Dave Ramsey, a personal finance expert for Christians, came under fire last week. On his radio show The Ramsey Show he spent some time arguing that Christian landlords are not at fault if tenants become unable to afford rent:
“Okay, I own rental property, single family homes, among many other properties that we own. And if I raised my rent to be market rate that does not make me a bad Christian. I did not displace the person out of that house if they can no longer afford it.”
Many accused Ramsey of engaging in mental gymnastics to avoid his moral responsibility to his tenants:
Incredible mental gymnastics from Dave Ramsey here pic.twitter.com/KbCmT8ZOl7— KELGORE (@KelgoreTrout) January 6, 2022
As a Christian interested in economics, Ramsey’s comments and the surrounding controversy piqued my interest. I’ve never been a Dave Ramsey follower. I won’t get into particular disagreements I have, but, put simply, I don’t believe his money management philosophy will lead to the best financial results for many. At the same time, I don’t deny his program has been helpful to some.
But, disagreements on personal finance aside, is Ramsey right or wrong here? Are critics correct or are they reaching? As with most answers, some nuance is required here.
First, let’s begin with what the critics have right. Even though changes in supply and demand lead to changes in market prices, individual business owners are free to charge different prices. An owner need not passively set prices where everyone else does.
Second, the Bible does tell Christians be charitable and help the poor. At this point it needs to be stated that the Bible, and the words of Jesus in particular, is often twisted when it comes to matters of money. But even with this in mind, it’s unambiguous that the Bible calls giving a righteous act. Consider 1 John 3:17 which says, “But if anyone has the world's goods and sees his brother in need, yet closes his heart against him, how does God's love abide in him?”
So are Christian landlords called to be charitable to their tenants? I think the answer is a pretty straightforward yes. In that sense, I believe some criticism of the above statement is warranted.
It’s imaginable that a Christian landlord could be generous and keep prices lower than the market price to help the destitute. In fact, in the context of the full video, Ramsey does explain situations where he’s made exceptions to help his tenants on a case-by-case basis. And there are likely many cases where this would be the loving thing to do.
Charity Means Material Loss
At the same time, Ramsey’s statement about market forces can’t be ignored. Consider a market for housing that experiences a sudden increase in demand. When demand increases for housing, people are willing to pay more for it. This drives the price of housing up and makes it more profitable to rent houses. But the story doesn’t end here.
Those higher profits draw more suppliers into the housing market. When there are more people providing housing, the cost of providing housing goes up.
To see why, consider the cost of a landlord repairing an HVAC system. When the amount of landlords is relatively small, they don’t have much competition hiring HVAC repairmen. In this case, the price is low.
When a larger quantity of rental suppliers (landlords) enter the housing market, however, there is more competition to hire contractors to come fix HVAC systems. With this increased competition, the price of HVAC repair is bid up. In other words, an increase in the demand for housing causes an increase in demand for contractors which increases the cost of being a landlord.
HVAC repair is only one example. All of the factors used in running a housing rental business increase in demand and price as more landlords enter. And so long as landlords can make a profit by entering the rental market, they will enter. This drives up costs until all the profits created by the increase in demand dry up. At the new, higher price, the economic profit tends to zero.
Notice what this means for a landlord who doesn’t raise prices. If rental companies charging higher prices are tending toward zero profit, maintaining a lower price means tending toward a loss. The housing is being rented for the same price, but now the cost is higher. This means losses.
If a landlord had lower costs than competitors, the business may still be able to operate profitably. But the higher the market price goes relative to the price the landlord charges, the closer the landlord is to making a loss, everything else held constant.
The result of the logic is clear. If the price of housing goes up and a landlord chooses not to increase the rent, there is some point where they will start making a loss.
At this point critics may say, “so what?” After all, charity means you lose wealth right? I agree with this too. If we expected people to be materially better off from charity, we’d all be giving to get rich quick.
But here’s the final problem. Losses aren’t sustainable forever. If a landlord freezes rent today, and prices and costs continue to increase, at some point the landlord will go out of business.
And a Christian can’t be generous with tenants if they don’t have a business to produce wealth in the first place.
Here’s where critics get into really weird territory. Christians involved in any kind of business can always be charitable to the point of going out of business. Christian grocery store? Give away all your food for free. Christian school? Hire the best teachers and don't charge any tuition. Christian landlord? Buy more houses and let people stay in them for free. If you aren’t out of money, you can always donate more.
This logical conclusion seems unambiguously bad. If Christian businesses are obligated to give until they go out of business, there won’t be Christian businesses. And if there aren’t Christian businesses, there won’t be any more charity from Christian businesses.
My claim isn’t that Christian business-people should never be generous. As I already stated, I believe they should. But ignoring market forces entirely only guarantees there won’t be Christian businesses.
This logic extends into our personal lives too. Once your LLC is out of business, you still have personal wealth to give away. And here we come to a final conclusion.
Unless your interpretation of the Bible is that you have to maintain zero worldly possessions, you recognize implicitly that some amount of charity in the present is imprudent, if for no other reason than it will prevent future charity or fulfillment of obligations (to family for example).
If your standard is never having earthly possessions, you have a consistent criticism of Ramsey, though I’m unsure how you’re reading this article without any possessions.
Charging below market price is effectively giving money to charity. You make a loss, and in exchange someone is better off. Christians can choose to do this. In many cases I believe we are called to. But perpetual losses mean you will run out of money. Market changes can be ignored, but their consequences cannot.
When Should We Give?
So if Christians are called to give, but they aren’t called to give everything in the immediate present, when are we called to give our wealth away and to whom? Should a landlord forgive the rent of a fourth tenant even if it means going out of business in a year and forsaking the other three getting a break? How much savings should landlords with family have on hand?
There isn’t a flowchart to answer all these questions. The details of specific circumstances are where the answers lie. However, I think Christians are given a straightforward rule of thumb. Our security should be found in Christ, not in the things of this world. If the decision to not be charitable at a particular time is based on our desire for things of the world, our heart is in the wrong place.
If charity is forgone because Christians believe their resources can be better stewarded for the love of God and others elsewhere, we have a different story.
It’s possible that Ramsey’s own philosophy is to give to charity mainly outside of his business. Should someone diminish their giving to one cause in order to be able to accept losses in their business? The less income you have, the less you can give, after all. Again, I think the answer here depends on the situation.
I’m not sure if Ramsey does this or not. I don’t know his finances. But this manner of giving isn’t uncommon for capitalists in the US, as it lines up well with the fact that the US has been the most charitable country in the world for a decade now.
My guess is that, on balance, most Christians in and outside of business could be more generous. No one is without sin. But pretending like market forces are irrelevant to our decisions as stewards doesn’t help others or our mission any more than ignoring the laws of physics helps our ability to aid someone who’s falling out of a building.