Ideas on how to fix the housing rental market
I once rented an apartment building where mail delivery stopped for a month. There was a problem with the lock box that the mail carrier used to get into the building, and the management did not fix it for a month, so we all had to go to the post office to pick up our mail. A year later, it happened again for two weeks. Then a year after that it happened again for another month. When I complained to the management, they told me they’d already ordered the part and that I was being unreasonable because I was the only one complaining. They would also turn water off randomly for the whole building without warning, as they were always doing some kind of maintenance. A couple times a year I’d have to go to work without showering. They have a 3/5 rating on yelp. Eventually I got fed up and moved.
The place I moved into was worse. The apartment manager has been in the press twice (during my tenancy) for behavior that was probably racist, and at least petty and officious, and this is just the tip of the incompetence iceberg. My own experience with them is a horror story and I need to stop myself or I’ll write a whole book about their mismanagement. Their yelp rating is 2/5. I’m in the process of moving right now, after about a year and a half of living there.
How can this happen? This seems to be the behavior of someone who does not like money. Shouldn’t the invisible hand of the free market put these people out of business, or force them to change their behavior in order to retain customers? The problem is, the rental market is not a free market, it’s a very broken market, and landlords do not need to think of their tenants as customers. There are more renters than there are apartments, and they’ll always find another person to live there very quickly, so why should they change?
And besides the supply problem, moving is a pain. It’s expensive, inconvenient, and sometimes (like right now in the middle of a pandemic) can even be dangerous. I think I’m more willing to move than most, but I’ll put up with a lot of bad behavior before I’ll get up and leave, because it disrupts your life so much.
There’s also the problem of asymmetric information. You just don’t know what you’re getting into when you move to a new place. You can look on yelp, but is the rating for the building, the particular unit, the property management company, or the specific property manager? It’s all lumped together. There’s no checking that reviews are legit, and I’ve seen glowing 5 star reviews for both of these awful places I lived in – presumably they were put there by friends of the management. The property management company can also change their name and get a fresh start (the first place I mention at the top of this post with the mail problem did that). Besides that, when you see the apartment listed on craigslist or zillow, they don’t always say who the property management company is, so you don’t know what to look up. And not every landlord is even listed on yelp.
One thing people suggest on how to solve these problems at the personal level is owning a house, but that isn’t better. For one, it costs more. What you may have heard about how renters are “throwing their money away on rent” and homeowners are “building capital”, that’s just propaganda. Economists are split on the issue of whether homeownership is better, and those who say it is better say it is only modestly better than renting. Work it out on a spreadsheet before you buy a house and you’ll see. If you take the money you save every month from renting and just spend it frivolously, then sure, owning a home forces you to save. But if you invest the extra money and follow common sense strategies like diversification (as opposed to a homeowner, who has almost all their eggs in one basket) you’ll probably be able to retire earlier by renting. It varies by area, but here in Seattle, renting is absolutely better (as bad as it is), so much so that many people just can’t even afford to own.
Aside from financial considerations, homeowners spend a lot of time mowing lawns, fixing things, and learning about how to fix things. This is all time they could be spending doing something they enjoy more. Worst of all, many of the problems common in renting are present in homeownership (like horrible neighbors), except that it’s much more expensive to move.
The most widespread solution suggested for a societal fix to the broken rental market is rent control. This is also something where most people’s intuition is out of sync with what most economists think. If you consider all the consequences, you can see why. With rent control, your rent may go down (or not go up as fast), but your spending as a whole will probably go up. Suppose for example you chose your apartment based on it being near your kid’s school, or your office. Then your kid graduates to a new school, or you get a new job. Now you have to move to get the same location benefit, but you can’t because the profit motive has been removed for builders and you can’t find an apartment closer to the new school. You’re stuck spending that much more time driving or riding the bus, that much more money on gas, getting that much less sleep or leisure time. There’s much more that you should look up about why rent control is a bad idea, if you’re interested, but I know that if it were on the ballot, I’d vote against it. It would be a step downward from the status quo. I’ve read that the better solution to the supply problem is to make it easier to build more housing, but I don’t know much about that and don’t have much to say about it. I’m more interested in increasing consumer (tenant) choice and fixing the asymmetric information problem.
What I want to suggest on the legislative level is that municipalities build a yelp-like system for landlords. When the landlord posts an apartment for rent on zillow, craigslist, their own website, or anything, they are required to include a link to their page on the city’s rating site. When someone moves out of an apartment (or while they are still living there), they get an invitation from the city to rate their apartment. Some experimentation would be needed to see what works best, but I see it being useful to have separate ratings for the building, the unit, the company, and the apartment manager. That way, a company with a decent rating would have an incentive to fire a particularly horrible property manager. This, I think, would take care of the problem of asymmetric information.
Then there’s the problem of how hard it is to move. If you take a gamble on a place, move all your stuff in, then find out that it sucks, you’re in trouble. I have seven bookshelves full of books, three beds, a desk, kitchen table, coffee table, microwave, a couple of things like bed stands, a bunch of clothes, and several boxes of stuff that I should probably throw out. It takes so long to move all that, and so long to clean the place afterwards, that I am usually stuck with an overlapping month when I move where I am paying rent on both the old place and the new place.
Landlords love this. They want you to have a bunch of crap, because it’s harder to move, and so you’ll put up with a bad apartment for longer. But what if it was the norm for apartments to be furnished? Right now, as far as I know, there is no legal barrier that prevents landlords from renting furnished apartments, but it just seems to not happen. I’m not sure why not or how to fix that, because it seems like something many or most consumers would want. It may just be a matter of cultural inertia. In other words, tenants have a bunch of stuff because they don’t expect apartments to be furnished, and apartments aren’t furnished because landlords expect tenants to already have a bunch of stuff. Legislation might be able to play a part in disrupting this. For example, require any building with more than 20 units to have at least one of them be furnished, and provide some tax incentive for every furnished apartment. If it works out and the units end up being profitably rented, other buildings will follow suit. And “furnished” should mean wifi, electric, and anything else you need to set up or switch over when you move.
A rating system and furnished apartments - what I’m describing is basically Airbnb, so why don’t people just live in Airbnbs? Maybe they should. There’s a few issues to work out, like leases, whether you can use an Airbnb as a permanent mailing address, and requiring Airbnb hosts to meet certain regulatory requirements, but I’d be happy if Airbnb worked with municipalities to resolve these issues and moved into the long term rental space. Maybe a city with a particularly bad rental problem – like Seattle – should invite them to run a trial here.
That leaves books and clothes that need to be moved. Companies to fix this either exist or (hopefully) would soon if there were a demand for them. As for books – as more titles move to Kindle, this problem will just go away, and libraries already exist. As for clothes, I envision something like Netflix for clothing (I mean the Netflix DVD plan where you mail the discs back). You’d sign up for the silver plan (or whatever) of 5 pairs of pants, 10 shirts, then when you get sick of something or it’s worn out, you mail it back in the postage paid envelope, then they send you whatever is next in your queue. There’s a company called stitch fix that I don’t know much about which I think is like a clothing subscription service, they mail you new clothes each month but I don’t think you mail them back, I think you just keep them. If people don’t mind wearing clothes that others have worn and want something like this, clothing subscription companies will evolve to offer the service. Moving your wardrobe then becomes as simple as changing your mailing address with them a week or two before moving in.
I think with so many people working from home during the trump virus (COVID), the rental market may be fixing itself somewhat anyway. People can afford to live several hours drive from their offices now, and are more willing to utilize their options.