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Who are the rentiers?

American cities need more housing. That is obvious to the YIMBY movement. I've heard some attempts to contest that statement, but in the overall range of discourse, it's rare for those who defend opposing viewpoints to respond to that statement directly. Instead, those discussions experience a topic change, either focusing on personal experiences, homeowner "rights", or an attack on landlords.

Part of the reason for that topic change is that contending that there is enough housing in cities has to confront the supply and demand topic, and if you're not going to provide more supply, you have to change demand. That line then leads to somewhat hollow arguments about how people don't "belong" in cities and should be elsewhere. It's hard to make that argument without being oblivious to the individuals who are currently making that choice to live in a city despite the very high housing costs, or who would prefer to if they hadn't been forced out by prices. Advocates for those ideas, hide this blindness by expressing their love for space, being surrounded by nature and other preferences that are easy to connect with emotionally, but ignore the implications that impair other preferences. Sometimes they fool people, but usually they fail to hide the holes in this argument that they aren't doing anything to provide for individuals who want to be close to people, who want to be able to casually go to exciting places that can't exist without a sufficiently market, who want to work in jobs that depend on agglomeration effects.

Instead, the topic change. Attacking landlords is one of those topic changes and the favored one amongst anyone who wants to seem like they are making pro-social arguments, rather than simply representing a self-interest. Hatred of landlords has a long and successful history. The problem is that the modern argument misses a distinction that wasn't true in the past. If you trace the history back, you'll hear the term rentiers, used interchangeably. Marx is a favorite source here, and he relied mostly on the term rentier.

What distinguishes these two terms? To be a landlord is "a person who rents land, a building, or an apartment to a tenant.", whereas a rentier is "a person who lives on income from property or securities". Landlord thus describes someone involved in a market transaction, and rentier describes someone who benefits from passive income.

So much has changed since those days in terms of the realities of these two terms since the late 1800's. Where the relationship in those times generally meant the two were the same person, changes in finance, and home ownership have radically changed the relationship. 

A typical landlord in 1860 owned a property outright. They thus depended mostly on the rent as a passive income minus some costs for maintenance. 

A typical landlord in 2024 succeeds or fails not on the basis of passive income, but on active management. A typical landlord in 2024 has finance costs for property, and the profit or loss depends less on the absolute value of properties but in the difference between the finance costs, maintenance and rent.

In a theoretical sense, these are interchangeable. The landlord of 1860 could sell the property, and the value of the property depended upon it's ability to garner rent, and so they are self-financing and you could split these two activities into different actions. But practically, the ability to enter and exit ownership had high costs, wasn't as socially acceptable, and once you had the currency from the sale, your options for using it as an investment were more limited.

Finance, has largely removed those restrictions, and thus these two roles are in 2024, no longer typically joined. A landlord retains a stake in the value, but a significant part of the rent is paid as interest, and thus they are only partially the rentier for a property they rent out.

Who are the new rentiers?  Well, in that property, it's somewhat the bank, and then the financier of the bank, and then the stockholders of the bank.  But there's another important distinction that goes beyond that property.  In 1860, home ownership was far less common.  In the US for example it was estimated that in 1890 it was less than 50% compared to 65% today.  

Data for 1860 is more scant, but urban home ownership for the US was estimated at 30%. Rural ownership rates are generally higher even today, but mostly of the US now lives in urban or suburban environments. Translate this into landlords, and you see that while the landlords were the majority rentier of the 1860's (70%), in 2020 they are the minority (30%). 

With this and the finance changes, it no longer makes sense to equate landlords and rentiers as the same group. But we still haven't said who replaced that group.. finance has somewhat, but in a large sense, it's home owners, due to a third change, the rapid changes in prices for homes.

In a balanced market, it wouldn't be fair to call a home owner that's living in their own home as a rentier. Their consumption and ownership of housing is matched. They aren't charging rent to renters. But, this isn't a balanced market, and in a large sense, they are indirectly charging a rent on renters. Any renter has two choices, buy a home, or rent. While this is a personal decision, it ultimately ties back to market decisions that tie the two together. The price of rent and the price of homes doesn't have a fixed ratio, but it never varies too far from an elastic relationship. If there are many renters, and not many properties to rent, the cost of rent will increase. But at the same time landlords would be incentivized to buy more homes and convert those into rentals.  This will increase the price of homes, while reducing the increase in the cost of rent. 

In addition to the landlords, potential renters can make a similar decision to abandon their preference for renting and buy a home, assuming they can find a way to finance it. In this way, for every dollar in extra rent paid between a renter and landlord, there's some number of extra dollars that were paid to home owners who sold a property for significantly more than they would otherwise get.  In this sense, those home owners are also rentiers, as they living off the income from the property.  It may not be a steady cash flow of one rent payment per month, but rather a lump sum gathered after living in a home for 5-20 years. There are many intermediaries in this, there's the landlords that purchase homes, the banks that provide financing to the landlords and also to any potential renter who becomes a home owner. As well, the rentier group is split between the group of financiers, the landlords and the home owners.  

But overall, the home owners are the largest group here and as such, if we're unhappy with rentiers who pursue their own self-interest too aggressively, should deserve that a significant part of that association.  Continuing to describe this as wholly or even mostly as landlords results in pursuing paths of change that are not effective. When you make things more difficult for landlords, it doesn't change the cost of housing or rent much, instead it just shifts the relationship between landlords and home owners being the primary rentier, accelerating a trend that has already progressed significantly.

If your goal was more homeowners and fewer landlords, that would be fine. But that's not a particularly good first order goal if it allows the cost of housing to become higher and higher. For better or worse, the US has made that a first order goal in many ways for a long time. The intent that went into that was that it would help influence the cost and quality of housing in a good way. But at some point we lost sight of that. We can somewhat be forgiven, the complexity of the relationships, and the intermediaries that connect the new rentiers to the new "renters" makes this far more difficult to see than the simple transaction between a landlord and tenant. We don't really even have a proper word for the inversion of rentier, "a person who provides the income to property or securities". We have only renter as a word, which only describes the direct relationship with a landlord. 

But for the longer term relationship between someone who pays for the increased price for housing? That term does not exist. 


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