The Market for Lemons


When I decided to move to New York City — almost 2 years ago now! — my primary concern was finding a place to live. I thought of Craigslist’s advice: “Deal locally, face-to-face — follow this one rule and avoid 99% of scam attempts”. And, after pondering it a bit, I realized that I couldn’t help but be a victim to a scam. I was living thousands of miles away and had only a few weeks to find an apartment; I certainly wasn’t going to buy a round trip ticket to the U.S. from Switzerland solely to investigate rental opportunities “face-to-face”. Few landlords would have been interested in me anyway. I intended to move to New York for a summer bootcamp that promised, but did not guarantee, future employment. I had no tenancy record in New York, no job, no permanent source of income, no past bills, and no letters of reference. I had teamed up with two other Europe-based post-docs in the same situation, but worse: unlike me, they weren’t even American citizens, and thus didn’t have American credit scores. The market we were shunted into was the one where both sides, landlord and renter, were far from ideal. We came with no guarantees of payment; they came with no guarantees of respectable living. (AirBnbs were one potential solution to this dilemma, but the cost for 3 people and 3 months was typically prohibitive)

We settled on an apartment, called the “Blue Lagoon”, in the Bedford-Stuyvesant neighborhood in Brooklyn. We found it through an internet search; the website was amateurly constructed in an almost charming way. The landlord apparently made a living renting out apartments to foreigners (mostly exchange students) seeking short-term stays, and here we were, in the same boat. And although our applications were wholly deficient on paper, she must have realized that we, being three Ph.Ds from upper middle-class families, were reliable and conscientious people whose checks would clear.

As I suspected, we ended up getting scammed. Coming to that conclusion in advance made the coping process easier, but I was angry nonetheless. The apartment was billed as a three bedroom but one of the beds (the one I occupied) was in the living room, and a curtain served as a makeshift door. The bathtub became clogged easily, everything was far too cramped for three people (particularly the very narrow kitchen), but worst of all was the large hole in the wall that let mice in. I’m embarrassed to admit that we ended up coexisting with them, poop and chewed-through food bags and all. Getting the security deposit back was also a challenge; I later read online that she enjoyed the scam of keeping foreigners’ security deposits, assuming that they wouldn’t have the wherewithal to sue her. (If I hadn’t been an American citizen, and we hadn’t intended to find jobs in New York after our bootcamp, the same might have happened to us.)

I don’t intend for this anecdote to come across as a sob story. We were (and are) very lucky people with caring families and considerable savings, and, perhaps most importantly, we had the psychological consolation of knowing that the situation was temporary. The reason I tell this story is that, for all that I complain about the rental market at the “top”, with its ludicrous broker’s fees and highly compressed search timelines and mounds of paperwork and off-the-books listings that I never seem to have access to, the market at the bottom is much, much worse. And we weren’t even scraping its depths (after all, even in New York, $3000/month for 3 people does get you something).

I’ve been reading and re-reading Evicted by Matthew Desmond recently. In it, Desmond follows 8 Milwaukee families, white and black, who live in deep poverty and experience eviction and its consequences. When recounting my Blue Lagoon experience to my friends, I often glibly called my landlord a slumlord; after reading Desmond’s book, it’s clear I had no clue.

In short, Evicted is the best book I’ve read in a long time. It’s changed the way I think about politics and poverty and America, and, given that few things I read truly change my mind anymore (unfortunately), that’s a very high compliment. It’s a bit surprising, actually, because I, perhaps lazily, enjoy reading secondary analysis, usually with a polemic bent. I like authors who draw from a variety of sources and make their point with verve; the ones who tell me not just the facts but also what to think about them. (I try to write in a similar way, for better or worse.) Desmond eschews this approach for “ethnography”. He explains,

To me, ethnography is what you do when you try to understand people by allowing their lives to mold your own as fully and genuinely as possible. You do this by building rapport with the people you want to know better and following them over a long stretch of time, observing and experiencing what they do, working and playing alongside them, and recording as much action and interaction as you can until you being to move like they move, talk like they talk, think like they think, and feel something like they feel. In this line of work, living “in the field” helps quite a lot. It’s the only way to have an immersive experience; and practically speaking, you never know when important things are going to happen.

(Evicted reminds me of nothing so much as David Simon’s books about policing and the inner city in Baltimore, except without Simon’s sermonizing.)

Evicted is hard to read. But, as Desmond notes, it was even harder to write, and yet still harder to live through.

I am frequently asked how I “handled” this research, by which people mean: How did seeing this level of poverty and suffering affect you, personally? I don’t think people realize how raw and intimate a question this is. So I’ve developed several dishonest responses, which I drop like those smoke bombs magicians use when they want to glide offstage, unseen. The honest answer is that the work was heartbreaking and left me depressed for years. You do learn how to cope from those who are coping. After several people told me, “Stop looking at me like that,” I learned to suppress my shock at traumatic things. I learned to tell a real crisis from mere poverty. I learned that behavior that looks lazy or withdrawn to someone perched far above the poverty line can actually be a pacing technique. People like Crystal or Larraine cannot afford to give all their energy to today’s emergency only to have none left over for tomorrow’s. I saw in the trailer park and inner city resilience and spunk and brilliance. I heard a lot of laughter. But I also saw a lot of pain. Toward the end of my fieldwork, I wrote in my journal, “I feel dirty, collecting these stories and hardships like so many trophies.” The guilt I felt during my fieldwork only intensified after I left. I felt like a phony and like a traitor, ready to confess to some unnamed accusation. I couldn’t help but translate a bottle of wine placed in front of me at a university function or my monthly day-care bill into rent payments or bail money back in Milwaukee. It leaves an impression, this kind of work. Now imagine it’s your life.

Why is the poverty so pervasive, and the suffering so intense? One thought that I kept circling back to is how poorly markets seem to work in housing. In my case, it was mostly because of asymmetric information. Landlords had no way of assessing our creditworthiness or trustworthiness because our paper trail was almost nonexistent. And, conversely, we had little way of evaluating the quality of the goods (the apartment) that we were receiving, aside from a few carefully chosen photos. It brings to mind George Akerlof’s seminal work on the “Market for Lemons”, which reveals how a market can cease to function in the presence of asymmetric information between the sellers of cars and the buyers. If the buyers are unable to distinguish between “lemons” and “peaches” (as we were, trying to evaluate apartments a continent away), the lemons eventually drive the peaches out, and nobody, seller or buyer, is happy. Arguably, the situation is worse in housing, because, at least in New York, you don’t need to own a car. But you do need a place to live. In Akerlof’s market for lemons, no transactions are ultimately made. In the market for lemon apartments, we had no choice but to transact.

(Amusingly, this conclusion — that no transactions are made — was viewed as a reductio ad absurdum and therefore a reason to reject the paper by the Journal of Political Economy. It was the third journal that rejected the paper, which ended up winning Akerlof the Nobel Prize in 2001. The moral of the story is that, according to the church of the invisible hand, if research refutes the brilliance of the markets, the research must be wrong.)

The perverse outcomes illustrated by the market for lemons are in fact endemic to markets, Econ 101 sanctimony notwithstanding. And they recur in Desmond’s book. Here’s one passage (Sherrena is a black landlord on the North Side of Milwaukee; Doreen, Patrice, and Arleen are three of her tenants, again all black women):

Landlords at the bottom of the market generally did not lower rents to meet demand and avoid the costs of all those missed payments and evictions. There were costs to avoiding those costs too. For many landlords, it was cheaper to deal with the expense of eviction than to maintain their properties; it was possible to skimp on maintenance if tenants were perpetually behind; and many poor tenants would be perpetually behind because their rent was too high.

Tenants able to pay their rent in full each month could take advantage of legal protections designed to keep their housing safe and decent. Not only could they summon a building inspector without fear of eviction, but they also had the right to withhold rent until certain repairs were made. But when tenants fell behind, these protections dissolved. Tenants in arrears were barred from withholding or escrowing rent; and they tempted eviction if they filed a report with a building inspector. It was not that low-income renters didn’t know their rights. They just knew those rights would cost them.

“I think callin’ a building inspector is only gonna cause more problems,” Doreen told Patrice.

“It does,” Patrice answered. “She can put us out if we call a building inspector.” What Patrice meant was that Sherrena could evict them because Doreen had violated the terms of her lease — Patrice and her kids were “unauthorized boarders” — and that she likely would if DNS were phoned.

When tenants relinquished protections by falling behind in rent or otherwise breaking their rental agreements, landlords could respond by neglecting repairs. Or as Sherrena put it to tenants: “If I give you a break, you give me a break.” Tenants could trade their dignity and children’s health for a roof over their head. Between 2009 and 2011, nearly half of all renters in Milwaukee experienced a serious and lasting housing problem. More than 1 in 5 lived with a broken window; a busted appliance; or mice, cockroaches, or rats for more than three days. One-third experienced clogged plumbing that lasted more than a day. And 1 in 10 spent at least a day without heat. African American households were the most likely to have these problems — as were those where children slept. Yet the average rent was the same, whether an apartment had housing problems or did not.

Tenants who fell behind either had to accept unpleasant, degrading, and sometimes dangerous housing conditions or be evicted. But from a business point of view, this arrangement could be lucrative. The four-family property that included Doreen’s and Lamar’s apartments was Sherrena’s most profitable….In Sherrena’s portfolio, her worst properties yielded her biggest returns.

As Desmond says, writing about this “leaves an impression”. Reading about it does too. The foremost impression in my mind is that there’s something deeply sick about this market (and maybe all markets, as I find myself drifting leftwards politically). It’s ironic that these North Side tenants followed Craigslist’s advice, “Deal locally, face-to-face”, and yet they still got scammed. The reason, of course, is that Craiglist construes scams as being anomalies in the market; to me, the scam and the market cannot be separated.


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