The Independent Institute

 
        

The Prime Importance of Private Property Rights



Imagine for a moment you decide to rent out a room in your home to another person. There are two parties in the contract—the landlord (you) and the tenant. You both agree to the lease and sign the contract.

Things are going fine, but then, your tenant stops paying their rent.

The solution to this situation is relatively straightforward. You serve the tenant notice that they will be evicted if they do not pay. As the landlord, you will incur the costs of evicting them, but are likely compensated for the forgone rent by your tenant’s security deposit. You have the option to sue your former tenant if you incurred greater losses.

In many places, however, this process isn’t so easy. Imagine that, instead of evicting your delinquent tenant, you must instead keep providing them living space because it is against the law to “make someone homeless.” Eviction requires producing countless documentation, multiple court appearances, and spending ample amounts of additional time and money to remove the problem tenant. In some cases, the process takes years.

Although the illustration above may seem exaggerated, it is the reality in many places. Venezuela, for example, maintains a law similar to the one described above. A landlord cannot evict a tenant if the tenant does not have other arranged housing. The issue has become a serious problem. In 2014, multiple outlets reported some 3,000 squatters were living in a 45-story building in the capital city of Caracas.

This issue of eviction is illustrative of the broader importance of private property rights. Issues of tenants’ rights are often the subject of news. Everyone has heard stories of the “terrible landlord,” the tenet who was wrongfully evicted, the security deposit that was never returned. Perhaps this is why there are frequent proposals in the U.S. and elsewhere to make it more difficult for landlords to evict tenants, limit the prices they charge, and so on. Certainly, tenants’ rights are important. Renters do, after all, pay for their right to live in another person’s property.

It’s this point that many often forget, and it’s important. Private property means that an individual has exclusive rights to use a particular asset. He doesn’t have to worry about someone else using his assets without his permission. As a result, the owner internalizes whatever action he takes with regard to his property. If he takes good care of his house and makes improvements, for example, he benefits when it comes time to sell. If, by contrast, he allows the home to fall into disrepair, he will face the negative consequences of his actions in the form of a lower selling price.

This dynamic benefits not only the individual, but society as a whole. Private property rights provide incentives for individuals to take care of their property and to consider both the present and future value of their assets. In the context of housing, these rights induce owners to care for their property and increase its future value.

Violating private property rights can sometimes sound like a noble idea. After all, most people do not like the idea of people living on the street, or spending most of their monthly income on housing. But the broader implications of denying or limiting private property rights are disastrous. Without private property rights, the above incentives to care for and enhance the value of property are weak or all together absent. If a landlord knows he cannot reap the full benefits from his property, what incentives does he have to make repairs to his property? If individuals know landlords cannot evict problem tenants, they are much less likely to rent their property. This is exactly what has occurred in Venezuela, where a housing shortage has resulted in not only the confiscation of homes, but also the use of metal from old automobiles in a desperate attempt to erect more housing.

Though not as extreme as the Venezuelan case, attempts to undermine private property in the U.S. occur regularly. Rent controls are a prime example. As recently as this spring, groups in San Francisco urged the city to further restrict apartment prices. The use of eminent domain laws that allow the government to take individual assets is another illustration. It is important to remember that even though such policies may sound appealing, they have serious consequences. For those of us concerned about the wealth and well-being of all individuals, protecting and strengthening private property rights is of the utmost importance.

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