I’ve been reading Howard Botwinick’s exceptional Persistent Inequalities lately, which adapts Marx’s real competition (and its revival, by way of Anwar Shaikh) to explain wage disparities over both the short and long run without recourse to neoclassical idealizations such as the “marginal productivity of labor” or s/d curves in a static general equilibrium model. While doing so, I was struck by Botwinick’s assertion that fundamental to neoclassical (which is to say, orthodox and heterodox, or Freidman and Keynes) analysis of the labor market is the assertion that labor and commodity markets follow the same basic rules: the assumption of a given endowment of capital and labor, the lack of any real motion in the market as a whole, the “exogenously determined” appearance of technological development in the production process, perfect competition, perfect information available to all parties enabling efficiently profit maximizing behavior, perfect capital mobility, and finally, given all of the above, the fact that supply and demand are “primarily analyzed as separate and stationary entities that have little dynamic interaction”. Further, and following Marx, Botwinick claims that the labor market follows very different rules from the commodity market. Here is why I’m writing this little post: I am operating here on the principle that the housing market for rentals also follows different rules than the commodity market, which it is usually presented as a part of, if not directly. This is why the ever-present argument about “housing supply” has come to be treated as a lodestar of the housing discussion in the economic vein.
The fetishization of housing supply is erroneous for several crucial reasons, but persists precisely because it is so simple. Perhaps there has been no greater coup for the common sensical presentation of “supply-side” arguments than the classic s/d curve. A baby can read it! What’s more, it has a basic logic to it that reinforces the sort of policy-wonkish type of personality type that abounds in discussions of the “housing problem”, where any suboptimal conditions can be diagnosed with recourse to two lines on a graph.
I took this graph from here, simply because it’s the best quality image I found on a simple google search (I will say there were other ones which identified “market supply” as number of landlords, which I am not using for what should be an obvious reason). Anyway, the supply argument usually revolves around a childlike understanding of this childlike diagram, and particularly around a leftward shift of the market supply curve corresponding to less availability in aggregate of housing units within a particular region or geographical area. Obviously, this shift leftward, assuming demand remains constant, pulls the all-important intersection point up and to the left – meaning that prized equilibrium of price rises. However, market demand does not remain static – nothing ever does – and moreover there is an implicit assumption that demand, that is, the renters looking for apartments, remains constant, and that each and every renter operates individually with a goal to maximize their utility derived from gaining access to housing. There is a further implication that all resources can and will be fully utilized to the maximum benefit of all, or to put it another way, homelessness is entirely frictional as renters move between houses (which, assuming mobility as we do, only occurs for a near-infinitesimal amount of time anyway), or to put it another another way, at all points, barring any distorting effects, there will be a full utilization of capital along with zero homelessness. There is an inexorable logic to that! It’s right there on the graph!
But of course, this doesn’t bear out in the “real world” for a few reasons. Each type of supply-sider (or, lets just say “neoclassical”) bemoans the disastrously “irrational” activities of the state to alter the competitive environment outcome seen above. These are where the complaints about zoning prohibiting new construction and development come from – but really it could be anything, because it is crucial that the perfect curve remains strictly aspirational. The important thing is that something has always already moved the housing market away from this “maximally efficient position” and thereby caused supply/quantity to decline and rental prices to rise. This is very similar to the neoclassical argument against unions, which uses the same graph in the labor market to whine about the union’s distorting profit squeeze effects there.
The forms in which these intervention may occur are multifarious. Some neoclassicals argue against rent control or stabilization, some against zoning, others against public housing. The reasoning here is that the existence of such programs create a monopolistic or dual economic approach wherein the “true” market activity described in the s/d curve above, where housing operates as a commodity good, is suspended. The clockwork ballet of a home for all is destroyed because rent control conditions remove the hedonic impetus for moving because it artificially maximizes utility, zoning as I previously mentioned limits supply, etc. What does not distort these markers are vouchers or the provision of “affordable” housing, because in the first case, the housing authority or whatever is simply making a cash payment additional to the landlord that allows the unit on offer to effectively function as if it was being leased on the market, and the second because it is both a) minor enough to fall out of regional accounts and b) similar to selling a “store brand” (lol) version of a commodity good. In both cases, the fundamental activity of the market remains intact (from a landlord’s point of view). Even so, landlords and developers fight these minor intrusions tooth and nail, but most savvy neoclassicals won’t bring themselves to argue against these most basic and most threadbare examples of the “social safety net”.
Part of the argument here is also the assumption of what economist Henry Kaufman calls an “automatic policeman on social conditions of labor”. This is an argument that the worker’s mobility and their profit-maximizing perambulations from job to job effectively allow workers to “vote with their feet”. Kaufman holds that if wages are depressed by one firm or in one sector, workers will leave for sectors with higher wages essentially automatically. Thereby, competition between capitals for labor ensures that wages and working conditions are kept at an optimal level, and unions only serve to secure small gains within a distinct sector to the expense of other non-union sectors. To adapt this to the housing market, where a similar argument holds, tenants (or would-be tenants) are free to leave their apartments in the event of a rent increase or due to the presence of deleterious conditions in their unit, and the despondent, socially irresponsible landlord will then be checked by that mobility and their vacancy to where they must rectify their odious offerings on the market. Of course, here we reach a rather simple sticking point: tenancy is usually meted out on the basis of a yearly lease which is not easily broken by the tenant, even in the event of multiple complaints, miserable conditions, rent increases, landlord harassment, etc. What’s more, as I’ve noted before, there are immense costs associated with moving to the point that an assumption of mobility in any meaningful sense becomes a rather ridiculous notion, from broker fees to deposits to the more direct costs associated with moving itself.
Ok so. What about “rent differentials”? That is, what explains the difference, among similar rental units provided to similar tenants, for rents to vary widely? On one hand, it’s easy and more or less accurate to say that a rent is more or less decided by landlord fiat. But from whence are they getting their larger “price signals”, lets say, which dictates the rent price they finally demand in the process of exchange for a lease? Here, there is a curious relationship with wages in two ways:
The rent payment is directly related to the wage not in the way a consumption choice good purchased on the market, but as a reduction in “purchasing power” overall; the rent price is determined after a wage is received but is a required payment to enable certain activities of social reproduction, namely the access to shelter.
Whereas there are long-run systematic deviations of the wage rate below the profit rate in order to facilitate the continued growth in the rate of profit as a necessity of the continuation of capital accumulation, there is also a long-run systematic deviation of the rent rate (lagged but continuous) above the amortization value of the rental property itself.
Thus, there is a combined and uneven attack on the worker-renter in the sense that their wages as offered by one capitalist are suppressed while the rental price as offered by another is expanded. Historically speaking, these have a similar cause in the crucial “double freedom” process known as primitive accumulation which freed workers both from their means of production and from the land, consolidated these in the hands of an ever-diminishing class of owners, and then required the workers to then purchase these from sellers.
To return to the question of rent differentials, there is first the issue of rent levels, and another curious overlap between the labor and the housing question. It’s “systematic variation within limits”, after all. Whereas in labor, the limits of wage growth are ambiguously set by the presence of unions or organized class struggle, the presence of the reserve army of labor, increasing capital intensity, and rising productivity, the limits of rent prices are set to some degree by the presence of militant tenant organizations, the spur of homelessness, the constant increase in housing supply, and the obdurance of existing capital expenditure in play already either awaiting or having already completed being “paid for”. Of these, militancy on the part of tenants can and does lower rents – and actually, in a more direct way than labor organizations win wage increases, as it is much easier, relatively, for a tenant to win a rent decrease in certain conditions. But these remain spotty outside of massive rent strikes and mobilizations, which are rare in the United States. As a result, rent increases tend to be the dominant direction of change, not only because of restrained supply (which is nevertheless always increasing, just not at the rate some would like it to) but because of increasing payments (taxes, repairs, etc.) required for landlords to bring a unit to market, coupled along with the “spur of homelessness” – that is, the “willingness” to accept rent increases because housing is crucial for social reproduction. This also means housing cannot be thought of as a commodity operating in accordance to the same principles that define other commodities for consumption, which if the price were to rise too high, would simply not be bought. But this is not necessarily a strictly monopoly price – the landlord’s monopoly over their unit grants them the ability to sell access to it, but not necessarily access to raise the rent beyond all reasonable amounts if the standard of reasonability is strictly market-derived. A landlord wanting to rent will closely match their rent price to similar rents and thus find themselves responding to market information they can glean, but this is by no means perfect.
Lastly, there are two great pools of renters which must be categorized as they are able to behave quite differently in the rental market. The first are much wealthier as a whole than the second. We may call the first floating renters, the second stable. The floating renters are quite a bit wealthier than their counterparts, though they may not necessarily choose to live in what is commonly understood to be “luxury housing”. Their floating quality simply refers to their ability to accept costs associated with moving in order to achieve some simulacrum of “perfect mobility” (but which is ultimately still heavily constrained by lease terms). The floating renters are able to achieve certain leverage within the housing market as a whole because during typical market functioning their incomes allow them access to a greater number of rental units within the overall market, and during their tenancy they may have greater leisure time as a function of their higher wages in order to make demands of their landlords as direct participants in a contract. Curiously, it is this “floating” that actually bequeaths them with a far greater stability within the rental market as they are not in danger of falling out of it into homelessness.
On the other hand are the stable renters, who following the statement above, are actually quite treacherously positioned. They may be less wealthy, but also may be otherwise constrained either as long-term occupants of a rent stabilized or controlled unit, members of a large family household with multiple dependents, etc. They are stable because costs of moving, pecuniary or otherwise, are insurmountable, and therefore find themselves “locked in” to their current unit with little or no mobility. These stable renters may have individual relationships with their particular landlord in order to exact a certain degree of “service” and upkeep but more often then not find themselves at the mercy of the landlord. This contractual interaction bears no relation to the simple exchange that a floating renter may enjoy as the landlord appears not just as a capitalist on the market seeking a transaction but as often a tormentor or a gaoler. The two together experience what Willi Semmler calls “social demand” very differently, though I should be clear that they may be joined by more categories as I think of it and, especially, they are not at all to be taken as class distinctions.
I will develop these categories further soon but right now I really need to stop writing. Have a good day out there.