The rentier economy: Co-work, Co-live, Co-lian...

Apple can take a cut whenever someone buys something through an app, even though Apple did not create the app, write its content or find its customers. That almost sounds outrageous.

To be fair, Apple spent years building the iPhone, iOS, developer tools, payment systems and a marketplace that consumers trust. It created a valuable platform and deserves to profit from it. But once that platform became almost unavoidable, the nature of the income changed. Apple could collect a toll whenever other people transacted within its ecosystem. The most valuable thing Apple owns may no longer be the phone. It is the gate.

That is the rentier economy in simple terms: ownership of a scarce asset, dominant platform or unavoidable gateway becomes increasingly valuable because others must pay to pass through it. Economic rent, in economics, is income earned from controlling a scarce asset or privileged position, beyond what is necessary to keep that asset in productive use.

When software stopped trying to impress you

Before April 23 2012, a designer bought a version of Adobe Photoshop and kept working with it. Photoshop CS6 launched at around US$699. Up till then, if Adobe wanted another sale, it had to release a much better version and persuade the customer to upgrade. The arrangement forces Adobe to constantly innovate and improve. The CS6, however, was the final perpetual license version of the software. The Creative Cloud was subsequently launched.

Today, Photoshop is sold mainly as a subscription. Adobe’s Photoshop plan costs about S$30.81 a month. Over three years, that amounts to: S$30.81 \times 36 = S$1,109.16.

Under the old model, the designer paid once and could continue using the software for years. Under the subscription model, the designer would have paid more then S$1,100 by the 3rd year. The subscription includes updates, cloud services and other features. Microsoft follows a similar model with Microsoft 365, although it still offers one-time-purchase versions of Office.

But the commercial transformation is clear. The company no longer needs to wait for the customer to decide that the next version is sufficiently better. It receives recurring income as long as the software remains essential. That dependency is Adobe’s moat. It is worth noting, however, that technological moats can be eroded. Artificial intelligence is improving at an astronomical pace. Tasks that once required technical skill and expensive software can increasingly be completed with a sentence and a few follow-up instructions.

From digital tollbooths to physical scarcity

A rentier economy emerges when controlling an asset becomes more rewarding than producing something with it. This includes intellectual property, physical property, and financial property. Capital starts flowing towards established property rather than new businesses, collateralised lending rather than entrepreneurial risk, and ownership rights rather than productivity.

Joseph Stiglitz described rent-seeking as gaining income not by creating wealth, but by capturing a larger share of wealth that would have been produced anyway. Adam Smith bluntly put: "Landlords love to reap where they never sowed”. When an existing building becomes more expensive, the owner appears wealthier, the bank’s collateral becomes stronger and a larger mortgage can be issued. But Singapore has not gained another building. This can create the illusion of growth. More money changes hands and more debt is issued, but the underlying productive capacity may remain unchanged.

Banks naturally participate in this cycle. Financial institutions prefer lending against assets that are already rising in value rather than funding uncertain businesses. More lending then supports higher asset prices, which strengthens collateral and encourages even more lending.

The circle is elegant.

Co-living: lifestyle choice or housing symptom?

Singapore’s co-living sector has grown quickly and attracted institutional investors. JLL estimated that the sector had developed into a S$1.4 billion investment market by 2025, attracting family offices, private equity and institutional investors. It reported occupancy rates of roughly 85% to 95%, with gross operating profit margins of 55% to 70%¹.

It is easy to understand why. Co-living offers furnished rooms, shorter commitments, bundled utilities and ready-made social environments. It suits foreign professionals, students and people who value flexibility. A stylish lounge. Tasteful lighting. A few plants. Someone working on a laptop beside a decorative coffee cup. The brochure rarely shows six residents waiting for the washing machine.

Co-living is not automatically evidence that young Singaporeans have been priced out of home ownership. Many residents are foreigners, students or temporary workers. But it still raises a serious question. When independent adults with full-time jobs increasingly rent bedrooms rather than homes, is that simply a modern lifestyle choice? Or does it suggest that conventional housing is becoming harder to attain relative to incomes, household formation and the time needed to save a deposit?

Co-living may be both a solution and a symptom. It has become an investable revenue stream.

전세 (Jeonse)

A closer Asian warning can be found in South Korea’s housing system. Under the traditional jeonse model, tenants place very large deposits with landlords instead of paying ordinary monthly rent. These deposits are often financed with debt. Young households may therefore take on large loans not to own a home, but merely to occupy one.

Singapore’s system is very different. Public housing is extensive, mortgage rules are stricter and tenants do not usually hand landlords deposits equivalent to a substantial share of the property’s value. The lesson is not that Singapore will become South Korea. It is that societies can gradually normalise ever-larger financial commitments for access to what earlier generations considered basic foundations of adult life.

At first, the arrangement looks temporary.. until it becomes standard. A CNA documentary tells the story of a lady who used to live in a condominium. She sold her house and rented, waiting to pounce when prices dip. Prices did not...

What should Singapore homebuyers do?

The purpose of this article is not to debate the theories and philosophies. That is a job for politicians, policymakers and people who loiter online comment sections. Worrying about matters we have no control of, is a waste of emotional reserve. The useful response is to assess the situation, develop a conviction and take action. I am of the opinion that, if one agrees that the rentier economy will cause a widening gap between the haves and the have nots, one should make plans to achieve ownership sooner than later.

It is better to make a move in the general direction than to wait for the precise coordinates before you move. It is easy to get consumed by analysis paralysis and ultimately procrastinate to oblivion. Take action and live the consequences, or take no action and live the consequences.

Asset classes

Equity investors often argue that buyers should not lock so much capital into real estate. Investment in the S&P 500 offers higher returns, better liquidity, and lower transactions costs. The logic is sound. The argument may be mathematically coherent, but suitability depends on the individual.

A disciplined investor who rents cheaply, invests consistently and can tolerate market crashes, may be better off allocating more capital to equities. If you believe well-located real estate is a naturally scarce, non-fungible asset that AI cannot easily disrupt, then starting real estate early might make sense to you. If you believe SpaceX will be recreating Earth 2.0 on Mars, then the good news is SpaceX IPO.

If your choice leans towards real estate, the real question may not be whether you have found the perfect property. It may be whether time spent searching for perfection will be more costly than being only 80% right in your choice. But remember, 80%. Not 50%. Look for a property with manageable repayments, genuine demand, useful transport links, acceptable trade-offs, a broad future buyer pool and enough holding power to survive a weak market.

Everyone begins from a different position, desires different things, and suffers different consequences. That is also the idea of abundance: not everyone wants the same home, lifestyle, investment or future.

Nonetheless...

Did we just start a discussion on rentier economy to end with fear mongering? To be fair, it is not all doom and gloom. Let's take comfort in the fact that we have a relatively capable government. Critical needs such as water, electricity and housing are ultimately public goods over which the Government can exert substantial control to see to societal needs. Singapore is not a system where essential resources are left entirely to private rent extraction. Through public ownership, regulation, and infrastructure planning, the state retains powerful tools to keep basic needs within reach. The HDB, in particular, continues to exercise prudent measures to ensure that housing remains available to the broad majority and that basic shelter is not treated purely as a speculative asset.

The rentier economy may be growing at the edges, but Singapore still has the institutional capacity to keep the essentials anchored. Whether you wish to gain an edge is a different matter.

¹ https://research.jllapsites.com/when-niche-goes-mainstream-singapores-co-living-maturation/