I met a man last weekend who had built a house in Japan in the 1960s. He and his wife then returned to the US for a few years while he finished graduate school. He told me that he had left the house abandoned for two years and that they had been eager to get back to it.
“Why didn’t you try to rent it?” I asked. “The law was different there,” he said.
“If I had rented it, then it might not be easy to regain possession. Even if I had signed a lease with the tenants for a defined period, I might have had to sue them in order to get them out. And the judge might have looked at my salary and at that of the tenants, and he might have concluded that they needed the house more than I.”
Curious to see if this is still the case, I Googled Japanese landlord law. I found this site which seems to indicate things have changed. Any readers out there with more context?
In the meantime, the story nicely illustrates a few points:
- As first-year law students learn, property rights are best thought of as a “bundle.” One does not simply acquire all the rights to use a piece of property in any way one chooses. Instead, one acquires certain rights to use property under certain circumstances. In this framework, property rights configurations are best considered as a continuum: under some regimes, they are far more comprehensive than under others. In this case, the 1960s Japanese landlord doesn’t seem to enjoy the same level of rights as, say, a U.S. landlord today. On the other hand, I’m sure that he still retains some rights (presumably, squatters could not barge in and take over) and these were, no doubt, more comprehensive than those enjoyed by others elsewhere in the world.
- My Googling found that Japanese law had previously been considered quite “pro-tenant.” But that’s a relatively simplistic way to think about it. No doubt, the laws were intended to help the tenants, but there were probably many potential renters who had to either pay higher rents or sleep on their friend’s couches because of it. Moreover, a great deal of property must have gone unused—just like my friend’s house—leading to widespread underutilization of resources throughout the economy.
- Lastly, if I understand my friend correctly, it sounds like the judge had some level of discretion. This means that there was further waste as landlords and tenants duked it out in court to determine the use of the property. Notice that this (no pun intended) rent-seeking loss would not be present, if it were clear that property abandoned by the landlord always went to the tenant (no one would rent and no one would waste money on court battles). And those who have studied Tullock will also note that it would just be a transfer if bribing were legal and the judge were completely secure in his job. That is, the rent wouldn’t be dissipated because the litigants would just pay bribes equal to the expected value of winning the case and the value of the bribes would sum to the value of the economic rent.