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Housing Market Rent-Seeking is Unethical

Buying houses (living spaces) for the purpose of financial gain is unethical, at least when there is a housing shortage, like in Ontario. In order to answer why is it unethical I’ll lay out some steps.

Unethical behavior is behaviour that is a deviation away from morally correct action and towards morally incorrect action. What has morality got to do with buying or owning investment properties during a housing shortage?

Housing exists to house people. People need shelter to live, breathe, and rest. It is a human principle to have full rights (ownership) of a space or to be compensated in lieu of such space. If this concept isn’t accepted, then I don’t know what to say except that it is victim blaming all homelessness.

Morality of Market Rent Price

Before governments were incorporated, private property only existed as long as the owner could defend it. Unfair property distribution for regions almost always resulted from physical prowess (human strength, to tribe strength, to militia strength). Is it moral to use physical strength to acquire more resources by taking it away from other humans who are minding their own business? No it isn’t. Colonization is immoral.

If we are to believe that all humans have equal human rights, then as a society, the society must strive to give each person food and land/space to survive. This does not mean that one must give their own resources for survival away. Morally speaking, taking away resources from someone with extra resources for the sake of surviving is not immoral, or at least that’s my take on it. If you were homeless and there was no food bank, no free food, and no one gave you food when you asked for it, then you would resort to stealing for survival. You simply cannot expect people to die or live a terrible lifestyle unless they somehow deserved it especially if there is a surplus of resources anywhere or with anyone. That is, if there’s three people in total on an island and the island produced 3 apples a day and one of them decided to take all three applies and charge the other two work harder than picking an apple from the tree, their apples are going to get stolen unless they are willing to defend it physically. The hoarder is immoral in this case, so now we will apply the same logic to land since land or more specifically living space is also part of being human. So if you were to charge a human for taking up space, it should be reasonable. A reasonable price is not market price. If the work done was picking up an apple, the reasonable price is digging a hole for however many seconds it took to get the apple. The market price though could be creating a brick. Wealth in generated by trading time for output. When time is not being traded, what’s occurring is a wealth transfer. Like this apple example, it is simply unethical to charge market rent prices. Just because renters are willing to bid their lives on it, doesn’t mean that it is right for them to have to pay that much.

Morality of Housing Market Investing

Now then, moving onto purchasing or owning non-primary residence housing itself. Is there a shortage of shelter in Canada? Arguably yes. Is there a shortage of land? Not in terms of raw land, but land to develop on legally is scarce, expensive, and causes a shortage of shelter. So why is it unethical to own an investment property even if rent was charged fairly? Well either the unit was made for land lords - for the purpose of short-term renting - or it was made for primary residences.

Short-term Residents Market Failure

If it was made for short-term residents and land lords, we should ask the question why are there short-term residents anyways. I can only think of post-secondary students. Is education something important to society? If so, then the government should ensure that there’s enough rental accomodations and not assume that the free market will take care of it. If post-secondary education isn’t important to the society; as in we believe people getting an education instead of working immediately shouldn’t be helped out at all, then there is no reason for the government to subsidize universities either. I’m being facetious here. The truth of the matter is that university education is important but not enough is being done if a rebuttal to ethical land lords is “but no one would buy rental units.” The question is how important and if people would not be on board to buy a property for the purpose of student housing, then it follows that supply would crumble due to market failure by ethical forces and the government or universities would be forced to contract the building of units. This way would guarantee that students pay a fair rent and if not it would be considered a tax on education.

Anyways, going back to the owning or bidding on properties with long-term tenants. Put simply. Even if rent is charged fairly, the simple act of owning or bidding pushes up the price to live due to the shortage. The person who lost out on purchasing the property you own is not guaranteed to get a cheaper rent in lieu of it. The person who does get the cheaper rent does benefit, but the investor overpaid for the property. This means that no investor in the housing market is charging a reasonable rent (one that barely subsidizes the mortgage). So in almost no situation would a person who would only charge reasonable rent, overpay for a property, or own one at all.

Owning is also Unethical

Owning a non-primary investment property even if rent is reasonable is also unethical. Mainly because if the property was listed for sale then the market would fall.

We know that land is artificially scarce and its causing a shortage of shelter. Let’s call the demand for housing ownership for the purpose of living D1 and the supply of housing for the purpose of living S1. After adding the demand for housing ownership for the purposes of investing, we find that the market price has increased! All because of investors. Now I’m not saying that all developments are for the purposes of long-term residents, but I know for a fact that some tenants can afford rent but are not getting approved. So why is increasing the demand and price for rent unethical? Well if there’s a housing shortage and demand for investing exists, then the people who could afford to buy the would be market price are priced out and any investor who is receiving a subsidized rent or isn’t renting at all is taking forcing people to lose their wealth so that the land lords wealth increases. New wealth was created with the construction of the property, not with the transfer of the equity from the bank to the land lord. So using rent to help make those payments is nothing but a wealth transfer from the poor to the land lord. This demand is present even with a sales tax!

Some people do need to rent so land lording is required. Figuring out the reasonable rent is the real challenge and how much is too much is the real challenge.

Policy Scenario

So what to do about it? Well if we banned or completely dissuaded all land lording, there would be a market failure for people who want to work in the city. Businesses would either have to provide higher relocation costs or go somewhere else. A total immediate ban would completely cause chaos, so I advocate for a slower burn. Cities need to incentivize and reward taking up less space. The only way to do that as far as I can tell is to charge something similar to land value taxes. When more people start demanding condos, the loss in developer construction will come back and these units will then be bought by people who want to live there.

I have thought abut it over and over and although it would be for the best, if profit making was banned from the housing market, the government would have a hard time providing housing for those starting their careers who won’t get approved for a mortgage. Profit should be allowed to incentivize land lording but the questions that I still need to answer is how much profit is reasonable and what to do about people who want to live in suburbans, work in the city, and thus rent in the city? There is a mismatch of wants and results, one that I cannot think of how to fix without a complete redistribution of land. The only thing I can think of is the land value tax.

Conclusion

In short, I’m sorry you had to read this all. It was a journey of me articulating what exactly is unethical and what can be done and it turns out not much because the reality is renters are renting in areas they don’t even want to ideally live in which just takes away from those who do want to live in the city but have to rent too and thus developers focus more on rental units than condos. Then the property taxes are higher on those buildings than single family homes, and overall the situation is one that was created because of a refusal to go through with the wants.

I guess all in all, although it is unethical, any policy would end up causing more harm than not.

Aside: How much land per person? In Canada if we split 9.985 million km^2 by 38.25 M, each person would receive 261,000 km^2. Now that is a lot of land simply to live, and an ideal amount of space is subjective. If we assume that in an ideal population each person has two kids, then we can use the average square feet a family of four uses to get the number of square feet a person needs to live. According ot [realtor.ca](https://www.realtor.ca/map#view=list&Sort=6-D&PropertyTypeGroupID=1&PropertySearchTypeId=1&TransactionTypeId=2&BedRange=4-0&BathRange=4-0&OwnershipTypeGroupId=2&Currency=CAD), these homes are 1600 - 5000 SQFT. Let's be conservative in our calculations and so we get 1,250 SQFT / person to live without compromise.