California

California's Eviction Ban Will Worsen Current Economic Woes

Yes, tenants are losing their jobs because of the COVID-19 shutdown, but forcing businesses to provide services for free would have a ripple effect.

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California Gov. Gavin Newsom recently issued an executive order that creates a statewide moratorium on evictions. Such orders are just a fancy term for an edict—something passed unilaterally by the governmental leader without the normal legislative process that includes public hearings, public votes and other checks and balances.

When restraints on the government's power are removed, citizens are left at the mercy of the person who issues them. Fortunately, Newsom's eviction-related proposals are less ominous than they could have been, but stay tuned if the coronavirus curve doesn't flatten out fairly soon.

"The order prohibits landlords from evicting tenants for nonpayment of rent and prohibits enforcement of evictions by law enforcement or courts," the governor's statement explains. "It also requires tenants to declare in writing, no more than seven days after the rent comes due, that the tenant cannot pay all or part of their rent due to COVID-19."

It's hard to know exactly how this will pan out. Newsom is requiring tenants to retain documentation to prove they can't pay rent because of a job loss or other coronavirus-related matter, but they aren't required to submit that information to their landlord in advance. Tenants are "obligated to repay full rent in a timely manner" and can still be evicted whenever the edict is lifted. Got that? And local governments are free to impose additional rules.

Housing activists were right that Newsom's decision is confusing, but they are wrong to call for something more draconian. "I think we're deeply disappointed that it isn't just a blanket moratorium on evictions," the executive director of one housing-advocacy group told a newspaper. A blanket ban would essentially be a "free rent" declaration, which would send shock waves throughout the housing market.

Yes, tenants are losing their jobs because of the COVID-19 shutdown, but forcing businesses to provide services for free—at least temporarily—would have a ripple effect. It could ultimately force small landlords out of the business, leaving more renters at the mercy of mega-apartment companies that generally are less willing to work with tenants when they have hard times.

In full disclosure, I own some rental houses. Like many small landlords, this is a side business. My wife and I depend on the rent not only for our income, but to pay the mortgages, repairs and, in some cases, the utilities for those properties. The governor has "requested" that financial institutions waive foreclosures, but I have no intention of missing payments and getting to that dire point.

Federal lending authorities have instructed loan servicers to provide a year of waivers for mortgage holders (90 days for those who own commercial buildings), which means our payments would simply be added to the end of the loan. That's an acceptable approach, albeit one that should be done voluntarily and not by federal order.

People are perfectly capable of coming up with creative solutions on their own. The Coase Theorem postulates that bargaining "will lead to an efficient outcome…as long as the transaction costs associated with bargaining are negligible." In other words, if property rights are well defined, most people will negotiate a reasonable solution. Unfortunately, government edicts impede voluntary agreements by creating new rights, uncertainties and transaction costs.

Most landlords will work with their tenants. That's what they do even when there isn't a pandemic that's leading to vast economic dislocations. No sensible landlord is going to initiate an eviction proceeding in the midst of the current mess.  News to housing advocates: Owners want to keep their customers rather than find new ones. No one wants to explain to a judge why they're evicting a good tenant who had a sudden COVID-related job loss.

But even though the governor's order requires tenants to make good on the rent, we know that's largely a pipedream. In my experience, once a tenant gets more than a month behind in rent, it's unlikely they'll ever get caught up with their payments give how tough it is to come up with all that extra cash. Government officials clearly aren't thinking through the long-term effects of their actions.

By the way, had our state and local governments not so thoroughly distorted California's housing market through years of growth controls, regulations and excessive building fees, the housing market would be far more resilient. There would be more units available at reasonable prices—and less of a precarious situation for renters in particular.

The market economy is based on the concept of willing buyers and sellers. When we jettison our system of governmental limits any time a crisis hits, we threaten the very things that have made our society so affluent, free and resilient. There's a reason our founders created a system that limits the ability of officials to govern by diktat. We're in uncharted territory here, but we ought not abandon those limits—even in an unprecedented situation.

This column was first published in the Orange County Register.

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  1. Laws of economics repealed in Kalifornia. Kulaks hardest hit.

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    3. On a related front California politicians were quick to threaten “anti-gouging” penalties on retailers that “raised price too high” on goods that are in demand. What’s “too high”. Well, it’s like pornography: you know it when you see it.

      Results? The hoarders came into the stores on day one and bought out inventory leaving large numbers of people with the opportunity to buy zero of these goods.

      I wrote to one of my state legislators explaining this and got a letter back telling me they will fight hard to prevent price gouging. These pols are economic illiterates.

      In a Danish supermarket: Hand sanitizer $3.09 per bottle; buy two for $95.00.

  2. So, out of curiosity, how is a governor able to just announce that rent can no longer be collected? That seems like something that can and would be stomped on quickly in court. What sort of precedent allows this?

    1. FYTW.

    2. “I DECLARE BANKRUPTCY!”

  3. Well, look, your tenants entered an agreement to pay you rent every month and it’s not their fault they can’t honor their agreement so obviously they shouldn’t be held to their end of the bargain. You entered an agreement with the bank to pay the mortgage every month and it’s not your fault you can’t honor your agreement so obviously you shouldn’t be held to your end of the bargain, either. Nobody intended for this to happen so nobody should be held to account for it. It was just an accident, nobody’s fault.

    It’s like when the kid accidentally knocks his bowl of cereal off the table – he didn’t mean for it to happen, he didn’t intend to do it, so it would be unfair to expect him to have to clean up the mess. Or when I go to Vegas and put money down on black and the wheel comes up red, I didn’t mean for that to happen, I didn’t intend to lose money, so it would be unfair for the casino to take my money.

    Or that time I bought all the Boeing bonds, I didn’t expect Boeing would waste my investment, I didn’t intend for Boeing to go bankrupt, so it would be just as unfair to expect me to suffer the consequences of a mistaken investment as it would to expect Boeing to suffer the consequences of mistaken business decisions.

    I love this new no-fault economy! Much better than the old-style capitalism where you had to do your due diligence because when you fucked up you lost your ass, now you’re free to just fling your money about as carelessly as you please because there’s no downside risk when Uncle Sam has his checkbook open and has agreed to cover all bets.

    1. From each according to his inclination, to each according to his desires.

      This new and improved socialism sounds pretty swell. Where do I sign u… I mean, vote?

    2. Responsibility is essentially cruel and unfair, and will be outlawed in the New Green Constitution.

      1. Responsibility is a tool of cis-hetero white male patriarchical oppressors!

        1. Yes, responsibility imposes a European future time orientation on people of color for whom it is unnatural.

      2. You pretend to pay me and I will pretend to work.

        Back in the USSR.

    3. The way I would look at it… the government knocked the kid’s bowl of cereal off the table – now who should clean it up? Their top men?

    4. We are going to shoot you but it is not your fault, you can choose the caliber of the rifle but we choose the distance and what body part we aim at. Sound good? What will this solve? I do not know, we are the government, we do what we want and you must obey. If it makes anything worse we will fix that too. (Looks like there is no .22 ammo available except .222 .223…)

    5. well, it is their fault…one is supposed to have savings for such a rainy day. Your job loss isn’t an excuse to avoid bills.

      1. One is supposed to have economic liberty so that they CAN earn money to save for a rainy day. Industriousness has practically been outlawed.

  4. you’re free to just fling your money about as carelessly as you please because there’s no downside risk

    After all, the federal government has been doing that with more and more gusto since the Reagan years

  5. This is insanity. The impending Commercial Morgage and Residential morgage meltdown is going to make chernobyl look like a pleasant bonfire. 30% skip rate this month. It’s going to double next month.

  6. In full disclosure, I own some rental houses. Like many small landlords, this is a side business. My wife and I depend on the rent not only for our income, but to pay the mortgages, repairs and, in some cases, the utilities for those properties.

    You seem to be missing one more cash requirement at least as important as debt service – real estate taxes. Funny that these local governments want to demand landlords provide free housing and commercial space, and demand that lenders waive mortgage payments, but haven’t brought up waiving or deferring real estate taxes. July 1st due date in NYC, in case you were wondering what three months of rent deferrals might mean to a landlord in a major market.

    1. Obviously, Greenhut is an evil capitalist landlord, the worst kind of Snidely Whiplash human. He adds nothing to the benefit of society and his rental properties should be nationalized and then redistributed to those of greatest need (and highest victim status). Warning to current tenants: you may not qualify, so you still could get your ass thrown out on the street.

      1. I identify as the highest victim status.

    2. I rent so I only own no house, you have more than one. I cannot pay rent so my option is homelessness which are the people NOT required to stay home and nobody wants them around except for city governments who receive federal grant money to spend as they see fit to solve the homeless problem. First on the agenda is to pay themselves the administrative salaries needed for their brains to function. These are facts which I can prove.
      Oh and our governor ordered our employers to close but as for rent moratoriums he says he has no such power. Go figure. Unemployment is not a living wage at all either. Finding a =nother rental will cost about $4000 to move in. Do not even say “loans”…

  7. “California’s Eviction Ban Will Worsen Current Economic Woes”

    Promises promises

    I’m still waiting for that Communism that Conservatives assured us mixed-race marriages were.

    Conservatives promised us that B. Hussein Obama was a Radical Extremist Far Left Socialist – But all we got was a Moderate Republican DINO.

    I guess I’ll have to settle for the watered-down Cultural Marxism that Conservatives claim gay marriage is.

    1. What do your strawmen have to do with Mr. Greenhut and his criticism of California economic policy?

    2. I’m still waiting for that Communism that Conservatives assured us mixed-race marriages were.

      Honey, baby, it was progressives who opposed mixed-race marriages, based on eugenics, i.e., “science” and “the good of society”.

      Conservatives never had a problem with mixed race marriages. To Christians, all that matters is that you follow Jesus and the Bible, and to small government libertarians, government doesn’t have a right to interfere in marriage at all.

      1. “progressives” are what communist Americans called themselves.

      2. based on eugenics

        Also based on preserving the Afro-American Identity. “No more cream in the coffee”, as the Black Power crowd used to shout.

  8. It’s an interesting exercise, wondering how thoroughly this could be spread throughout the economy. Why not just put every single financial transaction on hold? Nobody earns or owes anything for three months. Statis! What could go wrong? I mean, after all, cows still produce milk, crops still grow, it’s not like without cash they just wither up and die. Tell the miners, oil rigs, refineries, smelters, farmers, factories, shops — everybody — just keep on ding what you used to, but don’t pay anything or charge anything.

    What could go wrong?

    And once that’s been in place for a couple-three-four months, extend it month by month, and pretty soon — socialism in its purest form!

  9. Economy means never having to say you’re sorry.

  10. Why a guy with the sensibilities of Mr. Greenhut stays in California baffles me. I lived there once upon a time too but reached my breaking point in ’94. No nest is nice enough to put up with that ‘progressivism’, IMO.

  11. My wife and I unloaded our rental house in CA last and retired out of state.
    We’ve not looked back…

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  13. “bargaining “will lead to an efficient outcome…as long as the transaction costs associated with bargaining are negligible.” In other words, if property rights are well defined, most people will negotiate a reasonable solution. Unfortunately, government edicts impede voluntary agreements by creating new rights, uncertainties and transaction costs.”

    Here’s the problem though; by not creating a new right to not be evicted, someone will be evicted. Maybe not a lot of people, but it’s inevitable. At that point you have to ask how that is a more efficient outcome.

    No economist will ever tell you that markets are perfect or that the invisible hand and “self correcting” markets mean everyone has a quick and perfect remedy to their problems, but I really doubt that eliminating uncertainty over evictions will cause more problems than it solves. Why evict people? Because they chose employment opportunities where income becomes at risk during a once in a generation pandemic and choices were made to shut down their livelihood that are beyond their control and 100% the fault of government? I’m all for enforcing contracts and telling people to make better choices but telling people they’re better off getting evicted is just tone deaf.

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