September 8, 2020 11:00 AM
This week’s Courier Herald column:
It is important to always strive to do the right thing. When government is involved, it’s even more important to do the right things the right way.
Last week the Centers For Disease Control issued a nationwide moratorium on evictions due to the Coronavirus pandemic. It differs from a now expired eviction moratorium in the CARES act in that it does not limit its moratorium to landlords using federal programs to finance their property.
Under the CARES act, landlords were granted forbearance – the ability to delay and defer mortgage payments – if they were facing hardship in their ability to repay their federally backed mortgage. As such, the landlords were granted relief somewhat commensurate with their tenants, though they were ultimately still on the hook for the same amount of mortgage debt.
The CDC order presents additional hazards as we slide down a slippery slope. The properties in question don’t have to have any federal loans on the property, or any loans at all.
We should not lack sympathy for those affected by the pandemic while facing eviction. If the federal government wishes to intervene here, the proper way to do that would be to directly compensate landlords for quartering tenants on their behalf.
Instead, we have a direct attack on and the erosion of private property rights – the main source of household wealth for the American middle class. It’s troublesome that an administrative agency can cite congressionally mandated emergency powers to effectively take away the rights of a property owner in order to indefinitely transfer that right to another.
I’m going to sidestep the constitutionality of this federal taking, as that’s one the lawyers will likely ultimately solve. We still should not enable or condone a system where the collective good intentions to help some strips rights away from others.
Instead, I’m going to use this space to emphasize the longer term market consequences of this action. Housing advocates have long decried the lack of available affordable housing for the working poor. This short term action aimed at helping these same people will just exacerbate the supply problem over the longer term.
As someone who has sold more than a few homes, I’ve always emphasized that a backup plan if the buyers need to move during a down market is that “you can always rent it out if you need”. The ability to rent out one’s house if needed is one reason housing has traditionally been considered a “low risk” investment. It’s also one of the easiest ways for working class Americans to accumulate wealth over our lifetimes.
Landlords affected by the CDC’s moratorium that weren’t affected by the earlier CARES Act order are generally going to be those without debt on their property. Instead, they’re more likely to be older Americans that are living off of rental payments as part of their fixed income. They’re less likely to be corporate managed agencies that have strict credit qualifications for renting, and more likely to have a soft spot for someone that might have been down on their luck once but needs a second chance.
Going forward, every landlord is going to have to look at a prospective tenant and ask, “Can I afford to have this person in my house if they can’t pay the rent and the government won’t allow me to ask them to leave?”. That’s the reality of the situation we’re creating.
It’s not about narratives of sympathetic renters or greedy property owners. It’s about changing the amount of risk the landlord is being asked to carry in future rental contracts.
When the risk increases, so does the price. Some will choose not to rent; others will charge more. Either way, we can expect the supply of rental properties to come down, and the cost of those available to go up.
This is going to happen because the government decided to help. More specifically, it will be because the government decided to do the right thing the wrong way, to the detriment of current landlords and future renters.