Matthew Boesler of Business Insider points us to a new report from something called the ConvergEx Group on the supposed dangers of the renting and sharing economy:
“The potential impacts of renting/leasing as a long-term trend, though, are worrisome: Renting and sharing could lead to lower home sales (and, subsequently lower home values and net worths), as well as lower auto and retail sales,” write the strategists. “The ripple effects could also be catastrophic: Adjusting to a consumer who does not necessarily buy, but rather rents, would necessitate a shift in production, sales, and even employment structures. Everything interesting in economics happens at the margin, so if the nth consumer chooses to rent an apartment instead of buying a house or making do with a car-share program instead of purchasing a new vehicle, then demand for new houses and cars drops.”
The arguments made by the ConvergEx Group don’t make very much sense, unless I’m missing something important. So I asked an anonymous friend to chime in:
I guess the right reasoning depends on why people are renting more. Suppose it is because technology makes it easier to match assets to renters. Then I would expect the exact opposite of what they describe. Say we have time shares in Deer Valley that people are willing to pay $10k per week to rent but we can only find renters for 25 weeks of the year. Now along comes the Internet and we can rent it for 50 weeks. The value of the asset has doubled and I would expect the price to reflect that.
I think the error in their logic is that they perceive renting and owning as substitute activities from the standpoint of a consumer, which is true, but neglect the fact that something that is rented by one person is owned by another. The option to rent is conferred by ownership. So when frictions diminish in the rental market, asset prices will probably rise to reflect the greater flow of services they can provide.
Their argument is a bit like saying that if we forced people to hold stocks forever once they buy them, prices will be higher. It’s probably the opposite.
Of course they could have something different in mind, maybe the change isn’t technology but rather in some attitude about renting or durability or something. If that change in attitudes makes houses a less useful asset, it could lower their price.