Experiencing rent extraction in riskless asymmetric “markets”

There are aspects of capitalism one doesn’t fully understand until one is confronted with them.

We are currently looking for an appartment. Now, the housing “market” and this is something I hadn’t fully appreciated until now, is not really a symmetric market: I cannot simply decide that at those prices I’d rather not have an appartment, and walk away. In this way it is much as “markets” for food, water, and labor, at least under the current setup, “markets” that require government intervention because they address such basic needs.

Now, as we know, labor markets have very little government intervention right now, unless it’s on the side of employers, there is a lively discussion about water privatization (with the CEO of Nestlé considering a right to drinking water an “extreme position”), and in most countries there are no subsidies for food and free meals are left to private charities.

When it comes to housing, there are some remnants of tenant protection left, and in particular in France it seems to be difficult to kick tenants out once they are renting the flat. As a reaction to this, landlords try to reduce the risk involved as much as possible: as a prospective tenant, I have to hand in a work contract or something similar, the last three payment slips to give an idea of my income, my last two income tax statements, probably to show that my current income is no abberation. Should I have children, I’d also have to hand in the family book, probably to show that I haven’t bought the children on the black market.

Once I’ve done this, the landlord sorts through different prospects’ files and makes a decision. I have an above-average income and as my wife points out, if we have trouble easily finding an appartment, how shitty must this be for people further down the socio-economic ladder!

So what’s happening there is that we already have a market in which the sellers are in a stronger position and then they try to drive the risk to as close as zero as possible. Now, I understand this – I am risk averse and I’d much rather have a secure government pension than speculate in stocks and bonds (directly or indirectly through a private pension fund). But according to mainstream talking points, capitalism rewards risk taking, and there have been repeated pushes to convince the German population to save less and speculate more. Yet once one sees real-life economic agents of all kind, risk taking is frowned upon – ideally they’d all be rent extractors.

In addition to this it’s not like I hand over my documents to the actual landlord. No, instead I interact with a real estate agent, and except for one all of those we’ve experienced in the last few days have done squat for us. And after we identify appartments on a web site that fit our criteria, after we collect all the demanded documents for risk assessment, after we fill in the forms and hand them over to the agent, we get to pay her/him a couple hundred euros. So the risk and the payment are assumed by us, and since the landlord does the risk assessment, there’s not even any risk involved for the real estate agents. They’re middle men that do close to nothing, they will get paid and they take no risk.

Finally, a work contract requires a bank account, a bank account requires an address, and an appartment requires a work contract and a bank account. Anyone see a problem with this?

This entry was posted in developed countries, housing, human rights, standards of living. Bookmark the permalink.

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