The Rent Question
Rents on properties and spaces in areas are undoubtedly key economic factors in an area's economic and social milieu. In orthodox economic logic, rents reflect the state of supply and demand for real estate in a given area. The higher the demand, and the lower the supply, the more expensive it becomes to rent space in a given area, and vice versa for lower rents.
It is important to consider the fact that rents on spaces do not necessarily reflect the economic productivity in a given area or the quality of the spaces that are being rented. In the current logic, they only represent the mixture of supply and demand for space in a given geographic area. A building can be kept in shoddy condition and go for high rents if it is in an area that is in high demand for usage. The net of this difference in cost reduction through deferred maintenance and improvements and revenue maximization through the exploitation of supply and demand is a natural tendency in economies that seems to have some empirical grounding in business practices (just through my own casual observations, evidence should be gathered to confirm or deny this point).
The question that seems salient with rents is if there is a point where the reliance on simple supply and demand to determine the price of renting a given area become either socially unjust (if people are unable to afford rent), or where it becomes a hindrance for economic development and well-being in a given area? After all, businesses often rent spaces too, and having high rents drives up the cost of doing business. This is before we consider the related problem of businesses not having access to enough workers (or is it workers not having access to places to work) because of prohibitively high rents, and the fact that higher rents eat into workers' wages, which then prevents them from being able to achieve their individual demand potential (again, hindering the overall potential for the area's economy to develop and achieve well-being for people). The foundations of relying on supply and demand alone to determine rent prices from the perspective of maximizing economic development and well-being comes further into question when it is considered that the primary beneficiaries of rents are the property-owners. When making public policy for the whole society, it seems to be wiser to be suspicious of enabling one group to profit so handsomely from an economic, social, and legal arrangement at the expense of other significant groups in the same socio-economic system. In a world where rents are becoming astronomically high in so many key productive areas of countries, what public policies can be done to ensure equitable yet still profitable rent prices are enabled?
A few indirect ideas include building more housing, or permitting the construction of more space in a given geographic jurisdiction. Another is to increase the proportion of the payroll and net profits allocated to workers, such that more people are able to afford rents in given areas. A third option could be to improve public transportation to outlying nodes, thus expanding the range of accessibility for workers and businesses alike. Each of these has their merits, and none of them are mutually exclusive from a public policy standpoint. However, with limited resources available to anyone, the government is likely going to need to balance and trade-off different aspects of these policies in order to achieve a good balance for the area in question. Yet none of these points gets at the crux of the problem, which is the potential for property owners to essentially charge more than the value of the space is actually worth for their own profit at the expense of all other players in the economic arena. How then can the government, using public policy, to tackle this condition which may or may not prove to be problematic for the local economy?
One solution that is currently in the policy arena is rent control; putting a direct cap on the amount of rent that a property owner can charge for a given space. In my view this is a clunky solution to a complex problem that can bring with it its own set of problems, such as black markets or divested property owners in a given area. Therefore, in my view only, a more elegant and effective solution could be to tie the rent to the total assessed value of the land and property as a set proportion of that space's total assessed value. Rents can then flex with the economic imperatives of supply and demand, but still be kept regulated from the perspective of enabling more people to live and more businesses to more easily set up shop in commercially valuable area. More valuable space with greater improvements can bring higher rents than less valuable, less improved upon land. Thus, the property owners have an incentive to improve and maintain their buildings, which can then improve the tax base of the geographic area. It also makes more valuable land more attractive to development, and can encourage more efficient usage of the most valuable spaces.
Before such a new policy scheme gets implemented in the real world, I believe it is important to make sure it actually works the way it is intended to work without producing negative consequences for the whole that outweigh the potential good it could do for that same whole. To do this pre-implementation experimentation, computer games simulating the economy may be used to test the economic and social outcomes of different policy regimen. One such game that could be used for this purpose is, perhaps, a modified version of the game Eco from Strangeloop Games, which has a robust simulation of real estate markets built into its default core, complete with a government to make enforceable and breakable laws in the market. By simulating the policies in silica with real human or bot players, policymakers may be able to get a rough sketch of what could happen if they implement one set of policies over another in the society before actually creating harm to real citizens. Another, perhaps later stage of evaluation and trial could be a mock trial of the polic(ies) in the real world, with assets being granted with losses forgiven as a result of the trying out of different policy sets with real humans as the players in a real game. The principle at the core of these pre-implementation trials is, again, to minimize the potential harm that could be done to the society through the implementation of unhealthy policies at efficient costs to the government. Once the trials have been done on the micro-levels, they can be compared, tweaked, and potentially scaled-up and/or spread out in a polished form if it proves to be effective.
Most certainly property owners would be most opposed to such a scheme as it would limit their ability to maximize their profits without regard for the consequences on the rest of the socio-economic system. However, as we have seen in the past 40 odd years of public policy in the United States being devoted to the businesspeoples' maximization of personal profit at the expense of the environment and society, this line of logic is neither healthy nor healthful for the socio-economic system it gets used in. In my view, a businessperson being enabled to profit at the expense of others is no more a desirable thing for a society than a criminal being permitted to do damage to property or lives of others with impunity. Because of the demonstrated negative effects of such a line of reasoning in practice (as demonstrated from the net effects of 40 years of this reasoning being in place in public policy), I would say that such individualistic profiteering behavior needs to, from a positive and normative standpoint, be regulated and limited by the government for the sake of society and all its members (including the would-be profiteers). Humans are a social species, and cannot for long abide egotistical members having too much leeway at the expense of other members without dire consequences for everyone in that group of egotists, altruists, and everyone in between.
Therefore, rent is still going to be an important factor in the economic health and well-being of a place and group of people. Because of its significance in affecting the whole socio-economic system, and the fact that there is room for abuse of others without government intervention in such a system, it behooves the government to intervene and regulate the pure market to generate objectively better outcomes for everyone in society. However, as lessons from the past indicate, it is important for those regulations to be effective, well-tailored for the context, and carefully prototyped, trialed, and tested before actual implementation takes place to minimize the potential for harm to be done as a result of the policy. For the government's sake, and the sake of officials who compose the government, it behooves careful experimentation with multiple accurate models of the system to see if the creative ideas that can be made actually work to solve the problems they intend to solve without actually creating negative side effects that eclipse the potential benefits of a given policy set. Nothing puts people off of governments and government officials faster than the creation and implementation of policies and programs that don't actually improve or maintain lives and livelihoods. It's in the interests of public officials to get the policies and program sets right, otherwise, we as a people may be convinced to go back to our current way of doing public policy where the public institutions and society itself takes a backseat to the egotists' wanton demands and unrealistic expectations of wealth and wealth creation.
It is important to consider the fact that rents on spaces do not necessarily reflect the economic productivity in a given area or the quality of the spaces that are being rented. In the current logic, they only represent the mixture of supply and demand for space in a given geographic area. A building can be kept in shoddy condition and go for high rents if it is in an area that is in high demand for usage. The net of this difference in cost reduction through deferred maintenance and improvements and revenue maximization through the exploitation of supply and demand is a natural tendency in economies that seems to have some empirical grounding in business practices (just through my own casual observations, evidence should be gathered to confirm or deny this point).
The question that seems salient with rents is if there is a point where the reliance on simple supply and demand to determine the price of renting a given area become either socially unjust (if people are unable to afford rent), or where it becomes a hindrance for economic development and well-being in a given area? After all, businesses often rent spaces too, and having high rents drives up the cost of doing business. This is before we consider the related problem of businesses not having access to enough workers (or is it workers not having access to places to work) because of prohibitively high rents, and the fact that higher rents eat into workers' wages, which then prevents them from being able to achieve their individual demand potential (again, hindering the overall potential for the area's economy to develop and achieve well-being for people). The foundations of relying on supply and demand alone to determine rent prices from the perspective of maximizing economic development and well-being comes further into question when it is considered that the primary beneficiaries of rents are the property-owners. When making public policy for the whole society, it seems to be wiser to be suspicious of enabling one group to profit so handsomely from an economic, social, and legal arrangement at the expense of other significant groups in the same socio-economic system. In a world where rents are becoming astronomically high in so many key productive areas of countries, what public policies can be done to ensure equitable yet still profitable rent prices are enabled?
A few indirect ideas include building more housing, or permitting the construction of more space in a given geographic jurisdiction. Another is to increase the proportion of the payroll and net profits allocated to workers, such that more people are able to afford rents in given areas. A third option could be to improve public transportation to outlying nodes, thus expanding the range of accessibility for workers and businesses alike. Each of these has their merits, and none of them are mutually exclusive from a public policy standpoint. However, with limited resources available to anyone, the government is likely going to need to balance and trade-off different aspects of these policies in order to achieve a good balance for the area in question. Yet none of these points gets at the crux of the problem, which is the potential for property owners to essentially charge more than the value of the space is actually worth for their own profit at the expense of all other players in the economic arena. How then can the government, using public policy, to tackle this condition which may or may not prove to be problematic for the local economy?
One solution that is currently in the policy arena is rent control; putting a direct cap on the amount of rent that a property owner can charge for a given space. In my view this is a clunky solution to a complex problem that can bring with it its own set of problems, such as black markets or divested property owners in a given area. Therefore, in my view only, a more elegant and effective solution could be to tie the rent to the total assessed value of the land and property as a set proportion of that space's total assessed value. Rents can then flex with the economic imperatives of supply and demand, but still be kept regulated from the perspective of enabling more people to live and more businesses to more easily set up shop in commercially valuable area. More valuable space with greater improvements can bring higher rents than less valuable, less improved upon land. Thus, the property owners have an incentive to improve and maintain their buildings, which can then improve the tax base of the geographic area. It also makes more valuable land more attractive to development, and can encourage more efficient usage of the most valuable spaces.
Before such a new policy scheme gets implemented in the real world, I believe it is important to make sure it actually works the way it is intended to work without producing negative consequences for the whole that outweigh the potential good it could do for that same whole. To do this pre-implementation experimentation, computer games simulating the economy may be used to test the economic and social outcomes of different policy regimen. One such game that could be used for this purpose is, perhaps, a modified version of the game Eco from Strangeloop Games, which has a robust simulation of real estate markets built into its default core, complete with a government to make enforceable and breakable laws in the market. By simulating the policies in silica with real human or bot players, policymakers may be able to get a rough sketch of what could happen if they implement one set of policies over another in the society before actually creating harm to real citizens. Another, perhaps later stage of evaluation and trial could be a mock trial of the polic(ies) in the real world, with assets being granted with losses forgiven as a result of the trying out of different policy sets with real humans as the players in a real game. The principle at the core of these pre-implementation trials is, again, to minimize the potential harm that could be done to the society through the implementation of unhealthy policies at efficient costs to the government. Once the trials have been done on the micro-levels, they can be compared, tweaked, and potentially scaled-up and/or spread out in a polished form if it proves to be effective.
Most certainly property owners would be most opposed to such a scheme as it would limit their ability to maximize their profits without regard for the consequences on the rest of the socio-economic system. However, as we have seen in the past 40 odd years of public policy in the United States being devoted to the businesspeoples' maximization of personal profit at the expense of the environment and society, this line of logic is neither healthy nor healthful for the socio-economic system it gets used in. In my view, a businessperson being enabled to profit at the expense of others is no more a desirable thing for a society than a criminal being permitted to do damage to property or lives of others with impunity. Because of the demonstrated negative effects of such a line of reasoning in practice (as demonstrated from the net effects of 40 years of this reasoning being in place in public policy), I would say that such individualistic profiteering behavior needs to, from a positive and normative standpoint, be regulated and limited by the government for the sake of society and all its members (including the would-be profiteers). Humans are a social species, and cannot for long abide egotistical members having too much leeway at the expense of other members without dire consequences for everyone in that group of egotists, altruists, and everyone in between.
Therefore, rent is still going to be an important factor in the economic health and well-being of a place and group of people. Because of its significance in affecting the whole socio-economic system, and the fact that there is room for abuse of others without government intervention in such a system, it behooves the government to intervene and regulate the pure market to generate objectively better outcomes for everyone in society. However, as lessons from the past indicate, it is important for those regulations to be effective, well-tailored for the context, and carefully prototyped, trialed, and tested before actual implementation takes place to minimize the potential for harm to be done as a result of the policy. For the government's sake, and the sake of officials who compose the government, it behooves careful experimentation with multiple accurate models of the system to see if the creative ideas that can be made actually work to solve the problems they intend to solve without actually creating negative side effects that eclipse the potential benefits of a given policy set. Nothing puts people off of governments and government officials faster than the creation and implementation of policies and programs that don't actually improve or maintain lives and livelihoods. It's in the interests of public officials to get the policies and program sets right, otherwise, we as a people may be convinced to go back to our current way of doing public policy where the public institutions and society itself takes a backseat to the egotists' wanton demands and unrealistic expectations of wealth and wealth creation.
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