For some very valid reasons, the U.S. Center for Disease Control (CDC) has issued an order which extends the moratorium on residential evictions to June 30, 2021, as it has the power to do in pandemic situations such as involve COVID-19. This moratorium basically continues a line of such orders from the CDC, and originally from the CARES Act in March of 2020. But the eviction moratorium cannot last forever, and the stated purpose of the moratorium to combat COVID-19 is rapidly being negated by the numbers of Americans who have been vaccinated and predictions that all Americans will have had at least access to vaccinations by June, 2021.
There is no “free lunch” here as in anything, and while some Americans have benefitted from the eviction moratorium, other Americans have suffered; namely, landlords. While it is often convenient to picture landlords as faceless and greedy slumlords or real estate investment trusts that are concerned with little more than how large investor profit distributions can be, the truth is often very different. The vast majority of residential landlords are simply small real estate investors, known in the business as the “Mom & Pops”, who instead of dropping their retirement money into a CD or mutual fund, instead bought one or a few residential properties and then leased them out. While not receiving any rent, the Mom & Pops have still been required to pay local property taxes, casualty and liability insurance, and often bear maintenance expenses.
The Mom & Pops (and even the slumlords and REITs) have constitutional rights too, and the eviction moratorium arguably ⸺ some would suggest clearly ⸺ violates both the Takings Clause of the Fifth Amendment, and the Contracts Clause of Article I § 10. However, the Constitution has been shown to be somewhat flexible in practice during times of national emergencies (you can ask the Japanese Americans interned during the Second World War about that flexibility), and so long as the emergency exists the courts will either look the other way or take their time in resolving some of these difficult issues. Nonetheless, at some near point in time, the eviction moratorium will no longer be constitutionally sustainable and will have to come to an end. That is simply a fact, as immutable as gravity, and all the aforementioned issues (none of which I intend to argue herein) simply build up to this fact.
What I do want to discuss, from the perspective of a creditor-debtor attorney, is what happens when the eviction moratorium is lifted.
There are now law offices across America that have stacks of papers waiting on their desks to be filed with the court clerks and delivered by process servers to cause evictions that will probably number in the millions. To give an idea of the numbers involved, the U.S. Census Bureau’s Household Pulse Survey estimates that approximately 4.3 million Americans may suffer from either eviction or foreclosure. If these folks are forced out, where are they going to go?
Here we arrive at the single biggest problem: Bad credit. The folks who are being evicted or foreclosed upon (which will result in eviction if they do not vacate the premises voluntarily), will suffer from bad credit. With bad credit, it may be very difficult for these folks to find new accommodations. The vast majority of landlords, having just suffered a terrible year themselves and quite possibly just fought their own battles to evict holder tenants, are not going to be in a frame of mind to accept folks who were themselves just evicted or couldn’t pay their loan. It is thus entirely possible that large number of the recently evicted or foreclosed upon will find themselves homeless.
To put these numbers into perspective, consider that the U.S. estimates that on any given night, approximately 500,000 folks in the U.S. experience a state of homelessness. If suddenly another 4.3 million Americans are forced to live in the street, that means an eightfold (800%) increase in homelessness. We’re talking about a problem of John Steinbeckian proportions.
Now, not all these folks will necessarily become homeless. Some will move back in with their families, and probably many others will jam in together in apartments and rental homes with somebody who did have adequate credit ⸺ think of eight families packed into a two bedroom apartment. But that still leaves an awfully lot of folks who can’t make such arrangements and will find themselves in a state of homelessness.
The problem is compounded by the fact that care for our existing 500,000 homeless in America was already marginal at best. Care facilities everywhere are inadequate, at best, and social services struggle to provide even the most minimal human subsistence for this population. Instead, America’s attitude towards the homeless problem has historically been one of sweeping it under the rug combined with the NIMBYism (“Not In My Backyard”) of shooing the homelessness into the most dilapidated parts of cities, out of sight, out of mind. To suddenly triple, quadruple, or have any worse increase in homelessness will utterly crush the flimsy and already-inadequate social safety net that we have for these folks. John Steinbeckian, indeed.
This is a problem without any easy solutions, and one which will severely challenge the Biden Administration just as it challenged the Roosevelt Administration in the 1930s. However, I do humbly make my own minor suggestion, which is to consider the concept of a “credit holiday” for some period of time, which means that for some period of time landlords cannot deny rental availability based on bad credit or a recent history of eviction (if somebody is a serial deadbeat who never pays rent, that’s another story). Perhaps the credit holiday could work by simply creating a blank spot in one’s credit history from March, 2020, when the pandemic started, to some future date.
Detractors of such an idea would quite rightly point out that giving such a credit holiday would again put the burden back on landlords, so there would have to be tax or other incentives given to landlords who accept renters with bad creditor or a who have taken advantage of this credit holiday. Such incentives could, for instance, come in the form of allowing landlords to increase their tax basis so that when eventually they do sell their properties, they can get relief from the capital gains that they would ordinarily pay on such sales. Creating special rules for accelerated depreciation for the rental properties occupied by such renters might also substantially soften the blow (such accelerated depreciation schedules have often been used in the past when other industries were in trouble, such as for purchasers of private aircraft following 9/11). And, after all, landlords fundamentally desire to lease out their residences and not have them sit unoccupied. Given the proper balance of stick and carrot, it might just be possible to avoid another round of Hoovervilles.
Whatever the solution, the Administration and Congress need to be working on this problem now, and not waiting (as they usually do) for the problem to ripen into a disaster come 2021. Proactively dealing with this issue will in the end cause a lot less pain and suffering for everybody than waiting to retroactively clean up the mess, and not just financially but also emotionally for the folks who may be forced into an extended period of homelessness.
Those stacks of paper sitting in the law offices all across our great nation are not going to wait.
My $0.02 American.