down by $100,000.
That is because the increase in price does not correspond to any increase in quantity or quality as it is the same house in both cases so it is purely redistributive and the extra $100,000 are income received without doing any work too.
Yes, the house can be resold to recover the price paid but that can happen in both the case where it has remained at $100,000 or doubled to $200,000.
The exposition above is something that practical people do not need because they understand well that mere price increases for the same thing involving no work and no production are necessarily redistributive,
"big property profits redistributed from the lower classes"
«the money for a property profit comes from the _purchaser_ of the property, right?»
"The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth"
But that property profits are redistributed from the lower classes applies even when considering the size rather than the type of income, so we are talking of classes defined by income and wealth levels.
There are two cases: the static case with property prices constant and the dynamic case with property prices rising. First let's not confuse two completely different cases here:
«From someone who has either the cash or the credit to buy a property.»
Having $400,000 in cash or property or owing $400,000 in debt are not remotely the same thing: two persons with $400,000 in cash or property both have a net worth of $400,000, the person buying a $400,000 property with a $400,000 mortgage has a net worth of $0 (actually a significantly negative net worth considering the net interest that is owed on top of the $400,000 principal). They do not belong to the same class as defined above.
In the static case the very same mass-built house can be worth $400,000 where it gives access to high-paying jobs, $200,000 where it gives access to average-paying jobs and $100,000 in some decaying town where there are only low paying jobs, and $0 in some degraded place where at most it gives access to supplies of fentanyl. Let's assume the entire net worth of a person, and therefore their wealth class, is their property.
If someone sells the $200,000 house and buys the identical $400,000 house in a better place the the $200,000 difference is redistributed from someone from a lower class to someone in a higher class, and so for the $100,000 to $200,000 case and so for the $0 to $100,000 case; in every case the profit of the seller is redistributed from someone poorer to someone richer.
In the dynamic case suppose that the price of all houses is linearly proportional to their size and all double in price, so the $400,000 house with 4 bedrooms will have a new price of $800,000 and the $200,000 house with say 2 bedrooms will have a new price of $400,000, etc.;
* There is no redistribution between selling and buying properties two people who both own houses of the same size, that is equally rich and "big property profits redistributed from the lower classes" does not apply at all because there is no profit.
* If the owner of the house with 2 bedrooms wants to upgrade to a house with 4 bedrooms the difference in price has gone from $200,000 to $400,000.
* The profit of $400,000 from the doubling of price to $800,000 will thus be redistributed from the poorer owner to the richer owner.
* The same happens comparing the owner of a $400,000 property than doubles in price and the owner of $400,000 cash or securities that do not double in price, the $400,000 profit from the doubling goes from poorer to richer.
Also that "the the money for a property profit comes from the _purchaser_ of the property" is only apparently right because what matters is the *net* situation: because if the $400,000 4-bedroom property has doubled in price and so has the price of the $200,000 of the 2-bedroom property, the owner of the latter can still sell it for $400,000 his 2-bedroom property to the owner of the $100,000 1-bedroom property that has also doubled in price so the latter then can sell it for $200,000 to a property-less renter or equivalently put it up for rent at double the previous rent.
What happens is that a good chunk of the increase in price of the $400,000 property to $800,000 is ultimately *net* paid by the property-less renter ($100,000 out of the $400,000 profit) and so redistribution has happened from the lowest incomes class to the highest too.
"If someone sells the $200,000 house and buys the identical $400,000 house in a better place the the $200,000 difference is redistributed from someone from a lower class to someone in a higher class"
I'm calling bullshit. Even with your own niche class definitions, you do not know which of the participants in the transaction are in which class. Either, both, or neither may be supported primarily by their wages and either, both, or neither may be supported primarily by non-wage income streams. Nor do you know the total assets of either participant.
An incredible amount of leftist and democratic party discourse on housing is ultimately downstream of Marx's position that landlords are fundamentally exploitative, full stop. Policy and belief and analysis of data more or less starts from that position as an axiom, which leads to some really strange behavior if your starting axioms are, say, "all of mainstream economics."
This "ur-belief" informs even the framing of local discourse: for example, if a local apartment owner treats tenants terribly, lets the building fall into disrepair, etc., the presupposition is never that the renters can leave and rent from someone else, or that the owner will have a hard time attracting new paying customers because of the poor quality of the building -- it's that the renters are helpless and being exploited.
On the right, there are two more shards of opposition to institutional ownership of houses; one conspiratorial (of the "you will own nothing and eat bugs" variety) and one that is just garden-variety NIMBY -- suburbanites who don't want "those people" living out in the suburbs.
«Marx's position that landlords are fundamentally exploitative, full stop. [...] leads to some really strange behavior if your starting axioms are, say, "all of mainstream economics."»
All of mainstream economics before Marx and most after Marx regard landowners as rentiers (exploiters). There was a big struggle in England between right-wing industrial interests and right-wing landowner interests (over the "corn laws" but more in general ove land rentierism).
As mentioned in previous comments even mainstream Economics applies von Thünen's law to urban land too and that says that property rents and prices are in effect a private deadweight tax on access to jobs and other markets. But since that private tax goes mostly to wealthy people it is quite popular unlike public taxes that benefit in part poor people.
That is fundamentally untrue. Landlords were not considered exploiters as a matter of course in Smith, nor in most later writers. What are you talking about?
I take it you have not read The Wealth of Nations. I have, Smith is pretty clearly anti landlord (Smith is a careful thinker though and highlights the extraction of rents from the value of the land vs value of the improvements.)
Yes I have. In fact one of my PhD fields was Smithean political economy. Thank you for providing the link, but have you read it? Can you point to where Smith claims land owners are exploiting renters? He pretty clearly describes the situation as rent being what the renters can produce less their ordinary profits. The closest to being exploitative is the point that any particular piece of property is unique and so a monopoly, but even then he says that means the price is driven by what the renter can afford. Or in modern terms, supply is inelastic so demand drives price.
I have! For any third party reading it's a surprisingly good read and has aged pretty well.
Smith's objection here is that the value a landlord gets is frequently completely divorced from the landlord's own efforts (e.g. a new train station, local government making it nicer, tenants investing in their own space).
This is of course part of what makes it so absurd to ban the construction of new homes by corporations / PE as they're actually providing value via the construction rather than just sitting on it.
Agreed, but Smith is not making the case that since value of land is divorced from the landlord’s work (usually, though later he notes that industrialists that move to the country and buy estates tend to do a fantastic job) that they are exploitative in a Marxist sense. Nowhere does Smith even hint at the notion that taking their land and giving it to the people that are renting it would be good for society. It is a huge jump to go from “Just owning something and letting other people use it gets you money, even if you aren’t really doing anything extra” to “Kill them and redistribute their stuff because they are parasites.”
I am curious, what do you mean by “any third party reading”? I definitely agree that Smith is a very modern writer in style, other than almost random use of commas. The Wealth of Nations and especially Theory of Moral Sentiments are as easy or easier to understand that many modern academic pieces, so long as one is very careful about what Smith is saying, whether it is descriptive or prescriptive, etc. One could read it quickly, but one should not.
On Build to Rent, what is the counterpoint to the position that this just raises prices for the eventual occupant? If you buy the house and I rent from you, I'm paying more than if I bought it and lived in it, classic economic rent seeking. While it on the large scale the price in the market may go down, the price to the occupant will always be higher than ownership unless the owner is renting at a loss. Which I presume is rare.
By contrast renting a single room or floor, within a larger house usually makes living space available at a lower price, since the renter is not paying for all the costs plus a profit to the owner. Just a portion which is otherwise not available.
Amount the landlord paid for a place isn't really an input to the amount a landlord can successfully charge in rent. It could preclude them from buying the place at all if they determine the juuice not worth the squeeze, but it doesn't give them any ability to actually command a higher rent.
There are lots of markets where monthly mortgage + maintenance costs are way higher than rent. This is currently the case in the Seattle metro, it's about 30% cheaper to rent.
If you expand the box and read the report, it says a decade ago the difference between rent of the "typical house" was below "median mortgage" by $100 to $700 per month. Ok, but are these the same houses? UHERO didn't show the raw data for me to figure it out, and didn't answer when I asked them. They say the difference is over $3,000 currently. But there are zero houses for rent that would sell in the $3m+ range and rather a lot of those in the sales data. So the "median" mortgage may be based on way higher cost housing than the rental units which are often apartments, and even single rooms within a larger dwelling.
Do you know of any data on this broken out? Because (and I know annecdotes aren't data) every landlord I know (30+) is making a profit on their whole property rentals. The only exceptions are when renting a room or adjoining unit. There they are splitting cost.
One point here is that banning build-to-rent won't convert all such projects into build-to-sell (in many cases, they'll instead presumably never be built). Though I'd also argue that profit isn't always just rent-seeking here:
"If you buy the house and I rent from you, I'm paying more than if I bought it and lived in it"
If Alice builds a house, and sells it to Bob, and Bob rents it out to you for more money, then why didn't *Alice* cut out the middleman and rent it to you at that price? I'd guess that this is because Bob's providing some sort of benefit to Alice (and "benefitting Alice the housebuilder" encourages more houses to be built etc). So if you're paying (in part) for someone's profit, often instead of just being "wasted money" it's more like "money invested into increasing future supply".
(Note: I am not an economist. I might be wrong, feel free to counterargue)
Where I live, all the new construction is being done by large corporations (DH Horton, etc.) who have to sell. They're building whole neighborhoods, schools etc all at once. Many of them have conditions like the first occupant can't sell or rent for a year, or the low income ones have to be primary occupancy, etc I am trying to get an idea of the pros and cons of the different decisions they made in various units.
Another thing is other uses for the money. The builder wants to sell the house, and use the proceedings to finance the land and building for other houses. The rentier wants a stable income from his capital.
Re: apts vs houses. Could the thinking be that land is a potential monopoly in some areas, thus requiring more regulation, but land is a smaller fraction of the value of an apartment?
I agree with your argument. Just trying to steelman.
Strange. Wasn't it just 2 weeks ago you were saying people absolutely shouldn't call their opponents evil and here you are calling an opponent a supervillain. As I said then physician heal thyself.
This is one of Zvi's biggest blind spots. From the outside, it looks like tribalism. He's able to talk respectfully about other libertarian nerds that want to dominate or end the world, but he behaves like a partisan towards progressive policy wonks. I am not a fan of Elizabeth Warren but she is clearly less of a supervillain than Sam Altman.
Um, I agree that Zvi is ridiculously indulgent towards Sam Altman, to the point of degrading his own credibility, but Warren is probably worse, because whilst Altman has a reasonably high probability of causing great harm, it is only a probability and he had upside as well, whilst Warren is basically dedicated to causing great harm.
Well, what if renting out homes was *outright* illegal (and I don't just mean technically illegal but easily worked around -- I mean that if Alice lives somewhere owned by Bob the government would look at all monetizable ways for Alice to benefit Bob with extreme suspicion)? At first, that sounds completely crazy, but hear me out: All people who now buy existing dwellings they have no intention to ever live in solely so that they can rent them out would sell them/stop buying them (lowering the prices in the short run) and put the money in stocks/bonds (so that more money would be available to the economy for useful stuff), and even if they just kept the money in checking accounts that'd combat inflation. (Sure, on the other hand some people who rent out their childhood home they inherited from their late parents because they don't want to sell it but don't want to just keep it vacant either would have to choose, and some of them would choose the latter.) If it was common for e.g. postdocs to buy homes and resell them three years later, the process for doing so would end up being streamlined until no longer any more expensive (in proportion) or inconvenient than buying a car and resell it three years later; financial institutions would offer three-year loans to such people who wouldn't be able to pay up front, and the competition would bring the interest rates for such loans down far more effectively than it keeps rents down today, because real estate is much less fungible than money. And without the competition of AirBnB the demand for hotels would jump back up. While I'd still guess this would probably be worse overall by the current status quo, it wouldn't obviously be Pareto-dominated by it. Would that have any serious drawbacks other than the obvious ones?
1) Housing buy/sell transaction are a lot more expensive than rent. For example, just a relator can cost 6% of the houses price! Usually there are also lawyers, taxes, etc. So buying for a short time isn't very practical.
2) A lot of people cannot qualify for a mortgage and don't have enough money for a full house. A lot of people can't even afford a5% down payment. They could have (well, when they could rent) Jobs and a steady income. Where would they live?
"Some of it is the belief that when you rent, you are being ‘taken advantage of’ and that such a deal could not possibly be fair."
Insofar as landlords can extract land rent from tenants, but not from homeowners, the deal really is unfair. I personally think it is unwise to ignore this aspect and pretend that there is nothing wrong with renting. It is better to explicitly acknowledge the problem and the solution (land value tax + universal building exemption), which also addresses the problem of homeowners unfairly benefiting from land rent. This gives you a proper means of pushing back against populist rhetoric, instead of being stuck insisting that rent-seeking is ok when landlords do it.
I'm always confused when Zvi admits, "the best argument against concentrated interests is that it leads to perverse political influence".
This is obviously true...which is why it's an elementary building block of leftist belief. Every leftist -- certainly Warren and Sanders -- constructs their arguments under the influence of this belief. When leftists talk about "equality", this is a large part of what they are talking about.
So it's strange for Zvi to present it as an observation made by Michael Vassar, tip the hat to it, and move on. It should be the beginning of the whole debate, and not a minor point dismissed by a quip from Matthew Yglesias. It reads like Zvi only engages with leftist thought via proxy arguments from his own people.
A lot of housing policy people seem an awful lot like the people who ban straws. They just don't like the aesthetics of single family homes and think they are wasteful and decadent. It's why people get worked up about 15 minute cities. Single family homes are nice. Owning a single family home with a garage and a lawn is a nice achievable dream. These things always seem to get banned, like good dishwashers, showers and cheap new cars. I agree owning is over-rated, but there's value in sovereignty. I imagine corporate land lords charging me an extra $50/month for a subscription to the garage door opener, and I just irrationally like to keep things like they are.
Maybe it's a sour grape thing, but after 12+ years of the SF rental market...I still don't really feel inspired to own a place? And mine's not even rent-controlled, thank God. Perhaps it's a monkish mindset thing, learning to be satisfied with a small footprint, not wanting to own much. (Besides Magic cards.) Sure, "it'd be nice" to have a sunroom and a yard, or in-unit washer dryer, or a dishwasher, and of course every now and then I get annoyed at the logistics of three people sharing one bathroom. But there's a roof over my head, cashflow chugs along positively, can't beat a 15 minute commute...of all the things I find persistently unsatisfactory about life, few would be permanently addressed by owning instead of renting, and that sure is a lot of money and Slack to spend.
(Yeah, it does improve dating life, except the one roundup also said a single person owning a home was...suspicious and Bad Acktually, you're supposed to choose one together? So who knows!)
I’m a landlord of a house in Washington DC that I lived in myself and now rent out. It was mostly ok for years but now I have tenants who haven’t paid rent since September. I’m working on the eviction process which has cost me $10k in legal fees. Their lease ended May 1 but I’m required to offer a renewal on their lease even if they are six months late on rent. And amazingly, they still make maintenance requests! My management company says that I still have to fix any issues that arise or it could be seen as retaliation which will count against me in the eviction. As soon as they are gone, I’m selling the place. One less rental on the market.
tl;dr: property profits for middle-class workers have been the foundation of the electoral success of reaganism/clintonism and that makes them very important to the "sponsors" of the political class.
«Some of it is that if you don’t own, you don’t have the incentive to drive up property values.»
Yes but the really big and important aspect of the war against renters is completely different and is political:
* Property ownership creates big political pressure for policies that increase property prices and increase rents redistributed from the lower classes and usually for property profits to be tax-free.
* People who can look forward to big tax-free property profits will vote for parties that promise to cut wages and cut social services and cut pensions even if they are workers because big property profits redistributed from the lower classes will more than compensate them for such cuts.
Fundamentally it has been big property profits that have turned middle-class property property owners against the New Deal and against labor unions and the working class and social-democracy in general.
In the jargon of social science the big profits of property turn property owning workers into rentier "petty bourgeoisie" voters who believe their interests are more aligned with those of the oligarchs than those of other workers who do not own property.
"big property profits redistributed from the lower classes"
WTF???? You do understand that the money for a property profit comes from the _purchaser_ of the property, right? From someone who has either the cash or the credit to buy a property. *NOT* from someone in "the lower classes".
The high prices reflect high rents.
Many Thanks! Point taken, but
only for the fraction of properties which are rented out
even for those, the direct profits (and the original line was specifically about profits) come from the payment by the to-be landlord to the owner of the property being sold. The to-be landlord may or may not successfully recover that payment as rent to someone who may or may not have above median income. ( I expect that, in high property value areas, the “lower classes” are probably priced out of the rental market too, and just don’t figure in to the market at all. )
On a personal anecdote: My late wife and I purchased and lived in a condo in Silicon Valley in 2013 and moved out, selling it to an individual purchaser in 2020. We made a modest profit, slightly above inflation - effectively paid for by the purchaser, who, IIRC, was either going to live there themselves or give it to a family member. No “lower classes” involved at all. I don’t think this is rare.
That not how it works.
The pricing of the housing that could be rented, is based on the rents of the housing that is rented. If a worse house in a worse neighborhood have their rents up, that must means you could rent a better house at a better neighborhood for more.
If someone would less the house for less, than someone else would buy and rent it, or sell it again.
Basically the asset price is based on the services it can provide, which are measured as rent in dollar terms.
Thank you for your reply. Please remember that the original claim was:
"big property profits [were] redistributed from the lower classes"
Saying that the house could potentially be rented doesn't bring in "lower classes" as a factor in areas with high real estate values (and profits) because, as I already said:
( I expect that, in high property value areas, the “lower classes” are probably priced out of the rental market too, and just don’t figure in to the market at all. )
The "lower classes" (and I'm talking about people with below median wages, *NOT*, "working class" as Blissex defines them, which includes prosperous wage earners) are priced OUT of places like Silicon Valley with sky-high real estate prices. They are _neither_ able to rent _nor_ to buy, so they AREN'T having their wages "redistributed" to the "big property profits".
Now, the sky high prices are a problem, but they are a _different_ problem. They are a problem of e.g. NIMBY rules, and of just packing so much economic activity into such a small area of land (though I don't know if that one is fixable). As Zvi said, this restricts supply, and when lots of prosperous people bid against each other for a restricted supply of housing, prices go high. The problem is the restricted supply, _not_ from "redistribution" (which would, in any case be from the people who successfully bid for the housing, either by purchasing it, or, less directly, from renting it.).
The lower classes mostly rent. I hope you agree with me on this.
They also live mostly in lower quality places. When rents in those places rise, it raises the rents everywhere else, and so the prices also.
If the rent rise in lower quality places and not others, the people would move.
If prices in higher quality places wouldn't raise, then instead of buying a house in a lower quality place and renting it, investors would buy the higher quality place and rent it (for more money).
So basically, the price of all housing is based on the rents of the lower classes, and rising prices reflect redistribution from the lower classes to property profits. If they can't rent at all, because, like in your example, no one from the "lower classes" as you defined them can rent, then you just made them lose in another way - or they have to leave their jobs, families and friends behind and migrate somewhere else, or they have to become homeless.
"big property profits redistributed from the lower classes"
«the money for a property profit comes from the _purchaser_ of the property, right?»
The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth: rent and other profits from ownership define the upper class, however large or small they may be, and wages and other income from work define the working class, and income from charity or subsistence work defined the under class, and the working and under class are the lower classes. Note: some working class people may *also* be upper class if they own assets like real estate or stocks from which they derive some rents or profits.
Now it is very easy to prove that any property profits are necessarily paid by members of the working class:
* A member of the upper class who derives no income from work and has a net worth of $400,000 because he owns two properties with a price of $200,000 gets a capital gain profit because one of the properties rises in price by $200,000 and he sells it.
* With that profit he can consume $200,000 more than he did before in goods or services despite having produced none of them.
* Obviously that extra $200,000 in goods and services does not just *happen* like the $200,000 change in price they *must* have been produced by people who work, who collectively therefore will no longer be able to consume at the same level as before.
* Therefore the $200,000 worth of goods and serviceds has been necessarily redistributed from the lower classes, in some way or another.
Many Thanks!
"The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth: rent and other profits from ownership define the upper class, however large or small they may be, and wages and other income from work define the working class"
a) What you wrote was "lower classes" not "working class"
b) If you are going to talk, instead, about working classes, then affluent programmers selling condos to other affluent programmers in Silicon Valley, all of whom live primarily off their wages, count as "working class", which is so massively misleading a use of the term, when writing for a general, non-marxist-economist, audience, as to essentially count as lying.
"A member of the upper class who derives no income from work and has a net worth of $400,000..."
Where the hell did you get the idea that typical real estate transactions are between people who don't earn wages?
"Obviously that extra $200,000 in goods and services does not just *happen* like the $200,000 change in price they *must* have been produced by people who work, who collectively therefore will no longer be able to consume at the same level as before."
This is very deceptive. When an affluent programmer buys a condo in Silicon Valley with their savings from their wages, sure, they no longer have the $200,000 (the portion of the purchase price due to the increase in the current market value) available for other purchases. So what?? That's the same as any other purchase.
«Where the hell did you get the idea that typical real estate transactions are between people who don't earn wages? [etc.]»
I am sorry that I did not make explicit that I was writing in the aggregate and net across the aggregate and not related to any specific pair of buyers and sellers (but the example I made seemed to clearly imply that to me) and explained what that means.
«an affluent programmer buys a condo in Silicon Valley with their savings from their wages, sure, they no longer have the $200,000 (the portion of the purchase price due to the increase in the current market value) available for other purchases. So what?? That's the same as any other purchase.»
That is not how ordinary purchases work: someone has $100 in cash as their net worth and then they buy a $10 bowl they still have a net worth of $100 the only thing that has changed is that some of it is now as a bowl instead of cash. Instead of consuming $10 cash on something else he has chosen to consume the bowl instead, but he still can consume as much as he could before (as in consume the book and the cash). Since the bowl is produced using work in a competitive market (the bowl is not a "collectible") its price cannot increase delivering a windfall to the bowl vendors.
Then suppose someone has $300,000 cash and there are two identical houses in time or space and one has a price of $100,000 which is is cost and another of $200,000 simply because there was a general price increase for the latter: in one case after buying the house the someone has a house and $200,000 cash and in the other they have an identical house and $100,000 cash and their ability to consume including the house has gone down by $100,000.
That is because the increase in price does not correspond to any increase in quantity or quality as it is the same house in both cases so it is purely redistributive and the extra $100,000 are income received without doing any work too.
Yes, the house can be resold to recover the price paid but that can happen in both the case where it has remained at $100,000 or doubled to $200,000.
The exposition above is something that practical people do not need because they understand well that mere price increases for the same thing involving no work and no production are necessarily redistributive,
"big property profits redistributed from the lower classes"
«the money for a property profit comes from the _purchaser_ of the property, right?»
"The first point is that the common definition of "classes" for economists that discuss economic rent is about the type rather than size of income or wealth"
But that property profits are redistributed from the lower classes applies even when considering the size rather than the type of income, so we are talking of classes defined by income and wealth levels.
There are two cases: the static case with property prices constant and the dynamic case with property prices rising. First let's not confuse two completely different cases here:
«From someone who has either the cash or the credit to buy a property.»
Having $400,000 in cash or property or owing $400,000 in debt are not remotely the same thing: two persons with $400,000 in cash or property both have a net worth of $400,000, the person buying a $400,000 property with a $400,000 mortgage has a net worth of $0 (actually a significantly negative net worth considering the net interest that is owed on top of the $400,000 principal). They do not belong to the same class as defined above.
In the static case the very same mass-built house can be worth $400,000 where it gives access to high-paying jobs, $200,000 where it gives access to average-paying jobs and $100,000 in some decaying town where there are only low paying jobs, and $0 in some degraded place where at most it gives access to supplies of fentanyl. Let's assume the entire net worth of a person, and therefore their wealth class, is their property.
If someone sells the $200,000 house and buys the identical $400,000 house in a better place the the $200,000 difference is redistributed from someone from a lower class to someone in a higher class, and so for the $100,000 to $200,000 case and so for the $0 to $100,000 case; in every case the profit of the seller is redistributed from someone poorer to someone richer.
In the dynamic case suppose that the price of all houses is linearly proportional to their size and all double in price, so the $400,000 house with 4 bedrooms will have a new price of $800,000 and the $200,000 house with say 2 bedrooms will have a new price of $400,000, etc.;
* There is no redistribution between selling and buying properties two people who both own houses of the same size, that is equally rich and "big property profits redistributed from the lower classes" does not apply at all because there is no profit.
* If the owner of the house with 2 bedrooms wants to upgrade to a house with 4 bedrooms the difference in price has gone from $200,000 to $400,000.
* The profit of $400,000 from the doubling of price to $800,000 will thus be redistributed from the poorer owner to the richer owner.
* The same happens comparing the owner of a $400,000 property than doubles in price and the owner of $400,000 cash or securities that do not double in price, the $400,000 profit from the doubling goes from poorer to richer.
Also that "the the money for a property profit comes from the _purchaser_ of the property" is only apparently right because what matters is the *net* situation: because if the $400,000 4-bedroom property has doubled in price and so has the price of the $200,000 of the 2-bedroom property, the owner of the latter can still sell it for $400,000 his 2-bedroom property to the owner of the $100,000 1-bedroom property that has also doubled in price so the latter then can sell it for $200,000 to a property-less renter or equivalently put it up for rent at double the previous rent.
What happens is that a good chunk of the increase in price of the $400,000 property to $800,000 is ultimately *net* paid by the property-less renter ($100,000 out of the $400,000 profit) and so redistribution has happened from the lowest incomes class to the highest too.
Many Thanks for your reply
"If someone sells the $200,000 house and buys the identical $400,000 house in a better place the the $200,000 difference is redistributed from someone from a lower class to someone in a higher class"
I'm calling bullshit. Even with your own niche class definitions, you do not know which of the participants in the transaction are in which class. Either, both, or neither may be supported primarily by their wages and either, both, or neither may be supported primarily by non-wage income streams. Nor do you know the total assets of either participant.
An incredible amount of leftist and democratic party discourse on housing is ultimately downstream of Marx's position that landlords are fundamentally exploitative, full stop. Policy and belief and analysis of data more or less starts from that position as an axiom, which leads to some really strange behavior if your starting axioms are, say, "all of mainstream economics."
This "ur-belief" informs even the framing of local discourse: for example, if a local apartment owner treats tenants terribly, lets the building fall into disrepair, etc., the presupposition is never that the renters can leave and rent from someone else, or that the owner will have a hard time attracting new paying customers because of the poor quality of the building -- it's that the renters are helpless and being exploited.
On the right, there are two more shards of opposition to institutional ownership of houses; one conspiratorial (of the "you will own nothing and eat bugs" variety) and one that is just garden-variety NIMBY -- suburbanites who don't want "those people" living out in the suburbs.
«Marx's position that landlords are fundamentally exploitative, full stop. [...] leads to some really strange behavior if your starting axioms are, say, "all of mainstream economics."»
All of mainstream economics before Marx and most after Marx regard landowners as rentiers (exploiters). There was a big struggle in England between right-wing industrial interests and right-wing landowner interests (over the "corn laws" but more in general ove land rentierism).
As mentioned in previous comments even mainstream Economics applies von Thünen's law to urban land too and that says that property rents and prices are in effect a private deadweight tax on access to jobs and other markets. But since that private tax goes mostly to wealthy people it is quite popular unlike public taxes that benefit in part poor people.
That is fundamentally untrue. Landlords were not considered exploiters as a matter of course in Smith, nor in most later writers. What are you talking about?
I take it you have not read The Wealth of Nations. I have, Smith is pretty clearly anti landlord (Smith is a careful thinker though and highlights the extraction of rents from the value of the land vs value of the improvements.)
https://www.adamsmithworks.org/documents/chapter-xi-of-the-rent-of-land
Yes I have. In fact one of my PhD fields was Smithean political economy. Thank you for providing the link, but have you read it? Can you point to where Smith claims land owners are exploiting renters? He pretty clearly describes the situation as rent being what the renters can produce less their ordinary profits. The closest to being exploitative is the point that any particular piece of property is unique and so a monopoly, but even then he says that means the price is driven by what the renter can afford. Or in modern terms, supply is inelastic so demand drives price.
I have! For any third party reading it's a surprisingly good read and has aged pretty well.
Smith's objection here is that the value a landlord gets is frequently completely divorced from the landlord's own efforts (e.g. a new train station, local government making it nicer, tenants investing in their own space).
This is of course part of what makes it so absurd to ban the construction of new homes by corporations / PE as they're actually providing value via the construction rather than just sitting on it.
Agreed, but Smith is not making the case that since value of land is divorced from the landlord’s work (usually, though later he notes that industrialists that move to the country and buy estates tend to do a fantastic job) that they are exploitative in a Marxist sense. Nowhere does Smith even hint at the notion that taking their land and giving it to the people that are renting it would be good for society. It is a huge jump to go from “Just owning something and letting other people use it gets you money, even if you aren’t really doing anything extra” to “Kill them and redistribute their stuff because they are parasites.”
I am curious, what do you mean by “any third party reading”? I definitely agree that Smith is a very modern writer in style, other than almost random use of commas. The Wealth of Nations and especially Theory of Moral Sentiments are as easy or easier to understand that many modern academic pieces, so long as one is very careful about what Smith is saying, whether it is descriptive or prescriptive, etc. One could read it quickly, but one should not.
On Build to Rent, what is the counterpoint to the position that this just raises prices for the eventual occupant? If you buy the house and I rent from you, I'm paying more than if I bought it and lived in it, classic economic rent seeking. While it on the large scale the price in the market may go down, the price to the occupant will always be higher than ownership unless the owner is renting at a loss. Which I presume is rare.
By contrast renting a single room or floor, within a larger house usually makes living space available at a lower price, since the renter is not paying for all the costs plus a profit to the owner. Just a portion which is otherwise not available.
Amount the landlord paid for a place isn't really an input to the amount a landlord can successfully charge in rent. It could preclude them from buying the place at all if they determine the juuice not worth the squeeze, but it doesn't give them any ability to actually command a higher rent.
There are lots of markets where monthly mortgage + maintenance costs are way higher than rent. This is currently the case in the Seattle metro, it's about 30% cheaper to rent.
See this is the weird bit and I can't tell if the reports are playing with the numbers. Which is why I appreciate the answers and discussions here.
Take this report https://uhero.hawaii.edu/the-hawaii-housing-factbook-2025/
If you expand the box and read the report, it says a decade ago the difference between rent of the "typical house" was below "median mortgage" by $100 to $700 per month. Ok, but are these the same houses? UHERO didn't show the raw data for me to figure it out, and didn't answer when I asked them. They say the difference is over $3,000 currently. But there are zero houses for rent that would sell in the $3m+ range and rather a lot of those in the sales data. So the "median" mortgage may be based on way higher cost housing than the rental units which are often apartments, and even single rooms within a larger dwelling.
Do you know of any data on this broken out? Because (and I know annecdotes aren't data) every landlord I know (30+) is making a profit on their whole property rentals. The only exceptions are when renting a room or adjoining unit. There they are splitting cost.
One point here is that banning build-to-rent won't convert all such projects into build-to-sell (in many cases, they'll instead presumably never be built). Though I'd also argue that profit isn't always just rent-seeking here:
"If you buy the house and I rent from you, I'm paying more than if I bought it and lived in it"
If Alice builds a house, and sells it to Bob, and Bob rents it out to you for more money, then why didn't *Alice* cut out the middleman and rent it to you at that price? I'd guess that this is because Bob's providing some sort of benefit to Alice (and "benefitting Alice the housebuilder" encourages more houses to be built etc). So if you're paying (in part) for someone's profit, often instead of just being "wasted money" it's more like "money invested into increasing future supply".
(Note: I am not an economist. I might be wrong, feel free to counterargue)
Bob is earning risk premium for "the tenant is a deadbeat and I've spent $10k trying to evict them"?
Yeah, I guess Bob's getting paid to take on the risk and sort out the legal issues
Where I live, all the new construction is being done by large corporations (DH Horton, etc.) who have to sell. They're building whole neighborhoods, schools etc all at once. Many of them have conditions like the first occupant can't sell or rent for a year, or the low income ones have to be primary occupancy, etc I am trying to get an idea of the pros and cons of the different decisions they made in various units.
Another thing is other uses for the money. The builder wants to sell the house, and use the proceedings to finance the land and building for other houses. The rentier wants a stable income from his capital.
That isn’t what “rent seeking” means. It has nothing to do with renting things.
Re: apts vs houses. Could the thinking be that land is a potential monopoly in some areas, thus requiring more regulation, but land is a smaller fraction of the value of an apartment?
I agree with your argument. Just trying to steelman.
Strange. Wasn't it just 2 weeks ago you were saying people absolutely shouldn't call their opponents evil and here you are calling an opponent a supervillain. As I said then physician heal thyself.
This is one of Zvi's biggest blind spots. From the outside, it looks like tribalism. He's able to talk respectfully about other libertarian nerds that want to dominate or end the world, but he behaves like a partisan towards progressive policy wonks. I am not a fan of Elizabeth Warren but she is clearly less of a supervillain than Sam Altman.
Um, I agree that Zvi is ridiculously indulgent towards Sam Altman, to the point of degrading his own credibility, but Warren is probably worse, because whilst Altman has a reasonably high probability of causing great harm, it is only a probability and he had upside as well, whilst Warren is basically dedicated to causing great harm.
A plea - for your next housing roundup, would you mind encouraging your readers who live/have loved ones in IL to contact their state legislators to push for statewide housing legalization here: https://actionnetwork.org/letters/pass-the-build-plan the illinois municipal league is fighting it tooth and nail (https://citythatworks.substack.com/p/local-governments-come-out-swinging) and as a member of a local YIMBY group pushing for it boots on the ground, we need all the help we can get
Well, what if renting out homes was *outright* illegal (and I don't just mean technically illegal but easily worked around -- I mean that if Alice lives somewhere owned by Bob the government would look at all monetizable ways for Alice to benefit Bob with extreme suspicion)? At first, that sounds completely crazy, but hear me out: All people who now buy existing dwellings they have no intention to ever live in solely so that they can rent them out would sell them/stop buying them (lowering the prices in the short run) and put the money in stocks/bonds (so that more money would be available to the economy for useful stuff), and even if they just kept the money in checking accounts that'd combat inflation. (Sure, on the other hand some people who rent out their childhood home they inherited from their late parents because they don't want to sell it but don't want to just keep it vacant either would have to choose, and some of them would choose the latter.) If it was common for e.g. postdocs to buy homes and resell them three years later, the process for doing so would end up being streamlined until no longer any more expensive (in proportion) or inconvenient than buying a car and resell it three years later; financial institutions would offer three-year loans to such people who wouldn't be able to pay up front, and the competition would bring the interest rates for such loans down far more effectively than it keeps rents down today, because real estate is much less fungible than money. And without the competition of AirBnB the demand for hotels would jump back up. While I'd still guess this would probably be worse overall by the current status quo, it wouldn't obviously be Pareto-dominated by it. Would that have any serious drawbacks other than the obvious ones?
There are 2 major issues:
1) Housing buy/sell transaction are a lot more expensive than rent. For example, just a relator can cost 6% of the houses price! Usually there are also lawyers, taxes, etc. So buying for a short time isn't very practical.
2) A lot of people cannot qualify for a mortgage and don't have enough money for a full house. A lot of people can't even afford a5% down payment. They could have (well, when they could rent) Jobs and a steady income. Where would they live?
"Some of it is the belief that when you rent, you are being ‘taken advantage of’ and that such a deal could not possibly be fair."
Insofar as landlords can extract land rent from tenants, but not from homeowners, the deal really is unfair. I personally think it is unwise to ignore this aspect and pretend that there is nothing wrong with renting. It is better to explicitly acknowledge the problem and the solution (land value tax + universal building exemption), which also addresses the problem of homeowners unfairly benefiting from land rent. This gives you a proper means of pushing back against populist rhetoric, instead of being stuck insisting that rent-seeking is ok when landlords do it.
More on how Georgism and YIMBYism compliment each other, and on the problems each faces without the other: https://progressandpoverty.substack.com/p/land-and-the-liberty-to-build-on
I'm always confused when Zvi admits, "the best argument against concentrated interests is that it leads to perverse political influence".
This is obviously true...which is why it's an elementary building block of leftist belief. Every leftist -- certainly Warren and Sanders -- constructs their arguments under the influence of this belief. When leftists talk about "equality", this is a large part of what they are talking about.
So it's strange for Zvi to present it as an observation made by Michael Vassar, tip the hat to it, and move on. It should be the beginning of the whole debate, and not a minor point dismissed by a quip from Matthew Yglesias. It reads like Zvi only engages with leftist thought via proxy arguments from his own people.
The Mumbai rent control narrative appears to be false: https://claude.ai/share/6ca62365-9bb9-4221-b1f2-a1e4d24d3b96
Real answer in that case is just "I'm too lazy to do it", unless the guy happens to own an apartment in a building from the 1950s or earlier.
A lot of housing policy people seem an awful lot like the people who ban straws. They just don't like the aesthetics of single family homes and think they are wasteful and decadent. It's why people get worked up about 15 minute cities. Single family homes are nice. Owning a single family home with a garage and a lawn is a nice achievable dream. These things always seem to get banned, like good dishwashers, showers and cheap new cars. I agree owning is over-rated, but there's value in sovereignty. I imagine corporate land lords charging me an extra $50/month for a subscription to the garage door opener, and I just irrationally like to keep things like they are.
Maybe it's a sour grape thing, but after 12+ years of the SF rental market...I still don't really feel inspired to own a place? And mine's not even rent-controlled, thank God. Perhaps it's a monkish mindset thing, learning to be satisfied with a small footprint, not wanting to own much. (Besides Magic cards.) Sure, "it'd be nice" to have a sunroom and a yard, or in-unit washer dryer, or a dishwasher, and of course every now and then I get annoyed at the logistics of three people sharing one bathroom. But there's a roof over my head, cashflow chugs along positively, can't beat a 15 minute commute...of all the things I find persistently unsatisfactory about life, few would be permanently addressed by owning instead of renting, and that sure is a lot of money and Slack to spend.
(Yeah, it does improve dating life, except the one roundup also said a single person owning a home was...suspicious and Bad Acktually, you're supposed to choose one together? So who knows!)