Free Rent

by Byron King

I was riding the street railway into downtown Pittsburgh this morning. I noticed a billboard in the trolley car, advertising units in an apartment complex. I happen to know that this apartment complex is real estate of significant quality. This particular rental property has architectural merit, and was recently rebuilt from the inside out, up to a very good specification. It is, in short, a very nice place to live.

It is even nicer now, because the ad said: “$99 Deposit – Two Months FREE Rent.”

A deposit of $99? As a matter of law, a rental security deposit is intended to serve as security to the landlord against damages to the premises caused by the tenant during the term of the leasehold. $99 will not fix much in the way of damages to any premises. So, here is a desperate landlord. Forget about the tradition of the security deposit being equal to the first month’s rent, let alone the good old days when a landlord would ask for the first month’s rent and last month’s rent as security. Now the landlord is asking for a mere $99 of security, about the price of a mid-quality DVD player, or maybe four tanks full of gasoline (for a compact car), or one trip to the grocery store for a family of four for a week’s worth of provisions. $99 is no security at all.

And two months “FREE Rent.” Free to whom? In my experience, unpaid rent always comes out of the landlord’s hide. Based upon the advertisement, I am sure that the landlord is just interested in getting a tenant into the otherwise vacant property. This ad is in all likelihood a come-on for a two-year lease, but with a two-month term of rent forgiveness. Reading between the lines, however, it is a reflection of how few potential renters there are with any liquidity up front. People lack funds for a month or two of security deposit, and on top of that they are receiving an allowance for “free” rent for two months. At root, the landlord’s idea is to get the tenant into the lease, and then hope and pray that the tenant does not stiff him on the rent. That is the rest of the story, still to be told, of dealing with unqualified tenants.

Thus we have a housing bubble. It is a cascading tragedy of people using funds that are not theirs, to “purchase” real estate that they cannot afford, obligating themselves to make payments that will stretch their incomes and constrain their lives. At the same time, we have landlords making unprecedented allowances to find solvent tenants. This simply cannot reflect a healthy economy.

When Alexis de Tocqueville came to America in the 1830s, his intent was to study conditions in the prisons. Instead, he found and wrote about a flourishing political democracy. If someone came to America, today, to study how its democracy was working, what would he find? He would discover the new democracy of credit, which has the effect of trapping countless people in a prison of illiquidity and unpayable debt.

Byron King is a graduate of Harvard University and currently serves as an attorney in Pittsburgh, Pennsylvania.