Slumlords

(Please note that this post is the intellectual chassis for some other work.)

Philadelinquency recently ran an excellent piece on how Philadelphia’s very poor school performance holds it back. Setting aside the chicken-and-egg problem of schools and class, let us focus on the final element in this piece, an element that ties back into the blog’s long-standing focus:

Now, about your suburban slumlord who smells the gentrification coming towards his rental property he was renting out for $600/mo and collecting a string of code violations on for a decade who might decide to sell his house to a rehabber and cash out, leaving that rental at the sake of increasing valuations?  Nobody has come up with a solution for that yet.

While this is a tie-in to pieces such as this and this, there is a more fundamental problem it touches on that needs addressing: Our zoning policy has been an abysmal failure at regulating landlords. Worse still, in its zeal to separate out homeowner and renter communities, it has resulted in a nasty unintended consequence: Slumlords are the result of the system.

Consider it for a moment. Time and again, sociological studies have shown that a landlord’s investment in his rental properties is directly tied to his geographical proximity to them. A landlord who lives in the same city is more inclined to invest in his properties than one who does not; in the same neighborhood, even more so; on the same block, ditto; and by far the most likely on premises. Since a slumlord is a landlord who fails to invest in their property, we can extrapolate that they are inversely correlated with distance: that is, the closer to their properties landlords live, the less likely they are to be slumlords. We can thus extrapolate that landlords of city property who live in the exurbs are likely to be slumlords; those who live in a different metro area entirely even more so. And guess what--they are!

It is not by accident that Philadelinquency spends most of its time chasing paper trails on slumlords who live far from the city. And in many cities, “institutional investors” are quite clearly slumlords-in-waiting.

But our claim, that institutional slumlords are an unintended consequence of our land-use policy, goes quite a bit further. To make this argument, let us recall how modern zoning came to be (see here, here, and here); they were implemented precisely because the homeowners of an affluent Cleveland suburb sought to keep renters out. And so it is unsurprising that modern zoning policy disenfranchises renters; what is a bit more surprising is that the jurisprudence required to get around earlier rulings also disenfranchise small landlords. And much as other side effects of “sorting” by use disenfranchised small businesses--to the benefit of larger malls, hypermarkets, and big boxes--so too has it benefited property management firms, and institutional investors.

Property management firms--companies of the type that run garden apartments--have full-time maintenance staff associated with each property. (In the absence of a landlord, a caretaker is the next best thing.) But institutional investors need not; all they need to maintain is the portfolio. Part of this is the--not unreasonable--justification that since they handle smaller properties (i.e. houses) than property managers, a caretaker per property would be excessive. But another part is that these organizations usually have a strong financial focus, often to the detriment to the properties they’re supposed to be managing. And of course, you also have bona fide slumlords who hide behind “institutional investor” masks.

Indeed, the whole system of institutional investing seems set up to encourage financialization and transactions at the expense of property maintenance. Is it any surprise, then, that to many people, “rentals” has become a dogwhistle for “slums”? Or that small rental properties are reflexively opposed, for the same reason development is in general?

One could say that the irony is that the system has come to disadvantage the small landlord, the homeowner who wants to add a granny flat above his garage, the community-minded owner who wants to fix that house up down the street and rent it out to a nice family, in favor of the institutional investor with Wall Street connections and falling-down flats. But that is just one irony buried in a whole system of deeper ironies. Perhaps it’s time to stand up and take notice.