"Landlording is not rent seeking when _______."

[Wrenchturner]

Interesting housing market up here in Canada, and I'm trying to understand rent-seeking as it applies to rental property investing and landlording.  I'm a renter.  Obviously landlords/rental housing provides a useful service to many that are young or between purchases or moving frequently.  But I am having a hard time understanding when this useful service turns into a rent-seeking parasitic force on the economy. 

Perhaps it would be useful to frame this in the form of a statement, so I would invite commenters to comment along those lines.  When do you see that rental investing is rent seeking/not rent seeking?  Looking for specific criteria here.

Generally it seems that when the economy has consistent real growth, landlording is naturally disincentivised since there are better investments available and housing is (rightly) interpreted as an input cost.

But if the economy is not growing, then typical investments falter and people move into negative-real-rate leveraged investments, such as housing where your debt is cheaper than inflation.  (Paging Canada)

Thoughts?

[Louisville]

"rent-seek·ing
noun
the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits."

I'm not understanding how this fits in to your question. Is there a giant cabal of landlords pulling strings behind the scenes to keep rents high? Or something?

[Morning Glory]

"rent-seek·ing
noun
the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits."

I'm not understanding how this fits in to your question. Is there a giant cabal of landlords pulling strings behind the scenes to keep rents high? Or something?

I remember this being a concern when big corporations were buying up foreclosure houses to turn into rentals. I could see it happening if a large company owned a high enough percentage of housing in an area.

[Wrenchturner]

"rent-seek·ing
noun
the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits."

I'm not understanding how this fits in to your question. Is there a giant cabal of landlords pulling strings behind the scenes to keep rents high? Or something?

Doesn't need to be a cabal; from investopedia:
"Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs."

[Morning Glory]

"rent-seek·ing
noun
the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits."

I'm not understanding how this fits in to your question. Is there a giant cabal of landlords pulling strings behind the scenes to keep rents high? Or something?

Doesn't need to be a cabal; from investopedia:
"Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs."

Sort of like corporations that pay inadequate wages to millions of employees, then teach them how to sign up for government benefits at orientation. Also they conveniently accept said benefits if the employees want to shop there. Is that a good example? I'm not really familiar with the term.

[Wrenchturner]

"rent-seek·ing
noun
the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits."

I'm not understanding how this fits in to your question. Is there a giant cabal of landlords pulling strings behind the scenes to keep rents high? Or something?

Doesn't need to be a cabal; from investopedia:
"Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs."

Sort of like corporations that pay inadequate wages to millions of employees, then teach them how to sign up for government benefits at orientation. Also they conveniently accept said benefits if the employees want to shop there. Is that a good example? I'm not really familiar with the term.

I'm not sure either.  from wiki
"The classic example of rent-seeking, according to Robert Shiller, is that of a property owner who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive about the chain or the collector. The owner has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way to make money from something that used to be free.[12]"

Regulatory capture may be a better term for what's going on in housing:
Regulatory capture is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition.[16] The term monopoly privilege rent-seeking is an often-used label for this particular type of rent-seeking. Often-cited examples include a lobby that seeks economic regulations such as tariff protection, quotas, subsidies,[17] or extension of copyright law.[18] Anne Krueger concludes that "empirical evidence suggests that the value of rents associated with import licenses can be relatively large, and it has been shown that the welfare cost of quantitative restrictions equals that of their tariff equivalents plus the value of the rents".[4]

The regulator in this case that facilitates the capture would be mostly central bankers, who are keeping mortgage costs in an artificial downtrend and, in Canada, directly supporting house prices through the purchase of mortgage bonds.  Mortgage deferrals would probably fit here too.  This has the effect of entrenching wealth to those that bought early.

[Eco_eco]

Landlords provide a service, just like any other business. They don’t have a monopoly and so are not really rent seeking in the sense most people use the term.

There really isn’t much difference between a landlord, a hotel, an Airbnb, a camp ground, or any other accommodation provider. It’s just that landlords are often willing to rent out properties in the long term.

[soulpatchmike]

"Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs."

Economic Concept - rent-seeking doesn't necessarily apply directly to landlording, but might apply to large corporate landlording.  It is more related to profit motive and activity involved in gaining that profit.  Rent seeking is more relatable to a monopolistic part of our society.  Just considering that it is an economic concept, I would say. 
"Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement."

Gaining Wealth without ANY reciprocal contribution of productivity.  - these are all very loadeed terms.  What does gain wealth mean?  What does a reciprocal contribution look like? 
A "homeowner" is trading the cost of interest paid to a bank in the form of a mortgage and taxes paid to a county for usage of a home.  When they stop paying this, they lose the ability to live there AND the socially constructed idea of ownership.
A "renter" is trading the cost of rent for the usage of a home.  When they stop paying this, they lose the ability to live there.
Is it better or worse for the bank to profit the mortgage interest for thier investment of the loan or the landlord the profit off the difference between the contracts he has with the county, bank and renter?  I would argue they are the same and no different than a broker of any kind.  The world lives off of buyers and sellers of goods and services.  Adding the idea of reciprocal contribution I would still say,
"Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement."

Typically revolves around gov funded social services and programs. - With rent-seeking revolving around gov funded services and programs I would say,
"Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement whether or not government funding such as section 8 is involved."
However, if for example, the tenant does not pay their required portion stated on the lease to receive the county funding and the landlord does not report it and does not maintain the property and holds it over the tenants head, that I would consider being a dick and if done enough to make up the majority of said landlords income, it could be considered rent-seeking.

I do like the idea of the chain across the river example because it brings to light the question of what is a right and what is a privilege.  Lots to discuss there, but I will wait for another post.

[Morning Glory]

How about a landlord who provides cable tv (or some other unnecessary service) as part of the rent? The tenant cannot cancel the cable in exchange for lower rent. He is forced to pay for a service he doesn't use. Say the landlord is a large reit and several members of the board are part owners of the cable company.

[soulpatchmike]

How about a landlord who provides cable tv (or some other unnecessary service) as part of the rent? The tenant cannot cancel the cable in exchange for lower rent. He is forced to pay for a service he doesn't use. Say the landlord is a large reit and several members of the board are part owners of the cable company.

Lets evaluate based on the given definition.

Economic Concept - we could call this a bit of economics at work.  Goods and services are being rendered.  And when the cost of the cable is spread across many units, the landlord is providing it at a lower cost than the individual renters could get it.

Gaining Wealth without ANY reciprocal contribution of productivity - This one is harder to agree with.  The tenants are getting free cable included in their rent.  Unlike the rope service on the river, there is purpose for cable.  It provides a service to all who use it.  It is unlikely that everyone living in an apartment with an exercise room or pool uses it, but they have the option to for no added cost.  The cable bill is the same.

Typically revolves around gov funded social services and programs. - Here is where things get sticky with Cable companies.  They are a monopoly in most geographic regions and this is due to government lobbies and industry groups.  While I cant jump to the landlord being rent-seeking, I can quite agree the cable company is rent-seeking.

I still contend "Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement."

[BlueHouse]

I still contend "Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement."

Isn't this just the definition of a contract? 

Based on the above definitions of rent-seeking, I would think that parking meters are rent-seeking inventions.  I routinely agree with the terms to park on the street, but there is no benefit to anyone other than the party that collects the payment.  I realize that some municipalities use the funds for road improvements, but I think there are many transitions before the rent-collection is transformed into a filled pothole and there's no direct connection.

[Morning Glory]

I still contend "Landlording is not rent-seeking whenever an offering landlord agrees to lease terms with a willing renter and both execute on that agreement."

Isn't this just the definition of a contract? 

Based on the above definitions of rent-seeking, I would think that parking meters are rent-seeking inventions.  I routinely agree with the terms to park on the street, but there is no benefit to anyone other than the party that collects the payment.  I realize that some municipalities use the funds for road improvements, but I think there are many transitions before the rent-collection is transformed into a filled pothole and there's no direct connection.

Parking meters are there to prevent overuse of a scarce resource, similar to the way coin operated laundry in apartment buildings prevents people from doing multiple tiny loads.

One could say that parking meters prey upon those without the knowledge of the free parking locations, or the ability to walk a few blocks.

If there was a problem with too many boats on the river, then the chain might work the same way.

[affordablehousing]

The only definition I know of is developers that throw up crap buildings in the worst neighborhoods, calling them affordable housing and then taking advantage of high Section 8 voucher rents as compared to the market. HUD will never catch up to each neighborhood so you can make an above market rent providing crap conditions if you do it right. Or wrong...

[Wintergreen78]

Here’s an example: People who own property, then argue for restrictive zoning and building standards that make it difficult and expensive to build more housing. They argue that it is for “preserving character”. This makes housing more expensive. The people who own housing then can value their property higher when they sell, or rent it for more than they could otherwise.

They haven’t improved their property, but they have supported policies that increase the profit from their property.

[Chester Allen Arthur]

Landlording is rent seeking, period - landlording does not create wealth in any real way, and it's inferior to social housing and housing cooperatives.  Landlords are only getting income because they spent a lot of money up front on a scare resources, not because they do anything useful (unlike investment in the stock market, where at least it's part of a system that gets capital to people who need it to make useful products or provide useful services, even if the connection is not always direct).
Now, there's an obvious objection, which is that some landlords also provide services, like repairs, renovations, and maintenance of properties; I get the sense that Mustachian landlords do a ton of work making sure their properties are in good condition and stay that way.  However, that's not landlording, and that distinction is not just semantics.  Making repairs on a house, mowing the lawn, putting in a new bathroom, those are all things people do that are not landlords, and typically the landlord does none of the actual work and just hires someone who does the useful stuff - indeed, lots of landlords even have a building manager to whom they delegate the work of keeping the property in shape and hiring people to do work on it when needed.  Landlording is rent seeking because the landlord only handles the money without adding value to the whole system - indeed, most landlords destroy value because they act as a barrier to tenants maintaining the property themselves, both by adding another step to hiring someone to fix something and by preventing the people who live in a house or apartment from benefiting from improvements, thus disincentivizing them from maintaining or improving the space if its costs them money.
One way to tell that landlords do not provide a wealth-creating service is that people don't typically hire someone to do the job of a landlord in properties they own.  There are carpenters, plumbers, handymen, and so on that serve both landlords and owner-occupied housing, but no one who owns a home hires someone to coordinate all aspects of home maintenance, especially not at the price of a fourth of their income.

[Eco_eco]

Landlords are only getting income because they spent a lot of money up front on a scare resources, not because they do anything useful (unlike investment in the stock market, where at least it's part of a system that gets capital to people who need it to make useful products or provide useful services, even if the connection is not always direct).

How is the landlord - who provides the upfront capital cost for accomodation, any different to a stock market investor, who does nothing but passively provide capital?

The stock market investor provides capital - so that a business can purchase assets for production. The landlord provides accomodation so that workers have a place to live (or a place to work for commercial landlords). Both are critical for  productivity.

I don’t see how the choice of asset makes much difference.

[Villanelle]

I've always considered rent seeking to be mostly like the river chain example above (and not really if it is done because there is too much traffic on the river and that is causing problematic erosion, or similar, because in that case the chain-fee is solving an actual problem, not simply creating an opportunity to charge for essentially nothing).  It is creating an artificial need and then charging to meet that need.  Given that shelter is a very real need, I'm not sure landlording (as in--renting residential housing units, or even commercial spaces) is ever rent-seeking.  Unless maybe I burn down a bunch of houses to create an artificial scarcity and then charge more to rent the remaining homes. 

I suppose it's a gray area if landlords are advocating for policy that makes scarcity (and only because it creates scarcity) and thereby drive up prices.  But still that is unlikely for the average landlord who owns one or a handful of properties. 

[zolotiyeruki]

Landlords *do* provide value, in that they offer housing to people who:
-- do not have enough income to make a traditional mortgage payment, or
-- don't have enough money for a down payment, or
-- have circumstances which may result in moving out in the relatively short term, or
-- don't want the inflexibility or maintenance of homeownership

Others have pointed out what "real" rent-seeking is.  Typically, it involves either government regulation or monopoly abuse (which is effectively kind of the same thing):
-- zoning laws or building restrictions (e.g. limitations on new or taller residential structures)
-- straight-up limitations on supply (see: taxi cab medallions in NYC)
-- tariffs
-- regulations that require specific work to be performed by someone from Group X (e.g. only a master electrician can do electrical work, or a member of a union must be hired to perform task X)
-- "prevailing wage" laws
-- tax breaks given to specific companies for building their headquarters or factory in your location

There are situations where you could argue that there is a collective benefit that outweighs the cost.  I've seen such arguments applied to things like:
-- State/local tax breaks for MegaCorp - "It'll bring X jobs to our area, which will result in Y extra revenue, so the payback is Z years"
-- Sports stadiums (this one gets in my craw) - "Construction jobs! And people will go out more to bars and restaurants on game day!"
-- Parking meters - it can be not so much about the revenue as it is about limiting demand
-- Taxi medallions - again, limiting the number of cars on the streets
-- Basically the bulk of the US tax code

Some times these arguments hold water, sometimes they're a cop out, i.e. avoiding solving a harder problem, and sometimes they're just a load of horsehockey.

[FINate]

Generally speaking, landlording is NOT rent seeking.

However, landlording IS rent seeking when landlords conspire with homeowners/NIMBYs to artificially constrain the supply of housing. This creates obscene profits for property owners.

Want to level the playing field between renters and owners? Built housing. Not just a little on the edges here and there over too many years. Build a ton, quickly and densely. Small, efficient, affordable by design. Make landlords compete for renters. And give people a viable long-term living option other than massively overpaying for a SFH that the seller bought for $50k in 1980.

[Wrenchturner]

Thank you for the responses; I haven't had much time to think about this.  Do we have a simple, general ruleset yet?  It seems that rent seeking w/r/t housing is a matter of use case, and that's mostly about regulations.  The moral hazard tends to exist *between* landlords rather than within them, that is to say--the hazards are distributed, so you get a prisoner's dilemma situation.

I think negative real mortgage rates are contributing this as housing speculation serves a "fixed income" type purpose. 

"Building housing" is certainly a useful strategy but excess demand is always a possibility(such as in a speculative market) so it's not quite so simple.  Also you would run the risk of overbuilding and exacerbating a correction if one were to occur.

From what I have heard about California, it seems they are taking a unique approach--dictating housing supply quotas at the regional level and threatening to void zoning restrictions if they are not met.  This forces the moral hazard to be addressed.  It would be prudent to establish something similar in Canada w/r/t immigration.  The feds want to crank up immigration but Toronto doesn't have the housing to support it(where most immigrants settle) and this should be addressed inter-govermentally.

17% of Toronto homeowners own multiple properties, while 33% of Toronto residents do not own homes.

https://www.blogto.com/real-estate-toronto/2021/04/toronto-homeowners-own-at-least-two-residential-properties/

[FINate]

Build enough supply and it will absorb excess (speculative) demand.

Even if new supply is bought by investors this will still help the overall housing market by eventually lowering rents. The only potential problem is people buying properties that sit empty. If that happens (as has happened in parts of Canada I'm told) then a vacancy tax would help discourage this. But I'd want to see good hard evidence this is actually happening before going that route.

Indeed, there's a risk that speculators get burned if overbuilding occurs. IMO, it's worth the risk because oversupply would be good for renters, and society should err on the side of protecting the poorest whereas the status quo leans towards protecting the interests of wealthy speculators/investors.

I would not look to California as an example to follow. Bad policies and poor urban planning over decades have created a humanitarian crisis of enormous magnitude. This article is about homelessness, but it describes how this connects with the systemic issue of failing to build housing. There are many many reports going back decades that document this slow motion train wreck, so there's nothing surprising about the current situation. Yet the state government *still* hasn't taken substantive action. Sure, a little tweak here and there, and lots of virtue signaling, but this is a full blown crisis... meanwhile, people are dying on the streets.

[Wrenchturner]

Build enough supply and it will absorb excess (speculative) demand.

Even if new supply is bought by investors this will still help the overall housing market by eventually lowering rents. The only potential problem is people buying properties that sit empty. If that happens (as has happened in parts of Canada I'm told) then a vacancy tax would help discourage this. But I'd want to see good hard evidence this is actually happening before going that route.

Indeed, there's a risk that speculators get burned if overbuilding occurs. IMO, it's worth the risk because oversupply would be good for renters, and society should err on the side of protecting the poorest whereas the status quo leans towards protecting the interests of wealthy speculators/investors.

I would not look to California as an example to follow. Bad policies and poor urban planning over decades have created a humanitarian crisis of enormous magnitude. This article is about homelessness, but it describes how this connects with the systemic issue of failing to build housing. There are many many reports going back decades that document this slow motion train wreck, so there's nothing surprising about the current situation. Yet the state government *still* hasn't taken substantive action. Sure, a little tweak here and there, and lots of virtue signaling, but this is a full blown crisis... meanwhile, people are dying on the streets.

I know a bit about the California situation but hopefully this new strategy will help.  We have to address the moral hazards of housing one way or another.

And I'm not sure if underbuilding is producing this kind of price movement.

[Wrenchturner]

Lol who needs an x-axis?  That's over 16 years.  The "humps" are years