How Trading Networks Explain the Corruption Among Landlords
Landlords exploit those who live in poverty for their own benefit. In a sample of neighborhoods, it is found that poor communities, especially ethnic ones, have the highest rate of housing exploitation. Despite the poor conditions of these homes, the price paid exceeds what it is valued at. In neighborhoods where 50-60 percent of the population lives in poverty, only 25 percent of the property value is paid back in a year. Additionally, landlords who rent out homes in poor communities receive a higher monthly profit than those who rent out homes in middle or high-income neighborhoods.
There is strong evidence that indicates that the working-class is exploited so that the rich can get richer. When those who live in poverty have limited options, they have no choice but to be exploited by these well-off landlords. As the poor lose money from exploitation, the rich gain more money from the poor. This explains the greatly unequal wealth distribution in the United States, where the wealthiest one percent of the population contains 40 percent of all wealth. Disparities in wealth have only grown, as the rich continue to use the needs of the poor as leverage to gain more money.
We can display the monopoly on the needs of the poor with a trading network graph. In a graph that represents a low-income neighborhood, there is a seller (node S) who wants to sell a house, the landlord (node L) who buys this house, and the renter (node R) who needs to rent this house to house their family. Given that node S sells the house to node L, node L has power over those who want to rent out this house. Node L wants to rent out this house for profit. One of their potential buyers is node R, a poor single mother who has two children and is in desperate need of a home. Node L is her only option. Knowing this, node L is going to want to rent out this home for as much as possible, as close to node R’s value V as possible, regardless of node R’s personal situation. Additionally, node L can use power over node R and threaten to rent this home to another renter. Node R has no choice but to pay node L’s high price, and node L could simply claim to be able rent out this home to another renter who is also willing to pay this high price. Thus, this is a Nash Equilibrium, since all three mentioned nodes get the highest output and are best responses to each other. However, in the end, node L was able to exploit node R’s unfortunate situation for their own financial gain.
Sources:
Uneven Wealth Distribution Source