The Economic and Moral Case Against Eviction Moratoria
Back in September, Wall Street Journal economic reporter Jon Hilsenrath interviewed me for a long news story he was doing on the effects of President Trump’s economic policies. He asked largely tough questions that made me think his piece would be somewhat critical of Trump. It was, although it was largely fair. But one question he asked, which he probably thought was tough, was actually a softball. We had been discussing Trump’s moratorium on evictions of residential renters and I said that I opposed it. “You want landlords to evict millions of people?” he asked. “No,” I answered, “I don’t want that at all. I want them to be allowed to evict. Giving them back that freedom will probably cause most of them to work out rental payments with their overdue tenants.”
The same reasoning applies to President Biden’s latest moratorium on evictions. There are many good reasons to oppose it. One is constitutional, but I’ll leave that to my constitutional lawyer friends. The others are economic and moral.
These are the opening two paragraphs of David R. Henderson, “Eviction Freezes: Unfair and Unproductive,” Defining Ideas, August 12, 2021.
Note, by the way, the statement that a tenant must sign to take advantage of the moratorium.
The stereotype of the landlord/tenant situation is that the landlord is rich and the tenant is poor. That stereotype often doesn’t apply. I saw that dramatically in 1980. After the San Francisco Chronicle had published an op-ed I had written against rent control in San Francisco, a group of landlords in Berkeley invited me to give a talk on the issue on a Saturday morning. I showed up well dressed and found that I was the best dressed person in a group of about sixty people. Appearances, admittedly, are sometimes deceiving, but my take was that no one in the room was a fat cat. As the audience members stated their concerns, I found that these appearances were, by and large, accurate. Many landlords in the room were in their fifties, owned two to four rental units, and had planned for the net income from the units to finance their retirement. Even if the government held the rent to only 10 percent below the market, landlords whose net income absent rent control would have been 30 percent of the rent would face an income drop of a third (10 percent as a fraction of 30 percent.)
Read the whole thing.
Aug 13 2021 at 4:49pm
I believe, at least in part, the constitutional and moral issues are intertwined. Let’s stipulate there is a public good to preventing evictions during a pandemic. Okay, who should bear the lost rent a tenant typically would pay? The moratorium imposes that cost on the landlord. Your piece argues this is wrong (i.e., public should pay if its a public benefit).
Well, here comes into play the constitutional question. Under the fifth amendment, the government cannot take a property for public use without giving just compensation. That is, if property needs to be taken for a public good the public should bear the burden and not the hard luck property owner. At the very least, this is designed to (i) make the property owner whole and (ii) hopefully discipline governments (i.e., force government to pay the cost of a program they claim benefits the public). Note the second point is why the power to condemn should be exercised more at local levels compared to federal levels.
The eviction moratorium seemingly is a taking. That is, the property owner cannot exercise his or her normal property rights to kick out someone who amounts to a trespasser. All of this is said to be for a public good. Yet instead of the public bearing the cost the federal government requires that property owner must bear the cost which is at odds with our constitutional system.
Under older case law, this eviction moratorium would have been tested under the regulatory taking case law instead of the physical which basically assured a government victory. This is because the physical taking was not permanent. But recent case law (as in months ago) subtly dropped the “permanent” precondition for a physical taking. Since a physical taking is per se a taking the only question is whether FMV compensation was granted.
I always marvel at how often the constitution ends up arriving at a moral position while being largely economically sensible. Truly a wonderous document. It is a shame that the takings provision has been neglected so much. I think every law student should read Prof. Epstein’s book on takings.
Aug 13 2021 at 5:59pm
Aug 13 2021 at 6:22pm
If I recall correctly, there is a case making its way through the federal courts right now that makes that very claim
Aug 13 2021 at 9:22pm
So it seems to me that you are arguing from principles about property rights and perhaps some economic theory. And I agree mostly with how you make your argument. But what happens when there is a crisis and these principles and theory have to deal with a new reality that appears to be very bad and potentially catastrophic? It seemed that way 14 months ago in my state at least. At what point would you bend a bit on your principles of property rights if a policy was an attempt to avert a catastrophe by temporarily imposing a burden on a subset of the population that usually, if not always, is in a better position to handle those initial costs?
Let’s look at what might happen to a small landlord like me when they can’t collect all the rent from their properties. And evaluate the seriousness of the consequences of that. First off they can just not pay the property tax which is often a large percentage of the rent around here. Second, they can defer non-critical maintenance (and the tenant who isn’t paying is not going to be complaining about that). Third, the other major cost is usually the mortgage on the property and while it might ruin your credit to not pay the bank for a while, I believe there is a moratorium on bank foreclosures also. And it takes a long time for a foreclosure to happen and the bank would just have a building with tenants they couldn’t evict anyways so why would they bother short term.
So I would argue it depends on just how serious a situation is, and how consequential in the short term, in general, for those negatively affected by the policy are, as opposed to the harm to evicted tenants and the rest of society, rather than arguing on principles of property rights in this case. And also recognize that the policy leaves room for those negatively affected to be made whole in the future- whether through government transfers or collections of back rent. And of course, that leaves a lot of reasonable arguments to be made. Especially around the duration of this policy.
John "Adam" Smith
Aug 13 2021 at 10:36pm
The rent moratorium is a bad idea, perhaps immoral. But temporary.
The effective seizure of property rights and potential income through property zoning is permanent.
But generates far less ire.
Aug 15 2021 at 4:52pm
As Milton Friedman once said, there is nothing more permanent than a temporary government program. This thing has already been extended multiple times and for arbitrary reasons. It wouldn’t surprise me to see it extended and extended (along the lines of the PATRIOT Act).
All that said, it’s incorrect to state that the effects of the eviction moratorium are temporary. They’re likely to persist for a long term, probably even becoming permanent themselves, if courts don’t rule. Renting has become more risky with the moratorium, so expect fewer landlords and higher rents. This will have just as insidious effects, if not more, than zoning.
Aug 17 2021 at 2:39pm
Thanks for pointing that out Jon! I hadn’t really considered the long-term implications of the moratorium, but you’re absolutely right. To the extent that this weakens contracts, it raises transaction costs for the rental market and will push up the market-clearing price in the future.
This sort of thing feels like a free lunch to policymakers. Since landlords couldn’t see it coming, they think, a one-time redistribution of wealth and from them to tenants is an easy win. It reminds me of figures in Eon 101 textbooks about the irrelevance of who is charged a sales tax. The party bearing the true cost of the tax can’t be set by fiat. It’s determined by elasticities of demand and supply — it goes to those who can least easily substitute a different good or service. This sclerosing of the rental market will end up affecting those with the fewest outside options the most. The poor will be harder hit than the rich in the end.
Aug 14 2021 at 7:15am
I was stunned to read this clause in the statement that a tenant must sign to take advantage of the moratorium: “I can still be evicted for reasons other than not paying rent or not making a housing payment.”
I understand the reason for the clause. Obviously, we don’t want tenants thinking that they can intentionally or recklessly damage the property without fear of eviction, for example. However, the purported rationale for the eviction moratorium is that evicted tenants may crowd into alternative housing, thus increasing the likelihood of Covid spread. (Why we allow non-evicted people to move into crowded housing or continue to allow people already living in crowded housing to continue to do so is left unanswered.) Given this purported rationale, why wouldn’t it also apply to evictions for reasons other than non-payment of rent? If someone evicted for throwing a noisy party and causing lots of damage moves into crowded housing, is he any less likely to spread Covid than someone evicted for non-payment of rent? If anything, he might be more likely to spread Covid, which he might have caught at the party! It’s almost as if the eviction moratorium really isn’t about public health and the purported rationale is just a rationalization for why the CDC is setting housing policy.
Aug 14 2021 at 7:30am
Also, if the moratorium were really about public health, we could require that tenants sign statements agreeing to let landlords garnish future wages and place liens against bank accounts to pay back rent after the moratorium expires. The burden would fall on tenants to challenge those liens after moratorium expiration, say for hardship reasons, rather than on landlords to pay legal costs just to collect back rent.
Aug 14 2021 at 7:21pm
The original moratorium was a matter of kicking the can down the road and each extension a matter of kicking it further down the road. Ultimately the situation will be much to the detriment of our poorest citizens.
Even the most rudimentary understanding of economics indicates that the supply of rental housing particularly low income apartments, will decline. There is less incentive to create new units, and every incentive to convert apartments – perhaps to condominiums, or other purposes.
Another problem for lower income people is already manifesting itself. Lessors are becoming much more demanding in screening potential lessees. They are demanding extensive background checks and large deposits in some cases requiring prepayment of a year’s rent.
I suppose this will result in Progressives demanding more public housing. And so it goes.
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