The Center for Disease Control issued an order on September 1 that tenants earning less than $99,000 a year who fail to pay their rent due to COVID-19-related financial hardships cannot be evicted for non-payment of rent until at least January 1. This raises a number of legal, ethical, and logistical questions, not least of which is whether a public health agency staffed by non-elected officials even has the authority to effectively command specific people to provide free housing for other specific people for any amount of time. Further, if enforceable, such an edict has the potential to cause some serious long term damage that could wind up hurting renters.
There’s a long history of antagonism towards landlords in the popular imagination. Like owners of other resources, landlords are sometimes considered to have not really earned their money. To be social parasites who don’t even deserve rights. Even Adam Smith seemed to express distaste for the occupation, writing that “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed.” (Of course, I think the clause “like all other men” is important here as well—wanting to put your situation to its best advantage is hardly unique to owners of rental property.) And I’m not deaf to the sentiment myself, having met a number of wonderful landlords but also a couple real stinkers who wouldn’t give back a deposit if you spit shined the place.
However, love ‘em or hate ‘em, Smith also recognizes that landlords and other resource owners play an important part in the process of bringing much-needed resources to the market:
“If, on the contrary, the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate. If it is rent, the interest of all other landlords will naturally prompt them to prepare more land for the raising of this commodity; if it is wages or profit, the interest of all other labourers and dealers will soon prompt them to employ more labour and stock in preparing and bringing it to market.”
In other words, if for any reason there is a temporary shortfall of a product—whether because of increased demand or some kind of shock to the existing stock or productive capacity—the price is going to go up. This will in turn drive up the price of at least some of the inputs to production, including possibly the rental price of the land production takes place on. (Smith was focused here on commodity production, but the same principle applies in a modern housing rental market.)
When prices go up is when the landlord will tend to be most hated. But it’s also their time to shine. The increase in rental prices makes it worthwhile for financially capable individuals to seek out additional land that could be rentable, or to rent land that was previously held idle because the going rate couldn’t cover the bother of renting it out.
Having people in the economy with a strong incentive to provide additional housing is a very good thing. There is already a serious problem with the exorbitant price of housing in urban markets, and I can’t imagine that this action by the CDC is going to encourage anybody who is on the fence to start renting out additional property. Landlords are, after all, not really lords, but mere humans who have their own children to feed and bills to pay. What happens if non-payment of rent is going to prevent them from paying their own mortgage? Will rent default insurance become prohibitively expensive, forcing some who offer rental properties to pull out of the market? Such effects are particularly likely to impact the kind of landlords who rent out small numbers of properties, which could concentrate the market even further around less flexible corporate entities. The potential for long chains of unintended consequences abounds.
Hopefully the fact that housing prices are currently down in some of the country’s most expensive markets will help prevent this order from being too painfully binding. But at the end of the day, any political action that makes offering rentals more difficult could wind up creating a lot more harm than good for renters. I’m reminded of my colleague Chris Coyne’s argument for adopting a constrained vision when trying to help others, taking seriously the limits of what can be achieved given the inevitability of scarce resources and imperfect people:
Jayme Lemke is a Senior Research Fellow and Associate Director of Academic and Student Programs at the Mercatus Center at George Mason University and a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.
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