Is it legitimate to rent out property?

“Landlording is not employment income, it is investment income. If you rely on stealing your tenant’s labor value (through rent) to survive, you are a societal parasite. Being a landlord is not a job.” – some Lisa Simpson meme

A clever friend of mine shared the epigraph on social media. The claim is fairly simple to understand: if one party offers labour value into an exchange, and the other does not, the relationship is parasitical by definition. Fairly simple Marxianism, really – it’s the same dynamic as a factory owner and his workers. The owner does not develop the value of the goods, he merely owns the equipment; those “creating value”, on the other hand, lack the means of production and have the surplus of their labour value stolen from them in exchange for a  partial wage from it.

I’m not getting into whether Marxian labour theory “works” or not. I would say that my own view is that, generally, smaller scale “workshop industry” and wider property ownership are morally and socially healthy things. But it is still worth asking: is it legitimate to rent out property? The matter is best addressed, I think, not via debate of abstract theory, but analogy and thought experiment.

To determine if the very act of renting out property is parasitical, we must create a level playing field for our parties beforehand. Of course if one person has £1m and another has £1k, then the former is much more likely to own any sort of property, whether housing or equipment, than the latter. The fact of their prior state does not determine whether the act of renting is parasitical, even if we believed the wealth disparity was unjust.

So let us say both our workers have £150k – they shared a winning lottery ticket, or they worked together and sold a business, or they are brothers with a moderate-sized inheritance from their parents – in the North-East. Here is what they spend that money on:

*THE HOMESTEADER: An end-terrace house with an above-average-sized garden (£90k, cash), family car (£5k inc. insurance), large variety of sheds, agricultural and building equipment, seeds, etc (£10k – this stuff is expensive!), solar panels (£6k), council tax and utilities (£2.5k). They have £46.5k left, and so bid on an auction property in poor condition, getting it for £45k in the ‘Rona bear market. They decide to do most of the work themselves, and renovate it slowly, based on cashflow. They also take over their dad’s allotment for pennies a year.

*THE BUSINESSMAN: Rent of a city-centre shop and an industrial unit (£22k annually, two years set aside = £44k; assumes rates holidays), sprinter van (£20k inc. insurance), family car (£5k inc. insurance), furnishings and start-up stock (£20k), six months’ running costs set aside (£20k, and that’s cutting it fine). That’s £41k left – great, plenty for a mortgage on a decent property, setting a little bit aside for renovations.

At this point, both workers are living on cashflow (including anything from their other halves). We’ve already hit our first problem, though – the Businessman has had to enter a mortgage arrangement, where a bank has extended credit (which is money that it does not, of course, have in cash, because we have a fractional reserve system). Is the bank being parasitic? Is the businessman being robbed? He is paying a form of rent on the part of the house “owned” by the bank. Well, in our hypothetical, he could have made different decisions and owned outright, but he wanted to go into commerce, not homesteading. He has chosen to split his funds a particular way. He has chosen to exchange his labour value for the bank’s investment value, in return for greater financial flexibility.

Now imagine the following:

(1)   A year in, the businessman’s shop is making a loss but can still run month-to-month with a small cash infusion, and may soon turn profit. He takes out a loan secured against his assets. He is exchanging his labour value, again, for the bank’s investment value. Without that possibility for investment his business would have folded. Is this parasitic on the part of the bank?

(2)   Three years in, the shop is beginning to make money, but to expand the businessman needs money. He offers friends the chance to invest in his private company. Several accept, turning their labour value (i.e. their wages) into investment value. Who is being the parasite, here, anyway? Presumably the investors – except it is their labour value they are exchanging for future dividends.

(3)   Six years in, the market crashes horrendously and the shop goes under. With a serious debit problem, the businessman sells his house, clears his debts, and rents out the house from the homesteader. Is the homesteader a parasite at this point? They have made choices that all this while have left them debt-free and ticking over, whilst renting out the second house for a small amount of extra income monthly, and slowly building his land portfolio. The homesteader is now providing a need in good faith.

(4)   The businessman finds out the homesteader has had very good fortune with his lifestyle, and decides to grow more of his own fruit and veg in the garden, whilst raising chickens (of course, the homesteader is very supportive!). He buys a few of his own tools with his pay from his new job, but for a few complex pieces of equipment he turns to the homesteader. Now either he could pay for the labour value (including equipment value), for the homesteader to come and do the work – or he could just rent the equipment and so it himself. So he does the latter. Is the homesteader being a parasite for hiring out the equipment without his own labour? Why would it be productive if he made the whole deal more expensive by requiring he be paid to labour, too?

You see the general point I am making. In a controlled environment, any number of rental/loan situations seem reasonable. The businessman cannot make the free decisions he does without the ability to rent/mortgate/lend instead of buy/labour-hire in each case. Yes, his gambles haven’t entirely worked out – partly for reasons beyond his control. Maybe what has happened is his fault, and maybe it isn’t. But once we get to situations 3 and 4, at least, how is it the homesteader’s fault that he has succeeded? The left-winger does not think it a reasonable idea of charity that every man surrender his labour for free – so why ought they surrender the fruits of their labour for free?

On a related note, we see it becomes hard to clearly classify the hire or loan of different things. Why, in absolute terms, is renting a home different from renting equipment to provide food for your family? Why, indeed, is renting equipment to provide food for your family better or worse than buying food from a shop that has not itself produced the food, but is acting as a middle man?

We could frame quite high-level critiques of the situations we’ve discussed. We can say housing and food are absolute rights, and must be provided for free by the Government; we can say that all business development should be funded and secured by the Government; we can seek to define categories in various ways, monitored by the government (investment value developed by labour is good, investment value developed by speculation is bad). None of these seem particularly viable unless we want a vastly more authoritarian, centralised state than we already have. Absolute revolution and highly agglomerated control is required – well, that, and a high level of trust in government agencies to efficiently dole out investment money to the right opportunities.

Tolerably ordered liberty requires scope for a variety of combinations of decisions and finance, and the capacity for success and failure. Focussing attention on the specific concept of “rent” – rather than on, say, why property accumulates value the way it does compared to labour, or the at-birth disparities to do with e.g. health and educational opportunity – is a very good way to fail to solve any actual problem whilst birthing a whole brood of new ones.