Yes, in the current emergency, people are suffering. And given that the inability of many to meet their monthly expenses is a byproduct of government policies that have put them out of work, temporary rent relief makes a lot of sense. But it’s hard to see why in the current crisis the landlord has suddenly become the enemy.
True, landlords have always been popular villains. Most every renter has a story of the property owner who took six months to fix the leaky sink after taking six weeks to return the phone call. Even some scholars regard landlords as little more than exploiters. A 2018 piece in the Guardian proclaimed compared honoring a landlord to “giving Stalin a humanitarian award for massacring fewer people than Genghis Khan.”
But landlords didn’t create the novel coronavirus or do more than anyone else to contribute to its spread. Landlords neither dictated who must stay home nor commanded businesses to close. They had nothing to do with shortages in protective equipment, incompetence in rolling out tests, or the practical difficulties in contact-tracing.
They are, however, for most people capitalism’s most visible regular sign. Landlords charge money, month after month, a clockwork chunk of the family budget, even as millions of tenant consistently have trouble paying rent. But they’re still not the bad guys here. Let’s see why.
For one thing, even if many landlords are large corporations that by hypothesis should be able (goodness knows how) to weather the rent-strike storm, an awful lot of landlords don’t fit the stereotype. According to the Department of Housing and Urban Development, there are some 48.5 million rental units in the U.S. Of these, 22.7 million units — about 47% — are owned by individuals. According to IRS data, there are between 10 and 11 million individual landlords. I have found no studies of the median number of units each individual landlord owns, but the average is quite obviously about two, and many surely own just one. In the current crisis, many landlords may be suffering as much as their tenants.
A rent strike could make things worse. Punishing landlords will likely lead to less investment in multi-unit residential properties, when what we really need is more. And here we come upon a puzzle. If, as a much-discussed 2019 study concludes, landlords make more profit renting to low-income than to high-income tenants, one would expect a rush of investors hoping to get in on the exploitation bonanza by building low-income residences. The new construction in turn would lower rents until the market reaches equilibrium.
But one would be wrong. A recent report from Harvard’s Joint Center for Housing Studies shows that the number of low-rent units, after rising slightly between 2009 and 2012, fell by 3.1 million units over the next five years. The decline has been seen in every state, including those with relatively low rental costs. Why?
One reason is expense. According to the construction firm Rider Levett Bucknall, the price of building in the U.S. increased by 28% between the first quarter of 2015 and the first quarter of 2020. The cost to build multi-family residential units (that is, apartments) was highest in San Francisco, followed by Los Angeles and Honolulu. New York City tied with Washington, D.C., for fourth place.
Part of the high cost of building cost represents the scarcity of buildable land; part represents the rise in the price of labor and materials, as well as overhead and profit. But a significant chunk represents the need to comply with local land use rules. How big a chunk? Nobody knows for sure. The homebuilding industry estimates that regulation adds 30% to the cost of building multi-family housing, but the effect is notoriously difficult to measure.
Nevertheless, as Harvard economist Edward Glaeser points out, Economics 101 tells us the effect exists: “If demand alone drove prices, then we should expect to see places that have high costs also have high levels of construction. The reverse is true.” The regulatory burden on construction, he concludes, “makes life harder for poorer Americans.”
Many thoughtful progressives agree. As Matthew Yglesias writes in his delightful 2012 monograph on the problem, The Rent is Too Damn High: “There’s nothing ‘free market’ about land use in the land of the free.” Across the country, in suburbs and in cities, regulation prevents builders from building housing that people want — including housing for the poor.
But the answer, Yglesias argues, isn’t more “central planning and coercion.” The answer is to let the housing market work more like a market. Otherwise, a combination of NIMBYism and byzantine land use rules will continue to lead to such bizarre results as the low-income housing project in Los Angeles that wound up costing $739,000 per unit to build. If one is worried about exploitation, reforming the regulations that drive up the cost of constructing apartments for the poor would be a good start.
The high cost of constructing residential properties also constitutes a significant drag on the economy. In a much-cited 2015 study of the U.S. housing market, economists Chang-Tai Hsieh and Enrico Moretti estimate that “lowering land-use restrictions on housing” in just three cities — New York, San Francisco, and San Jose — would increase GDP by a staggering 9.5%.
All of which is to say that the rent strikers, in punishing landlords, have chosen the wrong target for their ire. They should be angry at local politicians and activists who insist on regulatory regimes that in good times and bad keep the supply of housing artificially low, and thus keep rents artificially high.
MPA
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