Unintended Consequences: What They Won’t Tell You About California’s Eviction Moratorium

July 18, 2021 Updated: July 21, 2021

Commentary

Much has been written about tenants who fall through the cracks of the well-intentioned rent and eviction moratoriums. In the course of that dialogue, any discussion about the moratorium’s effects on landlords and property owners has become lost in the shuffle.

As a result, next to nothing has been said about small landlords and property owners struggling to make ends meet in the wake of each eviction moratorium extension.

Allow me to elaborate. I represent a nearly retired senior married couple in the San Francisco Bay Area who lease a second home to tenants. For many years, the elderly couple has aspired to live out their golden years on the small income generated from rents on that second home.

Immigrants from El Salvador in their youth, they worked tirelessly to make a living wage to support their two children. Laying hold of the entrepreneurial spirit from which our nation was founded, the couple then started a repair and maintenance business with little savings.

In spite of a language barrier and health challenges, their family business became profitable with time. After years of pursuing their glimpse of the American dream, the couple was able to purchase a rental property in the Bay Area.

Now one thing stands in the way of that couple’s dream: tenants who refuse to pay any rent after more than two years.

As a result of countless attempts to collect the back rent owed and the tenants’ refusal to pay any rent, without excuse, the couple looked into obtaining a mortgage forbearance. Learning that the forbearance would negatively affect their credit, while requiring them to pay the full balance following the deferral period, they decided not to pursue it.

Meanwhile, the tenants remain in the home without paying any rent. Left with no other options, the couple was forced to exhaust their savings to pay the mortgage.

That couple is just one of the thousands of small property owners throughout California who struggle to manage and navigate the demands of the multi-tiered eviction moratoriums. If you haven’t heard about these landlords, that’s likely because of the myth that most landlords are quite wealthy and unaffected.

Allow me to briefly debunk that myth.

The average annual pay for a landlord in California is approximately $77,220. For context, anything less than a six-figure salary places one below the poverty line in many parts of California. This is especially true in the San Francisco Bay Area, where families earning less than $117,000 qualify as “low income.”

That means that while a small number of landlords are wealthy, the vast majority on average make median to lower-income pay. In the grand scheme of things, the average landlord and tenant often aren’t so far apart financially.

Contrary to the heroic “David Tenant” versus “Goliath Landlord” scenario cleverly illustrated by mainstream media, the bitter reality is that landlords struggle when renters stop paying. Like tenants, if landlords don’t have sufficient savings, they too are often only a payment or two away from poverty or homelessness.

The statewide eviction moratorium was signed into law by Gov. Gavin Newsom on March 1, 2020, and has been extended several times.

Pressured by tenant advocacy groups throughout the state, Newsom recently signed into law yet another moratorium extension, through Sept. 30. Among other things, the law extends the prohibition on evictions for nonpayment of rent. Tenants need only pay 25 percent of past-due rent by Sept. 30 to avoid eviction.

The one saving grace in the law is that it eliminates a prior requirement that a landlord must accept 80 percent of back rent owed and forgive the remaining 20 percent as a condition of receiving government assistance. Now, landlords are able to potentially recoup 100 percent of an eligible tenant’s missed rent payments since April 1, 2020.

I’m not suggesting that the eviction moratorium or its subsequent extensions are not well-intentioned. A deadly and pervasive virus coupled with a recession has caused the displacement of thousands of tenants. The pandemic’s effects on tenants have necessitated assistance from state and local governments.

However, many of the measures and regulations behind the moratorium have borne harmful consequences for landlords and tenants alike.

Another problem for tenants predates the eviction moratorium: Tenants, on average, pay at least half their earnings to a landlord. For years, hardworking middle- and working-class residents have been forced to rent less-than-desirable units at astronomical rates. As such, it comes as no surprise that the movement to extend rent and eviction moratoriums—each of which places laws analogous to rent and eviction controls—has drawn traction.

Nonetheless, it’s wishful thinking to suggest the rent and eviction moratoriums should continue indefinitely. In fact, rent and eviction moratoriums are rent and eviction controls on steroids. Some people have gone as far as to argue that the moratoriums completely eliminate landlords’ security in their contracts with tenants.

This, some argue, is a violation of the contract clause under the U.S. Constitution. The contract clause prohibits laws that excuse a party from contractual obligations.

To get a better picture of what our state’s housing market could look like with long-term or permanent rent or eviction moratoriums in place, we need only revisit 1994—the year before a state law was enacted to prevent local governments from enacting extreme forms of rent control and regulations.

We learned in the early 1990s that extreme forms of rent control can leave tenants and property owners in poverty and even displaced. Without an exemption for newly constructed buildings, construction companies had a disincentive to construct single and multi-family units for the increasing population.

More importantly, the rent control limitations forced property owners to rent out their units at rates so low that many couldn’t afford to keep up with building code regulations and maintenance.

The end results were nothing short of disastrous: hundreds of neighborhoods throughout our state left with dilapidated housing, a housing market that couldn’t keep up with the population’s demand, and an alarming increase in the homeless population. Ironically, the rent control ordinances that were designed to provide affordable housing to more residents failed to secure housing for an increasing homeless population.

In all fairness, much has changed since 1994. First, the state population has grown by nearly 10 million in the past two decades, making our need for housing more urgent now than ever before. Second, in the wake of the most destructive California wildfires on record, we have witnessed nearly 10,000 structures burn to rubble or collapse beyond repair.

To place the loss of 10,000 structures in context, consider that the State Legislative Analyst’s Office tells us that we need to build more than 100,000 new rental units per year to make room for the state’s growing population.

Put simply, the state’s real housing crisis isn’t merely high rents or evictions; it’s an absolute shortage of housing. This problem demands a solution that incentivizes, not discourages, private investment in affordable housing.

The problem requires a solution that encourages the new construction of single-family units, giving middle and working-class tenants access to more units and rents from which to choose.

In short, the problem demands an end to the eviction and rent moratoriums, which will ultimately loosen the shackles on our burdened housing market. In turn, our economy will thrive, which will mean vast opportunities for people at every end of the socioeconomic spectrum.

History tells us our housing market is fragile. Enacting too many laws to address a market-driven problem will almost always result in unintended consequences. The best model of a housing market is one that encourages homeownership; a market that incentivizes, rather than punishes, property owners for offering affordable housing; and a market that breeds prosperity at every socioeconomic level.

These noble goals are achievable when we establish a market that protects renters without unduly burdening property owners.

Jonathan Madison worked as professional policy staff for the U.S. House of Representatives’ Committee on Financial Services. He regularly provides opinions on Fox Business Mornings With Maria and has appeared on the following networks and television shows: Saturday Night Live, KRON 4 News, NBC Bay Area News, and KTVU Channel 2 News. As chairman of the Alameda County Bar Association Real Estate Section, Jonathan leads a team of real estate attorneys in educating the County of Alameda in simple and complex legal matters. Beyond this, he leads a prison ministry at the San Francisco County Jail. He is lead attorney at The Madison Firm and can be reached via email at Jonathan@themadisonfirm.com.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Jonathan Madison worked as professional policy staff for the U.S. House of Representatives, Committee on Financial Services. He regularly provides opinion on Fox Business Mornings With Maria and has appeared on the following networks and television shows: Saturday Night Live, KRON 4 News, NBC Bay Area News, and KTVU Channel 2 News. As chairman of the Alameda County Bar Association Real Estate Section, Jonathan leads a team of real estate attorneys in educating the County of Alameda in simple and complex legal matters. Beyond this, he leads a prison ministry at the San Francisco County Jail. He is lead attorney at The Madison Firm and can be reached via email at Jonathan@themadisonfirm.com.