Is renting good for the economy?

Renting refers to when people pay for using property they don’t actually own. The people that rent are called tenants and the people that own property are called landlords. There are pros and cons of renting - not just for the individual, but for the economy as a whole.

One of the biggest individual problems with renting is the inherent power differences between the landlord and the renters. Renters obviously live in the house, but at the end of the day, it’s the landlord’s property - giving them the power to increase rents, kick out tenants and fix the house up as they please. All this can create a pretty insecure living situation for the tenants.

In reality, landlords don’t have complete freedom to do as they like. But the question of how best to limit their power and protect renters has become a big economic debate.

Some economists argue that landlords are constrained by competition in the market. If there’s a lot of landlords and not enough renters, there are competitive forces on the landlord to attract renters, incentivising them to bring down the rent and improve conditions. For these economists, government regulation is a big problem, as it takes away these competitive pressures that incentivises landlords to look after their property.

Many renters however see things differently. In places where rental properties are in high demand but low supply, a free market with little regulation can put renters in an even more precarious situation. There are little competitive pressures on landlords to improve conditions or decrease rents, because there will always be another renter who needs a home. In these situations, regulation can be used to try and make renting more stable, secure and affordable. One example of such regulation are rent controls, which place limits on the amount that landlords can raise rents. Controls mean that  even as house prices skyrocket, rent can remains affordable for people.

Rental-centered economies can have benefits over homeownership-centred economies. A main benefit with a well regulated rental system is that it makes homes much harder to become financialised - a process that has happened in many property-loving countries, where houses are treated as profit-making investments rather than places to live. If there are enough incentives and rules for landlords to look after their property, but not enough leeway to exploit renters for profit, then renting can be a great source of stable and secure housing for most people in the economy.

Another benefit of a rented system is social housing - in many countries across the world, the government owns property which it rents out to people who can’t afford the market rate for housing.³ Social housing was set up to try and provide decent affordable homes for everyone who needs it, regardless of their job, earnings or class. The collective benefits of social housing keeps the price of all rents low - if renters can access cheap, affordable rents from the state then they can demand better rental housing in the private sector. However, many people criticise social housing for bringing about social isolation and deprivation, as they were badly planned, top-down, and as they were rented from the government, they didn’t give people the freedom to look after their own homes.

There are obvious benefits to both homeownership and renting, and pretty much all countries have a mix of both.