I am heartened that there is so much conversation these past several years about the cost of housing. It’s not surprising at all since housing is the single largest expense for most people, myself included. People rightfully point at many causes of the crisis such as private equity, low housing supply, mortgage rates, bad landlords, NIMBYs, etc.

Even so, I am disappointed that I hardly see anyone making the case that the way landlords operate is unfair on a fundamental level. This is true for big landlords who own multiple large developments, and it is true of grandma renting out her upstairs apartment. This is true even in the case of the extremely rare landlord beloved by their tenants.

To be clear, renting is a terrific way to enable sharing durable goods amongst untrusted parties. This is seen most often with professional tools that are in very short supply, high in price, and only needed for short durations. For example, in Hollywood they don’t buy new equipment for each movie. It makes a lot more sense to rent things like IMAX cameras for the duration of one shoot.

When renting becomes unfair is when there is only one lessee for a very long term. That is not an arrangement to enable sharing and make sure goods are used efficiently. It is an extractive relationship that lies at the heart of anti-capitalist anger.

Consider this hypothetical case. Blake needs a powerful new computer. They can not afford it outright because prices are out of control. If Blake purchases it with some sort of financing, that would be acceptable as long as the interest rate is not extortionate. If they only need it for one project, then a short term rental makes perfect sense.

Blake doesn‘t do either of those things. Instead they rent the computer for several years. They are the only person using this computer. They use it almost every day. For all intents and purposes this is Blake’s computer. Yet, despite years of rent payments that now total up to far more than the original cost of the computer plus interest, Blake will never legally own the computer or stop paying rent. Until Blake gives up this computer, the legal owner will drain their wallet in perpetuity.

What makes rental housing even more unfair is that landlords typically purchase real estate with mortgages. The bank loans a landlord money. The landlord mostly acts as an intermediary, collecting rent from tenants and using that money to pay back the bank. In my view, the tenants are actually the ones who are paying the mortgage, so why don’t they own the property? Why does the landlord get to hold the deed forever?

The only thing the landlord brings to the table in this situation is that they bear the risk. If something goes wrong, they are on the hook to the bank. That’s not nothing, but it’s also not enough to justify sole permanent ownership, especially in cases where the risk is low.

How do we make this fair? I propose we change the law such that all long term rentals must be rent-to-own. Every time a tenant makes a rent payment, they receive a fair share of ownership in the property. It may take a very long time, perhaps decades, but eventually they will own their home. Every apartment building will become a co-op. Landlords and developers can still profit a fair amount in this process, but all properties will end up belonging to the occupants who truly paid for it.

The person who pays should be the person that owns. Full stop.

Landlords and Wealth Inequality

Even though I am opposed to landlords on principle, a more practical reason we should change the system is to fight wealth inequality. It’s possible that only allowing rent-to-own arrangements might be as effective at fighting wealth inequality as taxing the rich would be.

If a bank gives someone a mortgage, we think of that person as being in debt. That is indeed the case if a working person is living in the property and paying the mortgage with their wages. If the person is paying the mortgage with the rent they receive from tenants, the mortgage is still technically a debt, but is effectively a gift.

Imagine a plot of land in a major city that is ideal for an apartment building. The going market rate in the area is high. The neighborhood is popular. This building will fill with tenants and collect enough rent to pay off its mortgage, taxes, insurance, maintenance, utilities, and all other expenses with cash to spare. For whoever owns this property, it will be a money tree. Every month it will grow cash for them to harvest into their wallet while doing hardly any work whatsoever.

Who will be this owner? Honestly, it likely does not matter who it is. It could even be someone who is currently flat broke and unemployed. It could be a newborn baby, but of course it won’t be. It will only be someone the bank approves. The bank will only approve someone who is low risk, i.e., someone who is already wealthy.

It is this principle that creates a snowball effect. People who already own real estate use it as collateral to acquire even more. Banks see they are already in possession of one gift, so they are willing to give them another and another. People who have assets get more assets.

These wealthy people eventually have their wallets just bursting with cash they didn’t have to work for. When there is something they want, they are willing and able to pay a very high price for it. This raises prices for everyone. A home in your neighborhood costs millions of dollars because wealthy people will pay that much, and will bid against each other.

Meanwhile, people who do not own property don’t get gifts from banks. Assuming they are fortunate enough to have a job, their only source of income is wages. Wages do not grow at a rate that keeps up with inflation. Unless people are extremely lucky or frugal, they can never afford to buy any significant assets. They never get that first money tree to start the ball rolling. They are stuck paying rent and having nothing to show for it.

A system whereby all rental properties must be rent-to-own ensures that real estate assets have a time limit. What is now a magical spring will instead be a well that must eventually run dry.

People who develop and manage real estate would still be able to earn a very decent living, but only by continuously working. They would not be able to sit on their asses and merely own. They would not have their wealth snowball by being the only ones worthy of receiving gifts from the banks. They would build, manage, maintain, and sell properties in a continual cycle, all the while earning a healthy and fair wage for their efforts.

Working people who pay rent would eventually own their homes. When they reach that point, their monthly expenses would drop significantly. They would also become the legal owners of actual property. They could sell that property if they wanted to move, perhaps when they retire. They could use it as collateral against a loan if they had some use in mind. They could move out and rent their property to someone else, but of course that would be the same as slowly selling to that new tenant.

Fight wealth inequality. Fight injustice. Ban landlords as we know them today.