Two Cheers for the Slumlords of Our World

Walter Block

Slumlords have a bad press. The average editorialist has nothing good to say about them. Advocates for the poor excoriate them. The complaints? They exploit poor people. They profit from poor people’s misery. They charge all the market will bear. They are rotten. Grinches.

But what do slumlords actually do? They supply substandard rental accommodation. The water, hot or cold, can’t be fully relied on. If air-conditioning is suppled at all, it is hit or miss. The windows are rickety. The floors sag. Vermin are often on board.

Why do people consent to live in such sub-standard housing? They are poor and cannot afford better. Rents are higher than tenants would prefer, but lower than for a better-quality product.

What case can be made for such reviled people?

First, that they do not actually “exploit” their tenants. What prospective tenants see is what they get. (Of course, some slumlords do engage in fraud; but no profession is without this human frailty. Let’s consider platonic slumlords, who are not guilty of such chicanery.)

Suppose a slumlord rents an apartment to someone for $500 a month. How does that occupant rate the value of this residence? At $400, less than the agreed price? No. Of course not. If she did, she would never sign the lease; she would lose $100 per month. How about at that exact same amount, $500? Unlikely, for that implies no economic gain for herself. People don’t usually engage in transactions that don’t improve their economic welfare at least a bit.

The only proper answer is that her circumstances are such that she values the accommodation at more than the agreed $500. If she values it at $600, say, having it improves her economic welfare by $100 a month.

She is not forced into such a deal. Yes, her poverty prevents her from buying better accommodation. But the landlord is not to blame for her poverty. The two were total strangers (we may suppose) before consummation of the tenant agreement. And he is in effect a benefactor of hers: if he “dropped dead,” i.e., totally disappeared from the scene along with his slum property, she would be worse off, not better. For why was she willing to sign this lease in the first place? Because it was the best offer available to her. If she’d found something better, she would have taken it, leaving the slumlord with an empty apartment. The only options available to her were worse: being homeless, living under a bridge or paying a higher rent for an even worse apartment.

Suppose I had a magic wand, and with a wave of it could make half the slum dwellings in the city disappear. Would the poor be better or worse off? Worse off, obviously. There are now masses of folk with no shelter at all. Before my magic, actual people lived in those slum houses. Why? That was the best option open to them. Take that alternative away, and they are necessarily worse off. As students of Economics 101 will tell you, I have caused an “inward shift” of the supply curve, leading to higher rents for all.

Suppose I wave my magic wand in the opposite direction. Instead of halving slum capacity, I double it. Same question: Are poor people now better or worse off? Better off, just as obviously. With greater supply, rents fall. Instead of 10 people per unit, there might be only five. Everyone has more room, the poor are better off. Under these conditions the slum-dwelling tenant might well pay $300 for her apartment; this surely raises her well-being.

No decent person wants a fellow human being to have to live in a slum, where, as we have defined them, apartments are dirty, windy, cold and verminous. So these well-meaning folk pass laws regulating apartment conditions. But what is the effect of such regulations?

They will require landlords to spend more money fixing the apartments they rent. Some will, and their rents will rise to cover the now higher cost. But others will find the return just isn’t worth it. They’ll get out of the slumlord business and move their money to greener pastures. The net effect is similar to when I caused half the slum dwellings to disappear: supply decreases, rents rise. Because of the new regulations, our tenant might well have to pay $700 per month, or double up with another family to share the rent. At worst she and her family will have to sleep, God forbid, under that proverbial bridge.

But who, pray tell, provides slum housing for the poor, improving their conditions? Slumlords. God bless them every one.

Originally published here.

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