In a typical economy, a landlord who has a tenant in an apartment or a commercial location is likely to evict that tenant if they can’t pay their rent. Perhaps the tenant has mismanaged things, or perhaps they have been extremely unlucky, but in any case the landlord isn’t a charity. Out goes the tenant, so the landlord can rent to someone else who is able to pay the rent.
But in this economy an enormous number of otherwise good reliable tenants are suddenly unable to pay rent. If they’re evicted, won’t it be nearly impossible to find another tenant in a market suddenly flooded with properties? Doesn’t eviction generate additional expenses, and roll the dice again on the reliability of the replacement tenant? The landlord might have good reason to think the current tenant was perfectly reliable except for their all too common vulnerability to pandemic conditions, but who’s to say about the hoped-for replacement tenant? Regardless of whether the landlord wants to be a charity, how do they improve their situation by emptying their property?
Chances are the landlord has leveraged the property that he/she is renting out to tenants. That means the landlord has to pay the bank, and banks are not typically known for their kindness and generosity.
Landlords are used to dealing with the odd late payment here and there, but if they’re managing dozens of units in which half or more than half of the tenants are delinquent, then that’s a huge problem. They’re not in a position to consider the renters problems, only their own.
What congress should have done is to really maximize the assistance that’s going out to people in financial distress. The GOP Senate in particular should have taken this outbreak much more seriously and forced the president to put together a real national public health response. They have wasted time, and it might be too late, too expensive to put together a fiscal stimulus or assistance plan that can really address this problem. A lot of tenants will be homeless. A lot of small-time landlords (and even some bigger players) are going to be over-leveraged, and they will eventually dissolve as well. Nobody wins here.
In particular the lack of funding to support renting residents will almost certainly contribute the the number of Covid cases because many of those people feeling under threat will make noise and create pressure to open up and are much more likely to put themselves into more risky locations and activities.
This in turn will lead to greater need to close down and for longer, thus the economic damage feeds itself - very much like positive feedback.
I get that banks aren’t known for generosity, and landlords aren’t in a position to consider renter problems. My point is that I think evictions are likely to turn a rental with a decent broke tenant who is fine during non-pandemic times, into a rental that’s empty in an oversaturated market. In contrast to the before-times, throwing the tenant out doesn’t improve the landlord’s economic picture, but does leave them with an empty property whenever the pandemic ends. Leaving the tenant there could very well leave the landlord with a property occupied by somebody they already know and had been able to trust, who might be able to start paying back rent in addition to becoming a tenant in good standing again.
What does eviction gain the landlord? Utility bill savings? They’re not going to replace all those evicted tenants, are they?
But the landlord owes the bank money and eventually the bank will want either its money or the property itself.
I replaced a tenant during the mostly-shutdown part of the pandemic. It wasn’t an eviction, just normal turnover of tenants. The point being, finding new tenants is possible. If the market is flooded with empty units, that will drive down the price of rent, which will induce some people to move to the now empty units because they’re cheaper or better than where they currently live. That might not help the economy as a whole, but does help the landlord who is making $100/month less instead of missing out on the entire rent.
What is mostly gained is that some people are prevented from getting something they don’t deserve for free, and to many people that is an adequate excuse. “Why should they get to stay rent free, and I have to pay rent, just because I’m still working full time?” I’m not advocating that position, just that it is a common sentiment.
I think what should be done is to insert mortgage pause buttons. Payments can be skipped for no penalty, and the term of the mortgage is extended by a month. So if there is 240 months remaining on the mortgage, there will still be 240 months remaining when payments resume. That is not perfect, as mortgages aren’t the only expense landlords have, and that leaves banks with diminished cash flow.
First off there is always someone looking for a place to live even during the pandemic. A coworker of my wife just move from Canada to Colorado at the beginning of July after being hired in March. So even today the landlord could get in a paying tenant at probably a vastly decreased rate.
Secondly, the gain for the landlord is that the tenant isn’t tearing up their apartment anymore. Walking on the carpet in shoes, missing the toilet when they pee or clogging the drain with their hair. All of that is assuming the tenant is relatively benign. In almost 20 years as a landlord I’ve never given someone back their security deposit because there has always been at least $1,000 worth of damage and sometimes much more. My last tenants, before I sold the place, cost me $10,000 after living there for 3 years. I’ve found the average tenant is ok living in filth much greater than they are willing to move into. By kicking out a tenant even one who isn’t accidentally punching holes in doors and walls you save damage to your place, tenants costs money just by being there.
You are correct though that if you had a good tenant who was paying their bills on time prior to the pandemic and you thought would continue paying at the old rate again relatively soon and they were maintaining the rental that it would be worth keeping them around. Most tenants aren’t that person. Let’s say you rent to a waitress and they decided to stop paying rent in March and haven’t paid you since despite the federal unemployment help. Right now Colorado is probably going to lock down again in the next couple of weeks so you probably won’t get rent for the next three months either. At best you are hoping to get 50% rent over the rest of the year. Why wouldn’t you kick that person out today and offer 60% rent to the next guy?
The thing is, tho, that if evictions start en masse, you aren’t going to be able to find a tenant you want to have. And even if you will take a new renter who doesn’t have a job, do you think the large-scale apartment owners will?
There’s a property management company here in Las Vegas that manages complexes with tens of thousands of units. They run credit and background checks on people. Do you think they will waive those procedures and requirements immediately in order to fill vacant units?
I don’t see it happening immediately, which means lots of homeless people.
Here is Las Vegas the unemployment rate is near 30%. Who is going to pay you that 60%?
And again, a small landlord may be able to fill a vacancy, especially if they don’t require much vetting. I don’t think medium-sized and arge-scale landlord are going to be able to do that as easily or as quickly.
This is not my business plan, just the sentiment that I hear:
There are always people looking for new apartments, if mine are empty maybe they’ll come to me. If mine are filled with people not paying rent, they won’t come to me.
As @Oredigger77 says, there is a cost associated to a having tenants, which is usually offset by the rent. An empty unit still has costs, but fewer. My feeling is that is just too bad, and it’s time for landlords to take one for the team, and pass the pain upstream to the banks. They’ll get bailed out by the government, anyway.
That’s one of the reasons for letting the virus run wild, isn’t it? So the wealthy can snap up more real estate while keeping everyone’s money who lost their homes and businesses?
Consolidation through forced attrition, and we’re paying them to do it to us.
The trickle down/up (?) effect of the disruption in rent and mortgage payments is a valid concern. A renter can’t pay rent, then a landlord can’t pay the mortgage, then the local or regional bank takes a loss on the loan. If this goes on long enough, small banks get in trouble and are forced to liquidate or be absorbed by a too-big-to-fail institution that has the balance sheet and government behind them. I don’t think it would be good for the country to lose regional financial businesses and be left with only JP Morgan, Citigroup, etc.
When the landlord owns the property outright, I’d expect that they would weigh the cost of eviction vs. the cost of letting a tenant run behind on payments. But they tend to be paranoid types who think every tenant is a potential deadbeat who wants to game the system to get into a rent-free situation for 6-12 months (which does happen, unfortunately).
There’s a reason that the phrase “living rent-free in your head” has so much emotional valence. It’s pretty infuriating to imagine someone taking bread off your table to live for free under your roof, and pretty frightening to imagine being in such a situation without end. This makes a lot of landlords more likely to eat the cost of vacancy and turnover just to be in a situation where they have some control and certainty. i.e. I would rather take a known hit of 6-9 months vacancy instead of let someone live off me for some undetermined amount of time, and possibly create a squatter-type situation where I can’t get them out at all.
Then there are the banks. A lot of vacancies happen because banks really, really do not want to get into the landlording or property speculation business. It’s just not their core competency. This is why they make borrowers put up a certain amount of equity. That’s to shift the risk of default mainly onto the borrower, and it only works as long as they’re willing to evict the borrower, liquidate the property, and seize the equity.
One of the reasons the economic crisis isn’t quite as bad as it could have been is that banks have been largely solvent. We have a black swan economic crisis, but not a banking crisis per se – not yet. Banks can go a little while with reduced cash flow, but they can’t go on forever like this, not without intervention from the federal government.
And even the federal government doesn’t have bottomless pockets. There will come a point in time when the dollar really begins to suffer because of a global perception that the United States is not serious about cleaning up its addiction to cheap money supply - or that it might be in such a hole that it can’t dig itself out.
OK, maybe in Vegas you offer 40% rent and at least are getting cash in the door for the next 3 months but I don’t think Vegas’s economy is going to get fixed as fast as a diverse economy like Denver either that only has 10% unemployment so 50% for the rest of the year from your current tenant is probably optimistic as well.
As far as large landlords they’ve got options. They don’t have to kick out all the tenants they can start with the problem ones. Maybe they aim to kick out everyone in a single building so they can shut that building down or a complex so they can shut down the landscaping or pool. Heck they could just hack amenities to make it more cost effective. Sure kicking out half of their tenants is hard but they can cut the cost side more then small landlords too.
Which still results in more homeless people than any society should want, need or tolerate.
And more vacant residences that any society should want, need or tolerate.
It’s a real shitshow.
Certainly, and the government intervention process becomes weird and complex too. Say the government steps in and implements a mortgage and rent freeze so that people who can’t pay just have their term added on to the back end. So the waiter doesn’t have to pay his rent and the landlord doesn’t have to pay his mortgage and the bank is kept solvent somehow. Why would the landlord continue to pay the groundskeeper? So now the non essential maintenance people are let go.
On the other hand if the government give the tenants a check to cover their full rent then the landlord and bank get subsidized and get their profit and the maintenance guys keep their job but the debt grows huge and at the end of the crisis we’ve probably widened wealth inequality due to profit for the landlord and up while leaving the tenant with nothing.
Yeah… somehow the wealthy prosper from all this and the rest of us just get shit on, if we follow their plans.
We don’t have a real welfare state; we have patchwork welfare that ends up spending more public money less efficiently.
I think some of the initial thoughts and logic “work” better with the commercial market, which has much higher barriers to entry for small businesses and such. There I’m much more skeptical that there’d be a demand to fill the gaps, so more forgiveness would make more sense.