We are coming up on the third month in which millions of U.S. citizens have to pay rent during pandemic-induced lockdowns. This becomes more challenging since over 38 million have filed for unemployment benefits since this all began. This does not get into how many struggle financially, whether they currently have work or not. Even for those who still work, 21 million renters pay 30 percent or more of their income in rent. To help alleviate the pressures of rent, the CARES Act temporarily prohibits evictions up to 120 days for those who live in federally-owned rental units, which account for about one in four rental units in the U.S. As for the other rental units, it depends on state laws.
Eviction is a serious matter. It can result in multiple issues, including higher rates of depression and other healthcare costs, loss of one's job and possessions, higher risk of homelessness and emergency room visits (Collinson and Reed, 2018), and it can negatively impact access to credit and durable consumption over the long-term (Humphries et al., 2019). As grave as the effects of eviction are, I also worry about what the effects of a policy instrument as blunt as a ban could have. What are some of the unintended consequences that could emerge as a result of an eviction ban?
1. An eviction ban has ripple effects in the local economy. This is a point that the centrist Brookings Institution mentions. If rent checks are not paid, this would affect multiple businesses. Rent checks go to pay property taxes, insurance, utilities, mortgage to the banks, maintenance, and capital funds for upgrades. This could adversely affect banking, local government services, as well as those providing maintenance services and utilities.
2. Eviction bans do not make the costs of rent disappear. If the tenant has to pay the rent once the moratorium expires, it is going to be difficult for that tenant to catch up, particularly if their finances were precarious coming into the pandemic. If one is to propose rent forgiveness instead of merely pausing rent payments, the cost of that rent still does not go away. It is simply shifted to the landlord. As discussed in Point #1, landlords have their own costs. Even if the rent forgiveness includes a mortgage forgiveness, it would still shift the cost to banks and credit unions. Whether the rent forgiveness has a mortgage component or not, that shift towards either landlords or banks would cause liquidity issues.
3. Eviction bans could limit housing availability. It might be politically expedient to depict landlords as money-grubbing and exploiting the working class. The truth is that many landlords are individual investors (i.e., mom-and-pop landlords) exist. According to the U.S. Department of Housing and Development (HUD), 22.7 million of 48.5 million rental units, or 46.8 percent of rental units, are managed by these smaller outfits. If a significant percent of individual investors were to go under, it would limit housing supply. As I have discussed in a past analysis on housing policy, limiting housing supply would increase the cost of renting.
4. This could spell trouble for future tenants, especially lower-income tenants. Going off the previous point, increasing the cost of rent vis-à-vis supply restriction make it more difficult for those who already struggle with paying rent. On top of that, there is a related concern with lending standards. As the St. Louis Federal Reserve points out, lending standards tightened during the Great Recession, which adversely affected the lending market and access to loans (Dvorkin and Shell, 2016). When the United Kingdom was looking to ban "no-fault evictions" last year, a survey showing from the Residential Landlords Association found that 84 percent of landlords would be more selective by picking tenants of higher income. If these eviction bans continue, they could result in longer-term issues with access to apartments and other rental units.
5. In many cases, an eviction might not be necessary. Yes, there are some landlords sleazy and profit-driven enough, i.e., slumlords, where they going to apply pressure on their tenants to pay rent. At the same time, the Brookings Institution brings up a valid point: landlords have a strong incentive to keep current tenants, especially if it is a reliable tenant who will likely be working again soon. There is an uncertainty in evicting a previously reliable tenant, such uncertainty where it is arguably preferable to negotiate a reduced rate on a temporary basis than to evict. This is probably why the National Apartment Association recommends waiving late fees and working with tenants on a payment plan. The American Apartment Owners Association also found that 80 percent of apartment owners would be willing to offer forbearance.
If a unit is vacant, that means it is not bringing in any rent. This will be even more true if eviction bans result in the tightening of rental standards (See Point #4), and if a mom-and-pop landlord is running the operation (See Point #3). There are costs to bringing in a new tenant and preparing an apartment for a new tenant, not to mention that social distancing guidelines will be yet another obstacle.
Conclusion: Eviction comes with serious long-term ramifications. At the same time, I worry that eviction bans come with their own serious long-term ramifications, ranging from reduced housing supply, increased rent, and adverse effects in multiple markets that could hamper economic recovery. That is why I would prefer something such as federal housing assistance over eviction bans or repealing such onerous policies as land-use regulation and rent control. Even better, how about ending the lockdowns so we could get people back to work so they can pay their rent?
As Reason Magazine brings up, market economies exist with the underpinning of supply and demand. A general adherence to that has brought us having as affluent of an economy as we have now. As unprecedented as this situation is, the last thing I would want to happen is to make a bad situation worse.
No comments:
Post a Comment