This column was written by John Vogel and originally published by Valley News on September 10, 2020. John is a recently retired clinical professor from the Tuck School of Business at Dartmouth and is co-chair of the Evernorth Board of Directors.
In March, as part of the CARES Act, the federal government enacted a four-month moratorium on evictions from rental homes backed or subsidized by the government. Many states, including Vermont and New Hampshire, enacted additional, temporary protections. So what long-term solution has the government come up with since then? What will happen to the 110 million people living in rental housing, many of whom have lost their jobs?
There is no plan.
Instead, the Centers for Disease Control and Prevention has issued an order banning evictions until the end of the year. This ban will be devastating for tenants and landlords, detrimental to banks — and it will do nothing to stop the impending housing crisis.
Here’s why. To really work, the moratorium must be coupled with a plan, like the one below, that offers a genuine solution.
Impact on tenants
Although the CDC moratorium allows families to stay in their homes for the time being, the next four months will generate a level of housing insecurity that is beyond stressful. It requires residents to make payments that are as close to full as possible, certify to herculean efforts to obtain government assistance, demonstrate a substantial loss of income, and declare that, if evicted, they would become homeless or live in overcrowded conditions.
How humiliating and self-defeating.
Adding insult to injury, when the moratorium ends, the landlords are being handed one more tool to use to evict the tenants. The legal language in the moratorium also states explicitly that the landlord can charge fees and penalties on partial payments.
Impact on landlords
During the moratorium, landlords are still responsible for paying property expenses, including mortgages, utilities, property taxes, insurance, repairs and maintenance, and employee salaries. Most landlords work on thin margins and any deficit must be paid from their personal accounts. Can they survive another four months with lower rent payments? Maybe. But, not knowing what will happen at the end of the year makes it impossible for them to gauge the best course of action.
The moratorium also adds a strong enforcement provision, subjecting landlords to punitive measures if they evict a tenant and especially if that person gets COVID-19. The landlord could get hit with a massive fine and even end up in jail. While it is important that landlords abide by the no-eviction part of this order, unscrupulous tenants can use these provisions as a cudgel in negotiations.
Impact on the banks
Banks hold billions of dollars of mortgages on their books. What are they really worth? Many banks have already agreed to defer payments, so mortgage balances are growing not shrinking.
Assets backing those loans will likely deteriorate from underfunded maintenance. If banks foreclose on these rental properties, they could lose a significant portion of their principal. Without a curative plan for the next phase, banks should be taking significant write-offs on their mortgage holdings — right now.
A better way
This temporary moratorium may mean that we are not seeing images of countless families being kicked out of their homes — not yet, but we will.
What we know from vast experience is that most families cannot afford to spend more than 30% of their gross income on rent. In 1974, the federal government created Section 8, a program that supplements the rent tenants pay, using the manageable 30% of income formula and enabling low- and moderate-income families to live in decent housing. Today, about 2 million families benefit from this program.
Given the current crisis, why not simply expand this program to cover all the people who will otherwise be evicted on Dec. 31? Why not use a program that works and has stood the test of time? As the nonpartisan Center on Budget and Policy Priorities wrote in its analysis of the Section 8 voucher program in 2017: “Vouchers sharply reduce homelessness and other hardships, lift more than a million people out of poverty, and give families an opportunity to move to safer, less poor neighborhoods. These effects, in turn, are closely linked to educational, developmental, and health benefits that can improve children’s long-term prospects and reduce costs in other public programs.”
If we want to avoid mass evictions, we already have an approach that works. Yes, dealing with the accumulated lost rent from eight months of moratoriums will be a challenge, and landlords should not get a free bailout. But first announcing and then implementing this kind of plan will save money and lives.
John Vogel is a recently retired clinical professor from the Tuck School of Business at Dartmouth and co-chair of the board of Evernorth, a nonprofit organization that develops, manages and invests in affordable housing in Maine, New Hampshire and Vermont.
Link to the full column can be found here: https://www.vnews.com/Column-A-Housing-Disaster-Made-Worse-36183019