When Government Is Good

800px-CondemnedFree markets and government agencies are often portrayed in the press or in political rhetoric as being in a state of constant opposition. However, it is important not to overlook the many instances of when a market’s efficient functioning is owed in some degree to a proper level of government intervention. The landlord/tenant legal work I am currently doing as part of Penn Law’s pro bono requirement serves as a constant reminder of this fact.

For example, take the question of the physical condition and habitability of a rental property, something that is an issue for many renters in Philadelphia especially for those in low-income housing. Almost all U.S. jurisdictions, including Philadelphia, enforce an implied warranty of habitability (“IWH”), the implication of which is that regardless of the language of a written lease (such as an “as-is” provision), a landlord’s obligation to keep the premises compliant with local housing code cannot be waived or modified by private contract. An example would be the obligation of landlords in Philadelphia to heat apartments to a minimum of 68 degrees during the winter months.

To understand what life would be like without an IWH, imagine that upon moving to Philadelphia, you had to, in addition to considering the location, appearance and price of any given apartment, also inspect the boiler to determine whether it would be able to heat the property sufficiently in the winter, check the roof for signs of leaks or water damage and examine the foundation of a house for signs of damage. You’d also have to thoroughly examine each and every lease to determine which of these potentially catastrophic risks your landlord would be asking you to bear.

Undoubtedly, many students wind up either intentionally or unintentionally signing leases that ask them to bear some of these risks. After all, these kinds of inspection and transaction costs are significant for a lease that may run for as little as nine or 12 months. And imagine the collective action problems when it’s up to you and your building-mates to take the initiative and share the costs associated with fixing a leaky roof.

Thus, clearly the IWH greases the wheels of commerce in Philadelphia’s market for rental housing. Of course, one still knows to research the reputation of a landlord prior to signing a lease, but the risks would be much greater without the safety net of the IWH.

The danger of overregulation or ineffective regulation remains. For example, it currently takes the Philadelphia Department of Licensing and Inspections an average of 30+ days to pay a visit to a property to assess a possible IWH violation. Additionally, many renters are unaware of their legal rights under the IWH, and the ability of certain unscrupulous landlords to take advantage of elderly, foreign, poorly educated or otherwise vulnerable renters leads to many negative outcomes. An IWH cannot function as simply a piece of paper—the proper enforcement mechanisms must be sufficiently funded and monitored to make it work.

Certainly, there is much more to discuss here, and it would be misleading to portray tenants as always blameless and victimized. But the point stands that when you look at a market such as that of rental property in Philadelphia, the question isn’t really do we need more or less government; rather, it is what type of government intervention can best facilitate commerce, protect the vulnerable from predatory practices and lead to a more transparent, efficient market. The answer to this will vary depending on what kind of market we are looking at, but the point is to bring to this type of analysis an open mind rather than an ingrained bias that more government is necessarily good or bad.

Editor’s note: This post first appeared on the Wharton MBA Program’s Student Diarist blog on Jan. 29, 2013.

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