Ancillary Fees Are Normal

Contrary to what activists and some journalists might want people to believe, there is nothing at all unusual about ancillary fees. I just placed an order on DoorDash for some Taco Bell. During that ordering process, I was asked if I wanted to pay $2.99 extra for “Priority Delivery,” and then I was asked if I wanted to “DoubleDash” and order maybe some dessert or some household goods too. These are, of course, up-charges. DoorDash is trying to extract more revenue from me. Is it evil for them to do so? Of course not! In fact, sometimes I click yes for Priority Delivery. If it’s a Friday night and I’m really hungry, I’m happy to pay the extra few bucks to know the food is coming straight to me as fast as possible. Other times, I can opt out and just wait. I have the choice. And that’s a beautiful thing, both for me, and for the business of DoorDash.

The point is, this is all entirely normal. I could give a litany of examples, from banks to hotels to airlines to SaaS companies. The list is endless. Why is it that journalists and politicians suddenly think there’s something morally wrong with a business practice that everyone else engages in, just because a rental home is involved? This is a business like any other. Landlords and property managers need to turn a profit, or there won’t be any rental homes for anyone to rent. This point seems to be lost on the activists and politicians.

Housing is NOT a Human Right

Okay, that title is a little provocative, but intentionally so. We have “rights creep” in this country and the rest of the western world. We have so diluted the definition of what we consider a basic human right that it is now indistinguishable from creature comforts. If you listen to some activists, you’ll come away thinking that every person on earth has a right to an A-class luxury home, a top-of-the-line iPhone, a luxury car, and high quality culinary delicacies.

There’s only one problem: all of these things require the products, services, and labor of others. That means that someone has to pay for them. Traditional basic human rights don’t cost anything financially. No one has to fund your right to free speech, or your freedom from unreasonable search and seizure. These things may have a cost in terms of consequences for society (if you have free speech, you have to deal with hate speech, for example), but they don’t require the labor or materials of anyone else. You can easily go down to the city corner with your bullhorn and speak your mind, and it isn’t going to cost anyone else a dime. But when you demand housing, housing isn’t a concept, it’s a product. It takes a lot of money, materials, and labor to produce, maintain, and manage that home. So I’m sorry, but no, you don’t have a right to it. You certainly have a right to build your OWN house on property that YOU own. But you don’t have a right to MY house or my client’s house. If you want those, you’ll have to pay for them, because we certainly paid to acquire them and maintain them.

Landlords Can’t Foot the Bill

Ultimately, ancillary fees are necessary because margins have just been compressed too much for landlords from straight rent, and it doesn’t make financial sense to be a landlord if you can make more money from a simple bond ETF without the risk and hassles of renting out property. In many parts of the country, it’s not even about making a profit at this point. If you go to places on the west coast, landlords are just struggling to break even, and many are content to just take a small loss in hopes that someday it will pay off with property appreciation. But they are literally paying out of pocket right now in terms of cash flow for you to rent that house from them. If you want to know why there’s a shortage of available rental housing, this is why. There is no financial incentive to a be a landlord in many places, and since this isn’t the USSR, the government sure isn’t going to provide you an apartment in some brutalist architecture dystopian high-rise. Even government assisted housing through the Housing Choice Voucher Program (Section 8) relies upon private landlords to provide the actual housing. All the government does is cut a check to the landlord. The entire system is dependent upon landlords. So if you make it too onerous to be a landlord, guess what? The housing crises gets worse.

The solution to ensure that landlords make a profit and have a continued incentive to rent out houses is ancillary tenant fees for additional services. You want a pet? Sure, but here’s the pet fee. You need renter’s insurance? No problem, the landlord can provide it in a benefits package, for a fee. Your credit sucks? No problem, some landlords are happy to rent for you for an additional fee or a larger deposit (or both). All of these things, and many others, allow landlords to scrape out a meager profit. And that meager profit is an absolute necessity, because without it, there would be no rental houses, and half of the populace couldn’t afford a house to live in.

Landlords Are Not the Enemy

Too many activists and politicians have convinced themselves that landlords are an unnecessary middle-man, just leeching money out of the system. In fact, in extremist left-wing Facebook groups and the like, landlords are literally called leeches on a regular basis.

But this is the simplistic view of a college freshman who just read his first Karl Marx and thinks he’s figured out the secrets of the world at the age of 18 while his parents are paying for his schooling and dorm. As we all know, reality is a bit more complicated, and we have a few centuries of history to guide us here.

The truth is that landlords form the necessary foundation of our housing system. The average lower-middle-class person simply can’t afford to buy a house themselves, and getting rid of landlords would not change that, because the fundamentals are still unchanged. A house is still a wildly expensive thing to build, and a bank is still not willing to loan money to someone who hasn’t proven themselves to be a worthy credit risk yet on such a large purchase. Without landlords being willing to rent a house to the average person who doesn’t have tens of thousands of dollars sitting around for a down payment, all of these people simply go unhoused. The banks aren’t suddenly going to become altruistic and give you a mortgage just because you have nowhere else to go because you got rid of all of the landlords. Instead, houses would just sit empty and you’d sit on the street until the market stabilized after a period of years of no new construction. This isn’t a guess, we’ve literally seen this in the recent past. During the 2008 financial collapse and the years immediately after, I used to do BPOs for banks who had repossessed houses. The houses sat there, in some cases for several years. The banks weren’t willing to loan anyone money to buy them, despite the fact that they were having to hold on to the inventory on their balance sheets. It still made more sense for them to have a deteriorating house on their books than to risk giving it to someone who had a credit score of 620, which would likely just result in them having to take it back again, possibly in even worse shape and after even more legal expenses.

No, landlords are not the enemy here. They aren’t the hero, either. I laugh when I hear some landlords and property managers puff out their chests and brag about how they’re so happy with their careers because they’re “providing housing to families.” Bro, sit down, you’re not a hero, you’re jut a businessman making a buck. But that’s okay! You don’t need the delusions of grandeur. It’s fine to just be an ordinary businessperson providing a product or service that people need in exchange for a profit. Not everything needs to be a “calling,” and you don’t need to fool yourself into believing that your’e changing the world. It’s just a business. And likewise, activists, politicians, and tenants need to understand that turning a profit is not evil. The profit is what makes the business worthwhile, which is the only reason that the housing is available to anyone. It is a symbiotic relationship, and it’s about time that the media and the politicians recognize that instead of trying to make a pet fee sound as bad as ethnic cleansing.

So Who is the Enemy?

The real enemy is, ironically, the activists, the media, and the politicians. Some more cynical souls might even theorize that all of the screaming about landlords is really just a smokescreen to hide the fact that their policies are what have created the housing affordability crisis in the first place.

Here’s a number that Business Insider should be putting in headlines instead: the average price of a new home in America is inflated by 30% purely as a result of regulatory compliance. Right now, the average price of a new home in America is $513,600. That means that $154,080 of that price is nothing more than environmental impact studies, land use restrictions, building new infrastructure to comply with regulations such as water retention ponds, delays for numerous inspections, absurd housing code requirements, etc. That’s double the total price I paid for my first house about 20 years ago. Just in regulatory compliance. So the next time you see some Gen Z influencer on TikTok whining about how their grandparents were able to buy a house in 1950 for only $15k ($90k corrected for inflation), remind them that the average size of that house was only 1/3rd the size it is today, and those houses complied with essentially ZERO regulations. A builder wanted to build tiny houses stacked on top of each other right next to a chemical plant? Sure! You can buy one for only $90k. But then you’ll probably complain about the lead pipes and asbestos insulation. Here’s the thing: you can’t have it both ways. It can either be less expensive, like it was in the 50s, or you can have all of these new fangled improvements and regulations. If you want the latter, it’s gonna cost you half a million dollars instead.

And that’s how we arrive at this situation. No, you’re not going to be able to buy a new house at 25 years old with only $5k down, probably ever again. Those days are over. Sitting around and whining on TikTok about how much easier your grandparents had it is not only unproductive, but also completely delusional, as you wouldn’t be caught dead living in the house that they lived in with 3 tiny bedrooms and one tiny bathroom that was shared by a family of six. Your first crappy apartment out of college was probably nicer than their house was, and had more square footage. This isn’t really up for debate, folks. These are just objective facts.

So if you want to live in a 2,000 square foot home with 3 bathrooms and all of the creature comforts that your grandparents would have considered luxuries meant for a king, such as a separate bathroom for the master, then the only way you’re going to be able to get it is to rent from a landlord who had the resources and creditworthiness to purchase it and maintain it. And that means that you need to be willing to let them charge some ancillary fees so that they can make a profit on it. Otherwise, the landlords are all going to disappear, and you’ll be sharing a crappy apartment with three roommates you can’t stand.

What is the Solution?

All of this being said, I fully acknowledge that we have a housing affordability problem in this country. It’s just not the fault of landlords, it’s the fault of politicians, regulators, and activists who have screamed “not in my backyard” for the past three-quarters of a century. We could have cheap houses that even the poor could afford to buy, but those houses would be tiny, they would have no creature comforts, and they would be on cheap land next to the electric substation. This is all easily doable, and we could have sub-$100k houses tomorrow if we dropped all of the zoning and code regulations and allowed this to happen again. I’m all for it. Not everyone can live in a gated community with a 3,000 square foot house and an HOA. People need entry-level homes, but the regulations have made it impossible to build them.

If you want to return to the days of cheap entry-level houses that average people can buy on their salary at the grocery store, you need to get rid of the zoning regulations. You need to allow builders to build residential houses right next to industrial zones. You need to get rid of minimum lot sizes and minimum setbacks. You need to get rid of restrictions that only allow single-family homes and prohibit duplexes, triplexes, and quads from being built. Many people in the midwest and northeast don’t realize this, but most parts of the country that have mostly been developed in more recent decades simply don’t have these types of homes. A duplex in suburban Atlanta is a rare find. All of the suburbs literally passed zoning restrictions to prohibit anything other than single-family homes from being built. Why? Because activists pushed politicians to pander to people by claiming that they were getting rid of “undesirable’ types of housing that attract “the wrong kinds of people.” Some might even say that sounds a little like thinly-veiled racism and classism, but somehow that’s been missed in this debate for decades now.

We would also need to get rid of a lot of the building code restrictions. Houses built for cheap back in the 50s didn’t have to comply with rules like having an electrical outlet every 6 linear feet, or a smoke detector in every room of the house. They frequently didn’t have exterior water spigots, and most of them didn’t have attached garages. A whole lot of them had no air conditioning, and many relied upon burning wood or coal for heat. I could go on and on with this. A whole lot of this is only different today because politicians have put in place code requirements that make all of these things mandatory on EVERY SINGLE HOUSE. Georgia literally made it a law last year that landlords are required to provide air conditioning for “health and safety reasons.” Gee, I wonder how people in the south survived before Willis Carrier came along in 1902? People must have been dropping like flies! Or, and maybe I’m going out on a limb here, maybe you’re just a little spoiled and don’t understand that people would be better off being able to afford to a place to live instead of pitching a tent under the overpass because you priced them out of a house with your regulations that mandate comfort instead of just safety.

I’m sorry, but you simply can’t have a cheap house that’s affordable for a lower-middle-class family to purchase if you are going to require that the house meets the same standards as a 5,000 square foot McMansion. We have to understand that everything has a trade-off. If we want these high standards, then that means that only people with high levels of income can afford to buy the homes. And before any activist jumps in with new demands for housing subsidies from the government, I’m here to remind you that the government doesn’t pay for anything, citizens do. So if the government started subsidizing houses to make them cheaper, that just means that taxes would go up, and the middle class family would have less money available after taxes, and they STILL couldn’t afford to buy the less expensive house that you’ve subsidized. There is no cheat code here, folks. The only path to housing affordability is to make it less expensive to build houses. Even the college freshman who just took Econ 101 could tell you that.