Warren’s eviction bill is economically and politically savvy
Senator Elizabeth Warren has a new bill out to prevent evictions during the COVID-19 crisis. The bill imposes a 1 year moratorium on evictions nationwide. That’s it.
On its face, the bill seems to have two deficiencies. First, millions of low-income tenants will be unable to repay their past due rent. To give them a fresh start we will probably need a streamlined process for consumer bankruptcy filings. Second, a rent moratorium may trigger a financial crisis, as landlords default on their mortgage payments. To prevent this, an eviction moratorium will need to be accompanied by a bank bailout if banks end up having their capital depleted by mortgage defaults. Although bank bailouts are unpopular, an eviction moratorium coupled with bankruptcy reform and a bank bailout will potentially be much cheaper for taxpayers than giving insolvent tenants money to pay their landlords in full, because it pushes losses due to tenant insolvencies from taxpayers to landlords and banks.
In a rational world, these predictable problems would be addressed in Warren’s bill. But we do not live in a rational world, and an eviction moratorium is much easier to sell politically than a bankruptcy overhaul and a bank bailout. (We know this is true, because a 120 day limit on evictions included for federally financed properties was included in the CARES act, Democrats have made numerous proposals for a more comprehensive approach, and many states and localities have put a temporary freeze on evictions.) And – this is the critical part – Congress will deal with the bankruptcy problem and bank bailout if they lead to crises in the future. There is certainly some risk here, especially if a bank bailout is handled poorly, but the benefits to struggling tenants (avoiding homelessness) and savings to taxpayers could easily be worth the risk. Warren knows what she is doing.
The general approach of shifting losses caused by the COVID economic collapse from renters and taxpayers to landlords and banks would also be valuable for small businesses, who (if I understand this correctly) cannot avoid past rent obligations in bankruptcy reorganizations. An eviction moratorium – especially if coupled with bankruptcy reform – might do more to help small businesses survive than the Paycheck Protection Program, which did not adequately address non-wage costs and probably channeled hundreds of billions of dollars to businesses that did not need support.
Senator Warren’s a national treasure. No jargon, no BS, just the facts. What comes after an eviction? Oh yeah, I almost forgot, the market thingee takes care of that. And how’s the market thingee doing with small businesses? Taking about 2/3 the gross, you say?
No bailouts. Warrens bill is nothing more than a useless marketing ploy.
While many tenants have income problems, many more do not. But the word will go out quickly that it is a year-long holiday from rent and at the end of the year there will be enormous pressures to forgive these debts using public resources, without regard to the actual incomes renters had during the year. Try to imagine telling the young family with some savings that their options are to pay back the arrears pronto or declare bankruptcy and be in the credit wilderness for vital years. I would like to say that of course those who can afford their rent will pay reliably, but that is a terrible bet actually. Better to provide assistance to those with actual income deficiencies and with a mechanism to send some or all of it directly to landlords to keep evictions down.
Ken Melvin thinks 2/3 of the gross of small businesses is going to leases I guess. My view is so what really. If that is the case then there ought to be great opportunities in commercial building investment. Forget your original small business and buy or construct commercial space.
Hi Eric
So what? It means that the tenant is working most of the year directly for the landlord and indirectly for those very Financials most responsible for real estate prices instead of being able to keep a majority of the returns on their labor for themselves. This is most equivalent to what is happening to workers all over the world. In a ‘We the People’ nation; it shouldn’t be business first.
In re residential: While small landlords might/maybe have some lesser claim to relief as do tenants; larger ones have access to loans that tenants probably don’t. If they, the larger landlords, are leveraged to the hilt, that’s neither the government’s nor ‘We the People’s’ fault. In context, any discussion about landlords and tenants must speak to the disparity in assets, no?
The problem with her bill is all the individuals that have invested in 1 or 2 houses of 2 or 3 families. How do you make them whole? Bankruptcy is not a viable solution. Bailing out the banks directly does not work.
If she was real about it, she would propose a method of getting the rent to the landlords.
Frankly, if you are going to put a moratorium on rent, then couple it with a moratorium on mortgages of the apartment buildings. Both have to be tied to income of the tenant.
It’s just like the unemployment $600. How many of those that have been collecting know they have to pay income taxes on that next year? It’s just another situation created in which the citizen will feel screwed again. This should become a question during this election year.
Warren is smarter than this and so are many others. Why are we getting saddled with such short minded thinking? It’s just making the lives of people worse over time. It’s creating more issues down the road than is solved.
Hi Daniel,
Warren’s objective is obviously to provide relief to those in danger of having to chose between eating and paying the rent, being evicted (homeless), or perhaps not having the money for either; relief to those most in need. If the landlord has to borrow, or even default, there is no equivalence here. Does the government have any more responsibility to landlords than it does to any other business? (I remember 1979-1980 all too well.) They might borrow from the farmers and claim that they provide the nation housing; extending that — they probably wouldn’t want to go there.
Seems probable that evictions have already skyrocketed and will continue to do so. Also seems likely that no one will be moving into these units, when, and if vacated, any time soon.
Would a viable compromise be for landlords to accept say a 30% reduction in exchange for the government paying the rent for those who have lost their jobs?
I perfectly understand the need for relief. Punishment into homelessness is not a solution. Yes, we have to help.
But what good is it leaving the mortgages, taxes unpaid? It is just shifting the economic crisis laterally. Banks take over the properties. real estate prices decline. This will be happening as we absorb all the other commercial real estate that will now go unused: retail, restaurants space, office space.
Warren’s solution makes a common mistake. Allowing for no gradation within a classification. Land lord. Must mean they can absorb the cost cause Land Lord means money (read that cash rich).
But more directly, yes the government does have a responsibility to landlords (and many other groups) as this is an economy problem as a direct result of the governments plan to combat a natural disaster. They said shut down.
Yes, we needed to shut down. We should still be shut down. Thus the government should be doing what other nations did: make people whole until it’s safe. We can afford it.
But instead, we’re getting a partial government acknowledgement of its roll in the cause of the present condition and then saying the market will fix the rest. Only the market did not cause the problem…this time.
I agree that Warren’s bill is not perfect. More than likely it’s only a messaging bill, at least unless the Dems win congress and the presidency in November. But I do not think that many people who can afford to pay rent will go on a rent strike due to the eviction moratorium. They can still be sued if they have assets, and they will not be able to declare bankruptcy to escape past due rent. Also, remember that we could (largely) avoid the eviction problem by providing people – especially low income people – with adequate income support. It’s Republicans who are blocking this. Democrats need to do something to protect people from homelessness in the face of Republican stonewalling. Warren’s bill is certainly not ideal policy, but it’s a smart move under highly imperfect circumstances. Democracy is not university class in policy analysis.
Thanks Eric for a very thoughtful article.
The HEROES Act had the core of a good solution….it would set up a fund which actually Paid the Rent (or at least most of it.) The tenant and the landlord would each benefit.
Here is a brief outline….(from the website of a Washington congressman)…
“The emergency rental assistance provision included in the HEROES Act is Rep. Heck’s Emergency Rental Assistance and Rental Market Stabilization Act, which provides $100 billion to help Americans pay rent during the COVID-19 crisis. The legislation distributes these funds through the Emergency Solutions Grant (ESG), an existing program that supports emergency short-term rental assistance. The ESG program has organizations throughout the country that can verify lost income and provide tenants with vouchers to cover the balance of their rent. By supporting tenants struggling to pay rent, this legislation also supports rental property owners of all sizes and bolsters economic recovery as Americans weather the pandemic”
If someone was unemployed, they would get help.
If 30 million persons remain unemployed and they each owed $1000 a month in rent, and assuming that the program paid $800 on their behalf, the federal dollars needed would be $24 billion a month.
We would have to wind down the program at some point.
Warren and the others are trying to solve this issue without spending real money.
My own current writing on economic rescue plans does not make that mistake.
If a working class person loses their job and can’t find another, in short order, they lose any provided healthcare, their housing, and, probably, if married, their marriage. In an economic downturn, the chances of finding another job that pays a well are slim. In a severe downturn, the chances of finding any job at all are slim. One could only hope to survive on savings, if any, and unemployment, if any, until things turn around. In the 1970s, when we saw a least one recession a year and sometimes two, we saw major corporations advertise positions that were currently filled in the hopes of getting someone as good or better for less.
If the working class tenant cannot make rent, their landlord might see a slight reduction in their income for a short period of time. If several of a landlord’s tenants can’t pay their rent, it could mean a temporary loss of income for the landlord. If the rental market collapses, the landlord might not be able to make the mortgage payments or pay the property taxes. If a downturn appears to be of a short term nature, banks will probably loan the landlord enough to tide them over. If the market decline persists, the landlord’s options include lowering rents to reflect the new market reality and taking a reduction in income. If those didn’t work, they might go into arrears on taxes and mortgage payments and try to ride out the storm or try to sell the property at a reduced price. Unless the landlord bought at an earlier, lower price, the option of selling during a downturn is not appealing. More likely, they will try to ride out the downturn. In times like these, in places like California where real estate is wildly overpriced, in a long term market collapse, we could see rental property prices drop to twenty-five cents on the dollar.
Long term unemployment for the worker and a rental market collapse for the landlord are rough equivalents.