“Ancient wisdom” always seems to have a ring of truth in it.
“Never build your house on another man’s land!” is one of my favorites.
I was prompted to think about that by recent events in Sussex County.
Mobile home owners are protesting landlord Hometown America’s customary annual increase in land rent as tenants renew their leases, arguing for legislation that would make such tenants essentially permanently subsidized dependents, forcibly adopted by landlords who allow them to park mobile homes there.
But, first, an economic primer: Income in our free-enterprise society comes from basically three sources: One is selling one’s labor, or aggregating and reselling others’ labor. A second is aggregating and investing capital. A third is creating value via creativity such as intellectual property. A fourth, arbitrage, often blends those three.
None of it is rocket science, although it takes effort and discipline.
In the second category, capital, we’ve watched sons and daughters of Delaware immigrants amass huge real estate holdings in just one, two or at most three generations. Names come to mind like Pettinaro, Fusco and Vassallo, Simeone, Heisler, Harvey. They built it with impulse control, discipline, living within their means and a variety of other notable attributes.
Capital has different rates of market return, depending on its risk profile. Reducing risk often increases the opportunity cost, meaning it earns less return. However, some capitalists will take greater risk with the prospect of enjoying greater returns.
And that’s what’s at the heart of this month’s controversy. Perhaps I should say this decade’s controversy, because it never seems to completely go away.
Should someone who invests in land to achieve a certain return voluntarily limit his return because his tenants don’t want to pay more for using the asset, or because some feel they cannot pay more? And when the asset increases in value, as real estate often does, even for homeowners, should the tenant pay more rent to reflect that increase in value?
That’s at the heart of yet another rebellion by manufactured home owners.
Having set down their trailers on land they leased from someone else, they feel the landlord is obligated to rent to them next year, indeed the next five years, at last year’s prices, to subsidize their lives.
When I was starting college, I could go to the local McDonald’s and buy two hamburgers, French fries and a soda for 25 cents an item, or the entire meal for $1. Because McDonald’s franchisees once sold me a meal at that market price, does it mean that they’re obligated yet today to sell me the meal for the same $1 price, although their costs as well as the market — their opportunity cost — have increased?
Perhaps the Bernie Sanders crowd would affirm that, given their social agenda of leveling down to reach a degree of egalitarianism, making all capital structures a public utility, but few others would.
And do we really want the government in the business of price controls?
That brings me back to today’s theme, “Never build your house on another man’s land!”
Hometown America is a Chicago-based real estate investment firm that says on its website that it has 56 communities in 11 states, three of them here in Delaware: Barclay Farms (Camden), Angola Beach Estates (Lewes), and Rehoboth Bay (Rehoboth Beach).
Frankly, I’d tell the tenants to read the leases they sign. Budget for increasing costs, which are inevitable.
And, if you don’t like it, move your home somewhere else. But don’t expect your landlord to subsidize your needs and wants, just because he’s selling you a place to park your home.