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April 23, 2012 | by  | in Opinion |
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C.R.E.A.M. – How Economics Explains Ethnic Discrimination

Last week the Herald reported an Indo-Fijian landlord who advertised his $400 per week property exclusively to ‘European’ tenants. 56% of Herald readers answered ‘Yes’ to an online poll next to the article asking Should landlords be able to specify the ethnicity of desired tenants? I know several people who were outraged by this and viewed this as clear evidence of New Zealand being a fundamentally racist country. On the surface it’s not hard to see why. But I don’t believe discrimination of this type is driven by racism.

Firstly, consider that ethnic discrimination is not the only type of discrimination that goes on in New Zealand’s rental market. I’m informed that landlords in Dunedin have a strong preference for female over male tenants, yet no one could accuse the rich and powerful in this country of hating men. What explains this behaviour?

Consider this issue from the perspective of a landlord who is neither racist nor sexist, but wants to make a profit. Unlike many goods and services, the ability to make a profit from renting out a flat depends heavily on the behaviour of your tenants. Landlords have to rely on their tenants to be able to pay rent for the entirety of the contract (usually at least a year), comply with noise control and other laws, and not damage any property in the flat. Getting good tenants may be the difference between making good money or losing your life savings (e.g. meth lab gone wrong), and whilst there are remedies for breach of tenancy agreements these are costly and time consuming.

This might not be a problem except for the fact that landlords know very little about the tenant or their personality when they sign the contract. They must rely on self selected referees, and the extent to which they can pry into your private life to determine your likely future behaviour is very limited, so they never know what you might be hiding.

There are however two things you cannot hide from a landlord: Your gender and ethnicity. From this landlords can make guesses about your character, and unfortunately they do. Most people know that ethnic minorities are statistically more likely to commit crime and be unemployed. The profit-seeking landlord is therefore less likely to want to accommodate them. Similarly there is a perception that a flat with a female presence is less likely to cause damage in an out-of-control party. Gender and ethnicities are not the best predictors

of risks, but when this is the only solid information you have it is weighted heavily. I suspect most of us intuitively understand this in respect of a preference for female tenants, but the fact that discrimination against an already disadvantaged ethnic group can be rational has troubling implications.

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