In Michigan, people are freely able to rent out property that they own. This is a good thing — it makes more productive or better use of these properties, encourages investment in the local community and gives renters more options. There is no mandatory state license for those individuals who wish to rent and manage their own property.
But the person who wants to manage property owned by someone else must, by state law, first acquire a real estate license. This requires years of experience, dozens of hours of training, passing an exam and being sponsored by an already licensed and nearby real estate broker or company. Michigan, by the way, is one of only a few states that has this last requirement.
House Bill 4549, sponsored by Rep. Michele Hoitenga, R-Manton, would eliminate the requirement to get a license before renting managing property.
"The real estate license requirement can be unnecessary and burdensome for individuals who are only performing property management activities," Hoitenga, who has a real estate license, said in Gongwer News. "The knowledge and experience that are required for a real estate license aren't always applicable to an individual who is showing and maintaining a residential property."
Clio Barker, the president of a management company, also testified in support of the bill.
"Real estate salespersons are independent contractors whose activities are overseen by their broker," Barker said. "Property management professionals are employees of the management company. They are trained, supervised and evaluated on a daily basis. This relationship is much more hands-on than that of a real estate sales agent and their broker."
The bill is opposed by the Realtors association. This is not surprising: Holders of existing state licenses rarely support efforts to make it less expensive and time-consuming to legally work in their field. The reason is explained by the economic theory of regulatory capture. As I wrote in my study of occupational licensing laws in Michigan:
The theory goes like this: There are benefits to be gained by current workers in an industry if barriers are erected that keep others out, and occupational licensure serves as one of those barriers. Fewer workers in the industry means less competition among themselves, higher demand and more customers for each licensee and thus higher prices, and, ultimately, larger profits for those in the industry. The regulations that exist for this purpose and produce this type of effect are considered “captured,” because, instead of serving the interest of the public, as government regulations are meant to do, they are serving the narrow interests of a particular group, at the direct expense of the public. [Economist George] Stigler believed this to be a common goal for businesses, stating “We propose the general hypothesis: every industry or occupation that has enough political power to utilize the state will seek to control entry.”
A telltale sign of regulatory capture is when participants in a certain industry or business ask to be regulated by the government, and when the currently licensed practitioners are the most ardent opponents to reducing or eliminating licensing requirements. Another one is when the boards that are used to oversee these occupational regulations are controlled by people who are active in the regulated industry, as is common.
An important thing to remember is that if these licenses are actually needed to protect consumers, there should be evidence of that fact when we compare outcomes across states. But there is no evidence that property management operates with more problems or is more dangerous in the states that do not license rental agents in the same way. Thus, House Bill 4549 would get rid of an unnecessary regulation and should be considered by lawmakers.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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