A Delinquent Tenant’s Paradise
Eviction prohibitions remain in effect in California.
Los Angeles recently changed its municipal code to give tenants “permanent protections against eviction and burdensome rent increases.” L.A. County has extended its eviction moratorium, originally scheduled to be lifted on January 31, through the end of March. And a few hundred miles north, California state lawmakers are considering a bill that would prohibit landlords from booting criminals from their property.
Residential evictions are an unfortunate business. Even under the most justifiable circumstances—in which tenants refuse or are unable to pay rent, cause property damage, or violate their rental agreement—the process can be ugly. But evictions are also necessary. Banning them is a triumph of politics over property rights.
Eviction moratoriums have damaging practical effects. Consider the incentives to increase and improve the housing stock. Who would build rental housing if they knew that some of their units will be occupied by de facto squatters who cannot be thrown out? Developers will instead build in one of the states to which Californians are fleeing. This won’t help California’s homelessness crisis; it will only deepen it.
What if landlords decide to take their properties off the rental market? The Economist reports on polls showing that financial stress during the pandemic has “led landlords to consider leaving the rental market altogether, potentially limiting the supply of units and pushing up rents further.”
Author and hedge-fund risk manager Aaron Brown uses the story of bread shortages during the French Revolution to explain what happens when “politically popular solutions” that “precisely contradict economic reasoning” win out. “The law set a maximum price that could be charged for bread with capital punishment for violators” in 1793 Paris. “Bakers were guillotined. The result was fewer bakers and less bread.” Landlords won’t face the guillotine in California if they try to oust tenants whose conduct deserves expulsion. But Brown makes a valid point: policies that violate economic laws do harm, no matter what the intent is.
Eviction bans endanger maintenance and improvements on rental properties. If tenants aren’t paying, and they can’t be asked to leave, what financial incentive do landlords have to keep homes in good shape? Downstream from owners are the capital institutions that make developing, owning, and occupying housing possible. If tenants aren’t paying rent, then some property owners won’t be able to pay their mortgages.
Eviction moratoriums also encourage some who aren’t in financial trouble to skip their payments. Activists have already mobilized behind the idea of a national rent boycott. Paul Getty, CEO of First Guardian Group, a financial institution that provides services for real-estate investors, told Zenger News that “many of his clients say they have been unable to get payments from tenants who did not appear to have lost income.”
Larger-scale property owners can easily take advantage of government pandemic assistance “to avoid foreclosure,” said Getty. But smaller investors, those “who bought into one or two properties to build wealth,” don’t have the resources—such as “full-fledged” accounting departments and analysts who can help owners “run the red tape more efficiently”—needed to avoid a crisis. Thirty percent of mom and pop landlords have household incomes of less than $90,000 a year, putting them in the low- to moderate-income bracket.
Eviction moratoriums may seem compassionate. But the economic harm they create is extensive and lasting, and far outweighs any benefits they might yield.
Photo by VALERIE MACON/AFP via Getty Images
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