7 ms·

The English Upper Class does have a long and storied tradition of rent-seeking. If you can extract so much value out of something like housing, it's difficult t

The English Upper Class does have a long and storied tradition of rent-seeking. If you can extract so much value out of something like housing, it's difficult to see why you would get involved in anything risky and technical.

roel_v 10y ago
Why is real estate investing 'rent-seeking' and buying a tech company an 'investment'?
- daemin 10y ago
  Because owning a piece of property and charging for it is just extracting value out of something static. If investing in a company building or producing something you're helping create value.
  - DominikR 10y ago
    This would be the case only if the piece of property was always there and no one had to build and maintain it. For houses this is not the case. You actually have to produce houses and you have to constantly work on them so they don't collapse after some time.
    - daemin 10y ago
      Yes, the property has to be maintained, but generally the cost and effort of doing that is minimal, and the usual things that break need to be fixed by the person living there, not the landlord.
      - skewart 10y ago
        I think you might be comparing apples and oranges when comparing investing in a company and investing in real estate. There are different ways to invest in a company and different ways to invest in real estate. Investing in a company to help fuel its growth, like VCs do, is analogous to investing in a new development project. There are lots of firms that provide equity investment to developers for new construction. Much like VCs these firms are interested in helping to create something new to meet market demands. Also like VCs they are typically looking for an exit event, where they benefit from the sale of the recently developed property. The tech analogue for being a landlord - holding on to a stable asset and maintaining it - is holding on to an already profitable business and just maintaining it. For example, there are lots of SaaS businesses that have a decent number of customers and the owners are happy to just do the minimum needed to maintain the code and handle customer service requests. You can buy and sell these businesses as an investor much like income-oriented real estate investors buy and sell fully-leased apartment and office buildings. These investors are not helping to create something new in a direct way. However, those income-oriented investors do create a market for stable assets, be it a Midtown Manhattan office building or shares of GE. They aren't directly investing in growth, but they are providing the incentive for growth. After all, while an early stage growth investor might be happy to know that they can sell their stake to another growth investor, as a company gets bigger and bigger its room for growth tends to diminish, and growth investors become less interested in buying it. But the market for its shares doesn't disappear. That's because there are investors looking for stable cash flow, even if it's from a static asset - be it an apartment building from the 1970s or Oracle.
      - DominikR 10y ago
        This is not a matter of what you feel or believe, it isn't rent-seeking by definition, period. Rent-seeking is everything where you extract value by not being productive in the sense of creating new wealth. Building a house is damn expensive and creates a lot of new wealth, while maintaining a house preserves the wealth you created before.
        daemin 10y ago
        It is not something that I feel or believe, it is factual. I know this because I am both a renter and a landlord. I inherited a property which I am now renting out, and except for a few major fixes, I have left the property pretty much as is while collecting quite a bit in rent from the occupiers. In the same vein I could just purchase a property and rent it out, in doing so I have not created it - it already existed - but now I am just extracting value from it. Same as the bank will do to me with the mortgage.
- itp 10y ago
  Because one is literally the definition of rent-seeking[0], and one is not. [0] https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking
  - DominikR 10y ago
    Did you care to read the content of the link you posted? Because then you'd know that housing is not rent-seeking by this definition as there clearly is a contribution to productivity. Houses have to be built, maintained, developed and advertised on the market. And there are a lot of risks in this business.
    - wavefunction 10y ago
      Housing ownership _can_ be rent-seeking, as long as rentier behavior is applied to the stock. For example, home-owners in San Francisco who actively prohibit new construction are rent-seekers.
  - roel_v 10y ago
    Despite having linked to literally the first google hit on 'rent seeking', you obviously don't even know what it means.
- pjc50 10y ago
  The tech company wins or loses based on innovation (unless it goes the monopoly route, in which case it's back to rent-seeking). Real estate is scarce, inherently exclusive by location, and limited in supply by planning law. The amount of money returned by real estate is totally out of proportion to the work involved in its maintenance.
  - roel_v 10y ago
    So if I have, say, a machine that makes t-shirt more cost-effectively than my competitors, your claim is that I'm 'rent-seeking'? Do you think that because it's not innovative, or because I'm the only one with such a machine? (This is a trick question. Before you answer, please make sure you actually know what 'rent-seeking' means, because it's obvious that most other commenters don't.)
    - pjc50 10y ago
      "Rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth" - WP. The more efficient T-shirt machine produces more with less, therefore the overall resources available go up. Not rent-seeking. Having a patent on the machine, and/or attempting to sabotage the creation of similar machines? Rent-seeking.
  - DominikR 10y ago
    > The amount of money returned by real estate is totally out of proportion to the work involved in its maintenance. And what is the work involved in building a housing unit? If you build one in most of the EU capitals today you can expect to get your investment back after 30-40 years if you rent it out. (that's why most just sell the housing unit) Would you make an investment in a company expecting to get your investment back after 30 years? I certainly wouldn't because I want to make profit while I'm still alive. If housing units would grow like trees without human interaction then you'd be right, but each one of them had to be built in the first place.
    - pjc50 10y ago
      The returns aren't in the rent, they're in the capital gains. More gains than the stockmarket. This is why people are buying the units, especially from overseas. Sometimes they're even left unlet.
- skewart 10y ago
  Real estate investing is not inherently rent-seeking. The fact that the word "rent" is in "rent-seeking" and we pay "rent" for an apartment seems to often cause some confusion. Rent-seeking involves seeking out regulatory or other non-market protection for a stream of revenues. Taxi medallion companies lobbying city governments to restrict the supply of medallions is a textbook example. That said, a real estate investor certainly could engage in rent-seeking behavior. For example, they could lobby a city to restrict new development, thereby reducing competition and protecting or increasing their revenue. In practice, companies that invest in stable real estate assets (e.g. REITs) typically don't do this. The incentive structures in the industry don't really support it. I'm sure it does happen in some cases though. Now, to be fair to the GP comment about the "English Upper Class" it's not entirely unreasonable to accuse them of rent-seeking for their land holdings. With very broad brush strokes, there are a lot of "Upper Class" English people who own a lot of incoming-producing real estate who also push very hard for historic preservation laws that restrict new construction - e.g. Prince Charles and his friends.
  - morgante 10y ago
    > For example, they could lobby a city to restrict new development, thereby reducing competition and protecting or increasing their revenue. You don't have to be the one to create a rent-seeking opportunity to be the one who benefits from it. The fact that many desirable locales have strict zoning regulations to restrict development absolutely turns homeowners there into rent-seekers. They're exploiting a stream of income which only exists due to government intervention.
    - skewart 10y ago
      For sure, homeowners are very often rent-seekers. In fact, I would be willing to wager that there are a lot more rent-seeking homeowners than professional real estate investors. I took the question in the thread to be more about real estate investment firms than individual homeowners.

roel_v 10y ago

Why is real estate investing 'rent-seeking' and buying a tech company an 'investment'?

daemin 10y ago
Because owning a piece of property and charging for it is just extracting value out of something static. If investing in a company building or producing something you're helping create value.
- DominikR 10y ago
  This would be the case only if the piece of property was always there and no one had to build and maintain it. For houses this is not the case. You actually have to produce houses and you have to constantly work on them so they don't collapse after some time.
  - daemin 10y ago
    Yes, the property has to be maintained, but generally the cost and effort of doing that is minimal, and the usual things that break need to be fixed by the person living there, not the landlord.
    - skewart 10y ago
      I think you might be comparing apples and oranges when comparing investing in a company and investing in real estate. There are different ways to invest in a company and different ways to invest in real estate. Investing in a company to help fuel its growth, like VCs do, is analogous to investing in a new development project. There are lots of firms that provide equity investment to developers for new construction. Much like VCs these firms are interested in helping to create something new to meet market demands. Also like VCs they are typically looking for an exit event, where they benefit from the sale of the recently developed property. The tech analogue for being a landlord - holding on to a stable asset and maintaining it - is holding on to an already profitable business and just maintaining it. For example, there are lots of SaaS businesses that have a decent number of customers and the owners are happy to just do the minimum needed to maintain the code and handle customer service requests. You can buy and sell these businesses as an investor much like income-oriented real estate investors buy and sell fully-leased apartment and office buildings. These investors are not helping to create something new in a direct way. However, those income-oriented investors do create a market for stable assets, be it a Midtown Manhattan office building or shares of GE. They aren't directly investing in growth, but they are providing the incentive for growth. After all, while an early stage growth investor might be happy to know that they can sell their stake to another growth investor, as a company gets bigger and bigger its room for growth tends to diminish, and growth investors become less interested in buying it. But the market for its shares doesn't disappear. That's because there are investors looking for stable cash flow, even if it's from a static asset - be it an apartment building from the 1970s or Oracle.
    - DominikR 10y ago
      This is not a matter of what you feel or believe, it isn't rent-seeking by definition, period. Rent-seeking is everything where you extract value by not being productive in the sense of creating new wealth. Building a house is damn expensive and creates a lot of new wealth, while maintaining a house preserves the wealth you created before.
      - daemin 10y ago
        It is not something that I feel or believe, it is factual. I know this because I am both a renter and a landlord. I inherited a property which I am now renting out, and except for a few major fixes, I have left the property pretty much as is while collecting quite a bit in rent from the occupiers. In the same vein I could just purchase a property and rent it out, in doing so I have not created it - it already existed - but now I am just extracting value from it. Same as the bank will do to me with the mortgage.
itp 10y ago
Because one is literally the definition of rent-seeking[0], and one is not. [0] https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking
- DominikR 10y ago
  Did you care to read the content of the link you posted? Because then you'd know that housing is not rent-seeking by this definition as there clearly is a contribution to productivity. Houses have to be built, maintained, developed and advertised on the market. And there are a lot of risks in this business.
  - wavefunction 10y ago
    Housing ownership _can_ be rent-seeking, as long as rentier behavior is applied to the stock. For example, home-owners in San Francisco who actively prohibit new construction are rent-seekers.
- roel_v 10y ago
  Despite having linked to literally the first google hit on 'rent seeking', you obviously don't even know what it means.
pjc50 10y ago
The tech company wins or loses based on innovation (unless it goes the monopoly route, in which case it's back to rent-seeking). Real estate is scarce, inherently exclusive by location, and limited in supply by planning law. The amount of money returned by real estate is totally out of proportion to the work involved in its maintenance.
- roel_v 10y ago
  So if I have, say, a machine that makes t-shirt more cost-effectively than my competitors, your claim is that I'm 'rent-seeking'? Do you think that because it's not innovative, or because I'm the only one with such a machine? (This is a trick question. Before you answer, please make sure you actually know what 'rent-seeking' means, because it's obvious that most other commenters don't.)
  - pjc50 10y ago
    "Rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth" - WP. The more efficient T-shirt machine produces more with less, therefore the overall resources available go up. Not rent-seeking. Having a patent on the machine, and/or attempting to sabotage the creation of similar machines? Rent-seeking.
- DominikR 10y ago
  > The amount of money returned by real estate is totally out of proportion to the work involved in its maintenance. And what is the work involved in building a housing unit? If you build one in most of the EU capitals today you can expect to get your investment back after 30-40 years if you rent it out. (that's why most just sell the housing unit) Would you make an investment in a company expecting to get your investment back after 30 years? I certainly wouldn't because I want to make profit while I'm still alive. If housing units would grow like trees without human interaction then you'd be right, but each one of them had to be built in the first place.
  - pjc50 10y ago
    The returns aren't in the rent, they're in the capital gains. More gains than the stockmarket. This is why people are buying the units, especially from overseas. Sometimes they're even left unlet.
skewart 10y ago
Real estate investing is not inherently rent-seeking. The fact that the word "rent" is in "rent-seeking" and we pay "rent" for an apartment seems to often cause some confusion. Rent-seeking involves seeking out regulatory or other non-market protection for a stream of revenues. Taxi medallion companies lobbying city governments to restrict the supply of medallions is a textbook example. That said, a real estate investor certainly could engage in rent-seeking behavior. For example, they could lobby a city to restrict new development, thereby reducing competition and protecting or increasing their revenue. In practice, companies that invest in stable real estate assets (e.g. REITs) typically don't do this. The incentive structures in the industry don't really support it. I'm sure it does happen in some cases though. Now, to be fair to the GP comment about the "English Upper Class" it's not entirely unreasonable to accuse them of rent-seeking for their land holdings. With very broad brush strokes, there are a lot of "Upper Class" English people who own a lot of incoming-producing real estate who also push very hard for historic preservation laws that restrict new construction - e.g. Prince Charles and his friends.
- morgante 10y ago
  > For example, they could lobby a city to restrict new development, thereby reducing competition and protecting or increasing their revenue. You don't have to be the one to create a rent-seeking opportunity to be the one who benefits from it. The fact that many desirable locales have strict zoning regulations to restrict development absolutely turns homeowners there into rent-seekers. They're exploiting a stream of income which only exists due to government intervention.
  - skewart 10y ago
    For sure, homeowners are very often rent-seekers. In fact, I would be willing to wager that there are a lot more rent-seeking homeowners than professional real estate investors. I took the question in the thread to be more about real estate investment firms than individual homeowners.