Today, I continue on the previously explored theme on how economics can create reactions others might find as odd. In my earlier take on this, I described how I am very often glad rather than resentful that a particular good or service requires payment – even (especially?) when its something I really need. For this occasion, I want to discuss an article I recently read where someone is describing “revenge” they took on a former landlord, and why I think their anger was entirely misplaced.
The story, if you wish to read it, can be found here. The person in question is describing how years earlier, in the 90s, he and his wife had been renting a property from a real estate agent. They were coming to the end of their lease, and had a house lined up to buy, but the timing wasn’t quite right. So he asked the landlord if they could do a month-to-month arrangement for a couple more months while the home sale and moving preparations to be completed. From the article,
A year later, we found a house to buy. We weren’t quite ready to move in, though, so I called the landlord and said we needed two extra months in the apartment. He agreed and told me he’d send over an addendum to the lease for those two months. Know what that addendum contained? A 50 percent increase in rent! I lost my mind. I called him up and asked him how he could double our rent. It wasn’t fair!
Already there is some innumeracy showing through in this article – was it a 50 percent increase in rent, or a doubling of rent, aka, a 100 percent increase? Based on what the rest of the article says I’m inclined to think it was the former rather than the latter. He later identifies it as an increase of $500 per month, and I think an increase in rent from $1,000 to $1,500 is a more likely scenario than from $500 to $1,000. But let’s breeze past that and talk about why I think this situation that infuriated this person is actually pretty mundane.
I’ve rented numerous apartments over the course of my life, and the situation this gentleman found so outrageous is just a normal part of how rentals work. When my wife and I first moved to Minnesota, we found an apartment we liked and applied to rent. The lease came with a variety of options for length, with a price that adjusted accordingly. You could lease the apartment for as little as nine months, but then your rent would be very high, or you could sign a lease for as long as eighteen months and the monthly rent payment was much lower. If you renewed for a new long-term lease once your initial lease had run its course, there would be a relatively small increase in the rent. Alternatively, you could just switch to a month-to-month arrangement, but the increase in the rental rate would be very large. Again, this has been the case with every rental I’ve ever used.
There is always a higher price to pay for shorter term arrangements rather than longer term arrangements. Just imagine you owned an apartment building. Wouldn’t you prefer a situation where you have lots of long-term occupants with a relatively infrequent turnover rates, compared to situations where the occupants are constantly coming and going with short-term arrangements and turnover rates are very high? The latter situation comes with much more uncertainty and much higher transaction costs – and that is reflected in the higher price. If I was a landlord, a six month lease is much less attractive than, say, a two year lease. If someone signs the latter, I know that this property will be occupied and generating income for me for the next two years. If it’s the former, I know I’ll have to go through the time and trouble of finding another tenant six months down the road, and the property may sit empty for some time until I find another tenant – generating expenses for me but no income. So naturally, I’d charge more for short term leases and month to month extensions than for long term contracts.
The disgruntled renter actually makes this point himself in the article without realizing it. He describes how, in his anger, he looked up options for just leaving at the initial end of his lease and working out short-term living and storage conditions until he was ready to move into his new house – only to find that doing so would be far too expensive to work. The higher, short-term rate for his present apartment wasn’t some arbitrary increase – it just happened to reflect the normal market rate for short-term rental arrangements, while saving him the extra time and hassle of doing two moves in two months.
He also expresses anger that his landlord withheld $300 from his security deposit for cleaning after he left, despite assuring the readers that he left the place in pristine condition. Whether or not this is true depends on if his perception of how thoroughly clean the place was really matched reality – I certainly know many cases where people insist (and believe!) they have done an amazing job at something when the actual result was pretty substandard.
The final source of his outrage came when he saw the apartment listed after he moved out and he saw that the new, long-term tenants wouldn’t have to pay the same rate he did for his short-term arrangement:
We found the classified ad, and he didn’t list the new rent at $500 more. He listed it for just $100 more than we were originally paying. For a while, no one leased it. And when they finally did, it was for only $75 more a month than we were paying.
But, again, that listing was reflecting the rate for a new, long term contract rather than month to month arrangement. While my wife and I were living in that first apartment in Minnesota, we too did a month-to-month rate at the end of our lease while we finished up the home buying process. Those extra couple of months were also significantly more expensive. Yet I never bothered to look back to try to see what the apartment was listed for after we left. Had I ever done so, I never would have expected that the next person to move in on a long-term contract would have to pay the rate we paid for a short-term extension.
But my reaction was apparently not the same as this gentleman. He instead made himself miserable with a sense of anger and grievance that seems entirely unfounded to me. And while I went on with my life as normal, he stewed with anger over it until later, he found a chance to sabotage a real estate deal his former landlord was about to close, in order to cost him $25,000.
I’ll leave it to you, dear EconLog reader, to decide whether my reaction or his was the more psychologically healthy and reasonable one.
