3 ms·

"If the vast majority of us are renters rather than owners, who has incentive to do any maintenance or improvement?" This doesn't make sense. The remaining ow

by cjy 16y ago

"If the vast majority of us are renters rather than owners, who has incentive to do any maintenance or improvement?" This doesn't make sense. The remaining owners will still compete for renters. If my landlord does a bad job, I will find a better landlord. In fact, you can argue that concentrating ownership makes maintenance more efficient. My landlord has much more experience at plumbing, painting, installing appliances etc. than I ever would.

fr0sty 16y ago
Renting introduces a Principal-Agent problem[1] because the owner's incentives are not entirely in line with yours. Maximum profit is realized by doing the minimum amount of repairs necessary to keep people from moving out. Switching apartments is not free (in time, money or effort) so the bar a landlord has to clear is only 'not bad enough to leave'. I doubt homeowners would choose the same standard. [1] http://en.wikipedia.org/wiki/Principal-agent_problem http://en.wikipedia.org/wiki/Principal-agent_problem
- potatolicious 16y ago
  Your logic is sound, but my observation in reality does not match. There are slumlords - but that's usually caused by a compression in supply (e.g., when I was in college, any place near school had notorious landlords). When supply is open though, everything works out. You have your uber-cheap rentals where nothing will ever get fixed, and then you have your more premium rentals where they'll turnaround a stove in 24 hours or less. Like all markets, a low-end and high-end are established and work just peachy. Of course, this is not geographically true everywhere - especially when you introduce artificial supply and demand factors (rent control, anyone?).
- cjy 16y ago
  This is not a conventional use of the principal-agent problem. The landlord is not your agent in the sense that an employee is an agent for an employer. You are arguing that landlords have market power because switching costs are high. That may be true, but it is a completely different argument than what is implied by the principal-agent problem.
- alexophile 16y ago
  A PAP would suggest that the landlord has no incentive to maintain a property unless not doing so would result in a breech of their contract with the lessee. There are these types of landlords, but that's no way to establish a long running business. In the case of a landlord, they are often representing their own brand, and their income is dependent on the success of that brand. In the narrow scope of a single contract, there is incentive to defect to the point of barely-tolerable, but a landlord is not acting on behalf of the renter. Additionally, in a world with a greatly increased population of renters, there would likely arise a more organized market for landlords. I think you'd see something a lot like what we see with restaurants. The larger brands have a very specific reputation that they reliably follow, and the smaller chains and unique locals rely on word of mouth and overdelivering. Then it's a short jump to a sort of Yelp for landlords - in fact, a lot of places have this already. Related: back in school, the student legal union kept track of all complaints filed and who the landlord was, then made the log available to anyone. The distribution was as expected: Campus Property Management, the largest and most commonly detested landlord, had the most complaints and the highest complaints/property managed. Bill, who managed the house I lived in senior year along with a few other places, had none, and he was awesome.

by cjy 16y ago

fr0sty 16y ago

Renting introduces a Principal-Agent problem[1] because the owner's incentives are not entirely in line with yours. Maximum profit is realized by doing the minimum amount of repairs necessary to keep people from moving out. Switching apartments is not free (in time, money or effort) so the bar a landlord has to clear is only 'not bad enough to leave'. I doubt homeowners would choose the same standard. [1] http://en.wikipedia.org/wiki/Principal-agent_problem http://en.wikipedia.org/wiki/Principal-agent_problem

potatolicious 16y ago
Your logic is sound, but my observation in reality does not match. There are slumlords - but that's usually caused by a compression in supply (e.g., when I was in college, any place near school had notorious landlords). When supply is open though, everything works out. You have your uber-cheap rentals where nothing will ever get fixed, and then you have your more premium rentals where they'll turnaround a stove in 24 hours or less. Like all markets, a low-end and high-end are established and work just peachy. Of course, this is not geographically true everywhere - especially when you introduce artificial supply and demand factors (rent control, anyone?).
cjy 16y ago
This is not a conventional use of the principal-agent problem. The landlord is not your agent in the sense that an employee is an agent for an employer. You are arguing that landlords have market power because switching costs are high. That may be true, but it is a completely different argument than what is implied by the principal-agent problem.
alexophile 16y ago
A PAP would suggest that the landlord has no incentive to maintain a property unless not doing so would result in a breech of their contract with the lessee. There are these types of landlords, but that's no way to establish a long running business. In the case of a landlord, they are often representing their own brand, and their income is dependent on the success of that brand. In the narrow scope of a single contract, there is incentive to defect to the point of barely-tolerable, but a landlord is not acting on behalf of the renter. Additionally, in a world with a greatly increased population of renters, there would likely arise a more organized market for landlords. I think you'd see something a lot like what we see with restaurants. The larger brands have a very specific reputation that they reliably follow, and the smaller chains and unique locals rely on word of mouth and overdelivering. Then it's a short jump to a sort of Yelp for landlords - in fact, a lot of places have this already. Related: back in school, the student legal union kept track of all complaints filed and who the landlord was, then made the log available to anyone. The distribution was as expected: Campus Property Management, the largest and most commonly detested landlord, had the most complaints and the highest complaints/property managed. Bill, who managed the house I lived in senior year along with a few other places, had none, and he was awesome.