Eviction Moratorium: Good Idea or Horrible Idea?
A new eviction moratorium was recently announced by President Trump through an executive order through the CDC. We’ll be going over some of the details here, describing what it does and does not do, and highlighting some of the issues that I see and how it really doesn’t address or solve any problems that they’re trying to solve.
[/et_pb_text][et_pb_video src=”https://www.youtube.com/watch?v=gFgqx35gsog” _builder_version=”4.6.1″ _module_preset=”default” min_height=”412px” custom_padding=”0px|||||”][/et_pb_video][et_pb_text admin_label=”Text” _builder_version=”4.6.1″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”]Eviction Moratorium Goal: Reduce COVID-19
I’ve read through the actual document on the Federal Register. You can check it out here, on the Federal Register website. But honestly, The New York Times does a nice job of summarizing what it is and what it is not. So. let’s look at who is eligible.
Who Is Eligible? It’s Vague and Subjective
There’s a five-pronged test for who may qualify to be exempt from being evicted from their rental property:
(1) The individual has used best efforts to obtain all available government assistance for rent or housing;
(2) The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return),[6] (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
(3) the individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary [7] out-of-pocket medical expenses;
(4) the individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
(5) eviction would likely render the individual homeless—or force the individual to move into and live in close quarters in a new congregate or shared living setting—because the individual has no other available housing options.
You’ll start to get the theme here and why I think there are some major issues. First, you have to use your “best” efforts to obtain any and all forms of government rental assistance. “Best” efforts is not a very specific term. Likewise, the requirements state that you can’t “expect” to earn more than ninety nine thousand twenty or about two hundred thousand. Again, “expect” leaves some wiggle room in terms of eligibility.
[/et_pb_text][et_pb_image src=”https://www.graycapitalllc.com/wp-content/uploads/2020/09/alex-bracken-y4MgW_OGQ28-unsplash-4-e1600553474343.jpg” title_text=”Alex Bracken Y4MgW OGQ28 Unsplash” _builder_version=”4.6.1″ _module_preset=”default” locked=”off”][/et_pb_image][et_pb_text admin_label=”Text” _builder_version=”4.6.1″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” hover_enabled=”0″ sticky_enabled=”0″]If you’re married, you must be experiencing a “substantial” loss of household income, lay-off, or extraordinary out-of-pocket medical expense exceeding seven and a half percent of your gross income. You have to be making your “best” efforts to make timely or partial rental payments that are as close to the full amount due as “circumstances may permit,” and the eviction would “likely” lead to either homelessness or having to move to a place that was more expensive. Or you could get sick, essentially you are in danger of getting sick from being close to others.
The last condition lines up well within the stated goal for the eviction moratorium, but outside of the specific health-related condition, words like “substantial,” “best efforts,” “likely,” and “circumstances may permit” are hardly absolute terms. The document does little to define them, and this will lead to confusion.
As The New York Times lays out, a lot of this is pretty subjective. For instance, what constitutes “best efforts”? Let’s say I made a call and it was busy. I made a good effort. Is that enough? Likewise, your expectation isn’t necessarily a specific thing. What if I expect to earn ninety thousand dollars and end up earning one hundred and twenty thousand dollars? This ambiguity can easily lead to damaging confusion. I think substantial loss is can also be interpreted many different ways. I mean, if I get cut from my job a few hours, you know, it may I still may be able to pay rent, but in my book, that may be substantial. So, again, it’s subjective.
Again, on the next prong to the test, best efforts to make timely partial payments. Essentially, you could just say you’re making a best effort, but really not make much of an effort. You can believe you made a good effort and you could also just say, well, I’ll probably go homeless. Well, did you ask anyone else you asked for help? You know, did you ask the community organization? Did you ask a church for assistance? You asked your family, did you ask your your friends? It’s important to note that many people don’t have those resources. I’m not trying to downplay circumstances some people are in, but it’s so subjective.
That’s not what the eviction moratorium really does, though—there is little here to address the underlying problems that lead to homelessness.
The Eviction Moratorium Does Not Meet Its Goals
My biggest problem with this is that one, they’re saying they’re trying to prevent the spread of COVID-19. I don’t see how this has anything to do with the spread of COVID-19, and there is little definitive evidence that the eviction moratorium. So the premise is off base, especially considering the alternatives that could better address the spread of COVID-19 and the pandemic’s effect on housing. There are a great deal of policy options that could be implemented to deal with COVID-19 directly, but this eviction moratorium confuses the system. It clogs up the system in general, and it creates more uncertainty, which adds resistance to any economic growth and the economic recovery. So what are the benefits?
Most landlords are already doing most if not all of those things that they’re mandating. So why the mandate? If you wanted to help address individuals having difficulty paying for housing, why not institute a program?
Stimulus as More Direct, Less Confusing Solution
Much of the CARES Act provided unemployment, additional unemployment benefits, additional stimulus checks, and interest rates at zero percent. And across the board, interest rates are at absolutely record levels, which shows that the government doesn’t mind writing a check for trillions of dollars, whether that’s going to different government organizations, state governments, corporations, different programs. Instead of an eviction moratorium, the government can easily afford to send checks directly to people who are having issues paying their rent.
Implementing an additional stimulus would be much easier. It would be actually addressing the problem versus clouding the already murky waters and making it more confusing for everybody. The eviction moratorium is confusing for owners. It’s confusing for residents. It’s confusing for lenders. It’s confusing for local, state municipalities. And it worsens the housing crisis.
Moratorium Could Reduce Housing Supply
If we can have a functioning system where business owners and entrepreneurs and property owners can make the decisions for their own property to improve their property, their returns are going to decrease, investment will decrease, and no one will be able to afford to put money back into properties. If we don’t continue to improve properties that are, becoming dilapidated and are in need of repair, those properties are going to go offline.
There’s a staggering amount of multifamily units that just go offline every single year. It’s hundreds of thousands every single year. Sometimes, in previous years, it’s been more properties, more units have just gone offline because they’re old, they’re decrepit, and they’re in need of significant repair. It’s important to avoid a situation where more units are going offline than new units are being delivered. If investors don’t buy those properties, invest capital, invest resources to fix those properties up, to improve them, to create an environment where someone can live, that supply goes offline. It’s super basic supply and demand, less supply with increasing demand, prices go up if you have more supply. If the high cost of housing is making it hard for renters, an eviction moratorium may only exacerbate this problem, making housing more expensive, leading to a greater share of renters who cannot afford a place to live.
The Problem with too Much Control Over Housing
It’s again, why in California, the housing crisis is so bad. In Seattle, it’s so bad because there’s so much, you know, NIMBYism, the “not in my backyard” mentality of I don’t want you to build an apartment here because I believe it’s going to lower my property value. You own that land. It’s your property. But there are many who want to tell you how you can use that property, saying people should not just be able to just do absolutely anything they want without getting community buy in.
But the result of that is less housing supply and more people wanting to live in those areas. And if there’s a fixed amount of places to live and more people want to live there than there are places, then the prices are going to go up. And that’s exactly what’s happened in these municipalities, cities, and states that have have this NIMBY mentality that have not allowed more construction. In California, they’ve put rent control measures such that doing a heavy Value-Add project is considered illegal because you can only increase rents to a certain amount. Granted, there are ways to invest in the housing market in California, but the net effect of these regulations deters investment from those not intimately familiar with the local rules. No one wants to put more money into those properties unless you’re from there and it’s your backyard.
As a particularly strong example of these restrictive housing regulations, the eviction moratorium has the same stifling effect on investment. It clouds the waters, it is not a good idea, and it doesn’t help anybody. It just confuses everything.
Alternatives to Eviction Moratorium: Clarity over Confusion
There are actual solutions. The government created most of this problem. The government shut down the economy, which put a lot of people out of work. The government has the ability to float those individuals with essentially free money, but it is choosing not to do that. Instead, they’re taking an action that just confuses the system. Typical, I mean, politics as usual. Who’s surprised? It’s unfortunate, though.
So, again, what do you think? Do you think this eviction moratorium actually makes sense? I’d love to get your thoughts. So, you know, feel free to leave a comment to the video at the top of this post. My name is Spencer Gray. I’m the president of Gray Capital. We’re a commercial real estate investment and asset management company. We specialize in multifamily housing. We invest in a variety of different classes in the multifamily spectrum, everything from value add work, workforce housing all the way up to class luxury apartments. We believe there’s opportunity just about everywhere and we seek to find it.
We put out a weekly newsletter that you’re going to absolutely get a tremendous amount of value. We put tons of hours in every single week compiling the best news research reports, and data analytics. Our curated articles get delivered to your inbox every Thursday morning. Click the button below to subscribe.
[/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row column_structure=”1_2,1_2″ _builder_version=”4.6.1″ _module_preset=”default” locked=”off”][et_pb_column type=”1_2″ _builder_version=”4.6.1″ _module_preset=”default”][et_pb_button button_url=”https://www.graycapitalllc.com/newsletter/” button_text=”Sign Up for Our Free Newsletter” button_alignment=”center” _builder_version=”4.6.1″ _module_preset=”default” custom_button=”on” button_text_size=”18px” button_border_radius=”0px”][/et_pb_button][/et_pb_column][et_pb_column type=”1_2″ _builder_version=”4.6.1″ _module_preset=”default”][et_pb_button button_url=”https://www.graycapitalllc.com/join-the-club/” button_text=”Join Our Exclusive Investment Club” button_alignment=”center” _builder_version=”4.6.1″ _module_preset=”default” custom_button=”on” button_text_size=”18px” button_bg_color=”rgba(58,132,109,0.85)” button_border_radius=”0px”][/et_pb_button][/et_pb_column][/et_pb_row][/et_pb_section]