When Lawyers Make Things Worse—Housing Edition

A study suggests that "right-to-counsel" in eviction cases actually leads to greater homelessness.

Tyler Cowen flags a working paper by Boaz Abramson that suggests that some policy measures adopted to help protect tenants may actually increase homelessness. The paper, "The Welfare Effects of Eviction and Homelessness Policies" looks at several policy interventions aimed to help tenants, and models their effects.

Here is the abstract:

This paper studies the implications of rental market policies that address evictions and homelessness. Policies that make it harder to evict delinquent tenants, for example by providing tax-funded legal counsel in eviction cases ("Right-to-Counsel") or by instating eviction moratoria, protect renters from eviction in bad times. However, higher default costs to landlords lead to higher equilibrium rents and lower housing supply, implying homelessness might increase. I quantify these tradeoffs in a model of rental markets in a city, matched to micro data on rents and evictions as well as shocks to income and family structure. I find that "Right-to-Counsel" drives up rents so much that homelessness increases by 15% and welfare is dampened. Since defaults on rent are driven by persistent income shocks, making it harder to evict tends to extend the eviction process but doesn't prevent evictions. In contrast, rental assistance lowers tenants' default risk and as a result reduces homelessness by 45% and evictions by 75%. It increases welfare despite its costs to taxpayers. Eviction moratoria following an unexpected economic downturn can also prevent evictions and homelessness, if used as a temporary measure.

And here's the paper's conclusion:

Despite the wide policy interest, little is known on the equilibrium effects of eviction and homelessness policies, when rents and housing supply can adjust. This paper quantitatively evaluates these policies in a dynamic equilibrium model of the rental markets in a city, in which households can default on rent and face the risk of eviction and homelessness. The model is quantified to San Diego County and is estimated to match micro data on evictions, and homelessness, as well as the risk dynamics that drive defaults on rent. I then use the quantified model for counterfactual analysis.

I find that "Right-to-Counsel" drives up default premia so much that homelessness rises by 15 percent in equilibrium. While lawyers make it harder to evict delinquent tenants, they are unable to prevent their eviction. The shocks that drive defaults, namely job-losses and divorces, are associated with persistent income consequences and therefore cannot easily be smoothed across time. Low-income households suffer the largest welfare losses, since they experience the largest increases in rent and are priced out of the market. At the same time, some richer households are better-off, as the risk-free rent they pay is lower due to the fall in housing supply and house price induced by the policy. Overall, "Right-to-Counsel" dampens aggregate welfare and is associated with an annual monetary cost of 37.4 million dollars to the County of San Diego.

Means-tested rental assistance is a more promising solution. It reduces homelessness by 45 percent and the eviction filing rate by approximately 75 percent. The insurance provided by the subsidy lowers the likelihood of default rather than making it harder to evict tenants who have already defaulted. Low-income households, who are eligible for the assistance, are the main beneficiaries. Some richer households are worse-off , since the risk-free rent that they pay is higher, reflecting the increase in housing supply and house price induced by the policy. Rental assistance improves aggregate welfare and is associated with net monetary gains: the cost of subsidizing rent is lower than the savings in terms of lower expenditure on homelessness.

Finally, I evaluate the effects of enacting a temporary moratorium on evictions in response to an unemployment shock of the magnitude observed in the US at the onset of the COVID-19 pandemic. I find that the moratorium prevents homelessness and evictions along the transition path. The temporary nature of the moratorium is key, as it implies that the moratorium leads to only mild increases in rents.

Although lawyers may not like to hear this, the paper supports the view that policies that affect housing costs are more important than those that enhance the legal protection of tenants or ensure greater legal defense. Abramson focuses on means-tested rental assistance as an alternative policy intervention, but insofar as the effect he finds is a function of housing affordability, it would seem to support other measures designed to make housing more accessible and affordable (e.g YIMBYism over NIMBYism). This conclusion is further supported by the finding that a measure that reduces housing supply increases homelessness.

The study is also further evidence that the intentions behind a given policy tell us little about its likely effects, and that just because a policy measure is intended to help people does not mean it will, particularly when compared to potential alternatives.