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The principles of economics laid out in Adam Smith’s The Wealth of Nations continue to shape how we think about housing markets today. His discussions on rent, land value, and housing costs provide timeless insights that real estate investors can use to navigate today’s dynamic market.
With the median national rent $2,270 as of February 2025—down slightly from $2,300 in October 2024—real estate investors are considering demand, affordability, and land value when making decisions.
Understanding historical economic principles while leveraging modern investment resources can help today’s real estate investors succeed. Let’s explore how Smith’s economic theories apply to the modern real estate landscape.
The Lasting Impact of Wealth of Nations
Adam Smith’s Wealth of Nations (full title: An Inquiry into the Nature and Causes of the Wealth of Nations) is an economic thesis published in 1776. In it, Smith explores topics including the division of labor, the role of self-interest in motivating economic activity, and more.
Many of Smith’s ideas about real estate continue to ring true:
1. Rent as a monopoly price: Understanding market-driven pricing
“Rent, considered as the price paid for the use of land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.” (Wealth of Nations: Book I, Chapter XI)
Smith describes rent as a monopoly price, meaning landlords charge rent based on demand rather than their expenses or property improvements. In 2025, we see this playing out with rental pricing trends—landlords set rents based on market competition and affordability levels, not the cost of maintaining or improving properties.
For real estate investors, this means:
Market demand sets the price, not operating costs.
Areas with high housing demand (urban hubs, job centers) will command higher rents.
Strategic investors should analyze demand drivers (employment rates, migration patterns, new infrastructure) to set optimal rental prices.
2. The real price of housing: Economic burdens on renters
“The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” (Wealth of Nations: Book I, Chapter V)
Housing affordability isn’t just about price—it’s about the economic burden on renters and buyers. While national median rent has declined slightly from October 2024 to February 2025, affordability remains a challenge due to stagnant wage growth and high inflation in essential goods.
Recent data from the U.S. Bureau of Labor Statistics shows that the average hourly wage has increased to $36.06, up from $34.75 one year ago. However, with inflation still affecting the cost of living, renters are feeling pressure despite wage growth.
Key insights for investors:
Cost-burdened tenants (paying 30%+ of income on rent) may limit rent increases.
Affordable housing demand is rising—investors may consider exploring B-class or workforce housing.
Location still matters—properties in areas with stable job growth and rising wages will have stronger rental demand.
3. Landlords and passive income: Rent-seeking in real estate
“A landlord, though he performs no work, is an indispensable participant in the economic process because he claims rent from those who do.” (Wealth of Nations: Book I, Chapter XI)
Smith highlights the passive nature of land ownership, which remains a cornerstone of real estate investing. However, modern investors are moving beyond rent collection—today’s competitive rental market demands property enhancements and tenant-focused management.
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To maximize long-term returns, investors are:
Increasing property value through renovations and amenities.
Offering flexible leasing options to attract quality tenants.
Implementing smart technology (energy-efficient upgrades, security systems) to increase desirability.
4. Urban vs. rural rent: the impact of market pressures
“The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price.” (Wealth of Nations: Book I, Chapter XI, Part II)
Smith distinguished between agricultural and urban land rent, highlighting how demand pressure drives urban rent increases. Today, we see this principle play out with rising urban rent prices—especially in cities with job growth and limited housing supply.
However, suburban and secondary markets are becoming stronger investment opportunities due to:
Post-pandemic remote work trends, leading to increased demand in suburban rental markets.
Lower entry prices in secondary markets, offering higher ROI potential.
Increased infrastructure investments (transportation, fiber internet) supporting long-term growth in these areas.
Additionally, new housing supply is crucial for market stabilization. According to the U.S. Census Bureau, privately owned housing starts in April were at a seasonally adjusted annual rate of 1,412,000. This is 4.7% below the revised March rate of 1,481,000 and is 3.2% below the April 2024 rate of 1,459,000.
For real estate investors, this means expanding beyond core urban areas could yield greater long-term gains.
A Modern Answer to Timeless Wisdom
Just as Smith recognized the importance of market efficiency and strategic property ownership, today’s real estate investors need modern tools to apply these timeless principles. The Real Estate Checkbook IRA LLC from Equity Trust Company embodies Smith’s concept of self-interest driving economic progress, allowing investors to directly control their real estate investments within a tax-advantaged framework.
Smith’s analysis of “rent as a monopoly price” takes on new meaning when investors can leverage tax advantages to maximize returns while adapting to market-driven pricing. By using a self-directed IRA for real estate investing, investors can respond more nimbly to the urban/rural rent disparities Smith identified, pursuing opportunities in emerging markets where demand is shifting due to remote work trends.
The passive income Smith attributed to landlords becomes more active when investors apply modern portfolio management techniques. Through educational support from Equity Trust and BiggerPockets, investors can transform from passive rent collectors to active portfolio managers who enhance property value, implement technology solutions, and respond to changing market demands—all while maintaining the tax advantages Smith would have recognized as crucial to wealth building.
Ready to apply Smith’s enduring economic principles with modern investment strategies? Learn how the Real Estate Checkbook IRA can help you build wealth in a tax-advantaged way today.
Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.
BiggerPockets/PassivePockets is not affiliated in any way with Equity Trust Company or any of Equity’s family of companies. Opinions or ideas expressed by BiggerPockets/PassivePockets are not necessarily those of Equity Trust Company, nor do they reflect their views or endorsement. The information provided by Equity Trust Company is for educational purposes only. Equity Trust Company, and their affiliates, representatives, and officers, do not provide legal or tax advice. Investing involves risk, including possible loss of principal. Please consult your tax and legal advisors before making investment decisions. Equity Trust and Bigger Pockets/Passive Pockets may receive referral fees for any services performed as a result of being referred opportunities.
James Schlimmer
SVP, Real Estate Growth Officer
Equity Trust Company
James P. Schlimmer is recognized as an innovator and trailblazer in the real estate and title industry, with over 12 y…Read More
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