In practice, PMCs in college towns are bad actors. At least, on average. They are basically sitting on an investment (land) and providing the minimum level of work necessary to keep money flowing. It’s a legitimate business in the sense that it is “legal”. However, the profits do not correspond to the value that they provide to the economy.
Is that how you measure the value of the business?
Landlords contribute a small amount of value relative to how much they are paid, compared to other businesses. Most of the value is provided by the land itself, and the landlords merely have a monopoly on it. So I am less inclined to be sympathetic to PMCs which are suddenly being paid less, since they are generally overpaid.
We have to be careful to distinguish rent from actual productive economic activity, because rent provides no value and requires no work. Speaking here of “rent” in the Adam Smith sense of the word.
Landlords/PMCs are overpaid because tenants pay rent not only for the services provided by the landlords/PMCs, but also for access to the land which they own. This happens because the property owners have a monopoly on that piece of land. The rent will increase in accordance with the contributions of the people using the land, and yet the money will be paid instead to the people owning the land.
The Wealth of Nations is on Gutenberg. Skip to Chapter XI in Book 1. http://www.gutenberg.org/files/3300/3300-0.txt
> The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take, but to what the farmer can afford to give.
For an obvious example, if I tried to rent my house out to Bill Gates for $50 billion, which he can afford, how far do you think I'd get with that?
For an obvious example, the rent in Manhattan is higher than the rent in Tulsa because the salaries in Manhattan are higher.
Comparing rent on farm land is not the same as rent on housing.
I own a rental house. What does the rent go to? Well, I pay a mortgage, taxes, utilities, and upkeep. That is, I'm saving up now for a roof and a retaining wall (to give better access on one side of the driveway).
What value do the renters receive?
1. No risk. They can walk away, but I still have a 30-year mortgage. The plumbing can fail. The roof can leak. The electric can degrade. The building can crumble. I, the owner, have to fix it IF it happens. The renter does not assume any of that risk.
2. No commitment. Aside from a short lease (which they agree to the terms), the renter has no long-term obligation to that property. I, as the owner, have committed to maintaining the property for decades.
3. Access to the property and all of its features. If you don't think that that is value, then try being homeless.
4. Furthermore, I, as the owner, DO NOT have access to the use of the property. Perhaps for decades.
5. Monopoly? I cannot think of a single example of a monopoly in land ownership other than the government itself and the threat of eminent domain. If you don't like my terms for lease, then go next door. Different owner, different terms. Or buy your own.
6. Initial Investment. I, as an owner, had to save for years to consolidate the capital for the down payment of that property. That means that, for years, I did not party, buy the latest technology, eat at moderately-priced restaurants, go on vacation, buy a shiny new vehicle, purchase concert tickets, etc. I deprived myself of entertainment and luxery to, instead, work multiple jobs, with the intent of having a rental property.
7. Improvement. I improve the property. If I do not pay someone to do it, then it is me doing it myself. I refinished the hardwood floors. I fixed drywall and painted. I removed old ductwork. I provide appliances. I provide furnishing (I rent to students, after all). I put the labor into the property, further depriving myself of other more enjoyable activity.
I'm sorry, but I completely disagree with your restrictive definition of what of "rent" represents. Rent is compensation for my years of preparation and self-denial of the reward for my own personal labor. Rent is the fee that the renter pays for not having done the same. Rent is never pure profit. Rent is a continual financial planning for the upkeep and sustaining of the investment.
Do I benefit from my investment? Yes.
Do I feel guilty about it? No.
Should I feel guilty about it? Never.
If you are mad at a landlord for having to pay rent, then dig yourself out of that situation. What if it takes years? Welcome to the club. Do it anyway. So what if you have to move? Again, welcome to the club. Do it anyway. So what if the landlord is wealthy? Wealth has to come from somewhere, and if your current financial strategy isn't making you wealthy, then change it. It will probably take a lifetime to do, but then again, that's probably what your landlord did (or is in the process of doing).
1. Assuming risk is valid. However, it only accounts for a small portion of rent.
2. You do not actually have that kind of commitment. You can sell the property. The only risk here is that you cannot make a profit when you sell it, so this is nothing more than a repeat of point #1.
3/4. Access to use of the property would exist whether or not it had a landlord. The landlord is not providing value here, merely using the power of a government-granted monopoly on the land.
5. Land is not fungible and there is a limited supply. You are granted a monopoly on the land that you own.
6. The reason the initial investment is so high is because local laws are generally put in place to protect the interests of homeowners, over the interests of renters.
7. The improvement only accounts for a small portion of rent.
> I'm sorry, but I completely disagree with your restrictive definition of what of "rent" represents. Rent is compensation for my years of preparation and self-denial of the reward for my own personal labor.
You obviously don’t feel sorry, but you are benefiting from a system which is rigged in your favor, and building capital on the backs of people who actually provide value to the economy. That’s not to say that you are not providing value to the economy—it’s just that the value you provide is much smaller than the amount you are paid for it.
Consider, for a moment, the reason why rent may go up in a particular area. The main reason it goes up is because of the economy in a particular area. The economy makes the rent go up because the people living there are more productive—not because the landlords are more productive! So the landlords are being compensated for other people’s work, when the rent goes up.
> If you are mad at a landlord for having to pay rent, then dig yourself out of that situation.
I wouldn’t get mad at leeches, mosquitos, or other parasites. They are merely making the best out of the ecological niche that they arrived in. But I’m also not going to feel sympathy for parasites, nor am I going to care whether they feel guilty.
1/2. Risk is a big part of owning property. Liquidity of the property is also very important. You are vastly underestimating this.
3/4. As long as the right to own property exists, the right to exclude access to land that someone owns exists. If the landlord did not rent the property, then only the landlord would have the right to access it. Unless you deny the right to personal property?
5. In the sense you're using it, I have a "monopoly" on my laptop. It's one of those old Thinkpad X230s, and there's a limited supply. You're welcome to buy it from me...but there's also more on ebay. To call my laptop ownership a 'monopoly' is ridiculous, because you can go buy a different one, even though there's a limited supply. In the same way, you can go rent land somewhere else, even though there's a limited supply.
6. That's actually a big factor in deciding where to purchase properties that you want to rent out: do the local laws favor the tenant or the landlord? It can be so expensive as to be not worth the effort, when the laws favor the tenant. If you can't kick someone out until they've gone six months without paying the rent, but still have to pay for the upkeep of the property, then you want to be very, very careful that you find good tenants.
7. In what world to you live in? All that stuff costs thousands of dollars - even just repainting. And it's not just improvement, but upkeep. Plumbers are expensive. Random stuff breaking is expensive. Not everyone has the time or ability to do those things themselves.
> you are benefiting from a system which is rigged in your favor
See 6) above. It's not rigged; housing is a hard problem to solve, and it's expensive on both sides.
> building capital on the backs of people who actually provide value to the economy
Ever stayed in a hotel? Those provide exactly the same benefit as a rental, on a shorter time scale. Or do you not consider hotels valuable?
> The main reason [rent] goes up is because of the economy in a particular area.
The landlord picked a good location to purchase the property. Seems strange you expect the landlord to keep their prices down while everything else gets more expensive. The landlord is still providing value. If you don't like the prices, you're welcome to move somewhere with cheaper apartments...but a cheaper apartment will come with some downsides, too.
> not going to feel sympathy for parasites
I'd say a tenant who failed to pay rent matches the definition of parasite pretty well too.
Providing housing, whether a hotel room or an apartment, is a valuable part of the economy. You've given several reading recommendations in this thread, let me pass you something in return:
Look into what it would actually involve to rent a property in your area - cost to purchase, the building codes that have to be followed, the upgrades that have to be made (a lot of old houses have lead in the paint - that has to be stripped or covered); check out the effort it takes to coordinate with a rental agency to find a decent tenant, and look up the probabilities of the costs associated with bad tenants. It's also worth checking out how long the average tenant rents for, and the cleanup time and effort involved with prepping for the next tenant. Don't forget to check the competition - does the bathroom need to be upgraded? Maybe the houses in your area all have walk-in closets, and the rental agency says you need one too, to stay attractive. How much does the contractor say that'll cost, and how long will it take? Also check out the correlation between rental property destruction and income level - if you rent cheap properties for cheap, what's the cost of repair come to each month?
Final question. Did you decide to skip the above exercise, because it looked too time-consuming and/or difficult?