In the early days of the pandemic lockdowns, San Francisco Mayor London Breed declared a temporary moratorium on evictions of small and mid-size businesses “due to a loss of income related to lost revenue or other economic impacts caused by the COVID-19 pandemic.” She also prohibited evictions from “all residential units, including residential units in residential hotels, regardless how long the resident has been living in their home.”
On June 9, the San Francisco Board of Supervisors permanently barred landlords “from evicting tenants if they can’t pay rent due to coronavirus-related issues, like job loss or getting sick from the virus,” the San Francisco Chronicle reported.
Meanwhile:
- Other cities have shut down pandemic-related evictions.
- Gavin Newsom extended his eviction ban through July 28.
- The Legislature is considering bills that would block residential and commercial evictions.
- And a moratorium on eviction lawsuits set in April by the Judicial Council, the policymaking body of California’s court system, was nearing expiration but will now go on indefinitely. The council was expected vote last week to lift the rule but instead postponed the decision.
Tenant evictions aren’t generally pleasant affairs. No one likes to see a person’s or a family’s possessions tossed into the street. Losing a home or business is a tragedy. So efforts to prevent evictions seem humanitarian. But a lot lies below the surface.
“Any sustained suspension of rent,” says CityLab, “would have grave consequences for the broader economy. The buck doesn’t stop with landlords.”
Carol Galante of the Terner Center for Housing Innovation at the University of California-Berkeley told CityLab that landlords’ mortgages are often securitized, which means “they’re packaged up into bonds and they’re sold as investments, and those investors are expecting a certain interest payment off of those securities on an ongoing basis. If they don’t get those, then those investors suffer.”
Some simply don’t care about capitalists’ financial positions. But many real estate investors underwrite “things like pension funds,” Galante continues, which, adds CityLab reporter Kriston Capps, “support teachers, first responders, and others in ways that may not be wholly apparent every time tenants or homeowners write out their rent and mortgage checks.”
The suffering of today’s investors will influence the decisions of tomorrow’s. The net effect would be a reduction in the stock of rental properties. Mercatus Center researcher Salim Furth explains the effect in more creative terms:
“If you said, let’s go loot grocery stores, they shouldn’t make us pay for food in a crisis, you could loot the grocery store once, but they wouldn’t restock the shelves for you.”
Roger Valdez of the Foundation for Research on Equal Opportunity flat out says “eviction bans don’t help,” and suggested in early April that “to get the policy response right,” providers, residents, and lenders needed to meet at “the table, and develop loans and forbearance to get through the next 90 days.”
It’s a reasonable proposition. The Coase theorem, established in 1960 by economist Ronald Coase (who won the 1991 Nobel in economics for its impact), says when “conflict arises over property rights … then parties will tend to settle on the efficient set of inputs and output.”
It’s a strong argument for allowing private parties to reach solutions on their own. They can hardly create more problems than government orders are guaranteed to.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.
