Will Moratoriums Kill the Market? | Think Realty | A Real Estate of Mind
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Will Moratoriums Kill the Market?

How short-term rent moratoriums could wreak havoc on the rental market for years to come

People braced for mass eviction of renters when the CDC’s moratorium expired on July 31, 2021.1 But as someone who has been one of the more outspoken advocates of a group of people without one (landlords), I am more concerned about a country that needs to brace for a lack of long-term housing as a result.

There is no national database regarding “potential” evictions. But I do know this; there has been a significant amount of rental assistance in many states being distributed to and on behalf of renters, both during and prior to the COVID-19 pandemic. A small percentage of cases went to suit and resulted in the of tenants. The majority of tenants and landlords have worked out resolutions, or the renters found alternative housing independently. With so many variables, there is no legitimate way to come up with even broad eviction numbers before the moratorium is lifted.

But an underreported fall-out from interminable government COVID rent moratoriums is the impact that more than a year of “bad” rental debt will have on landlords and tenants. The CDC, a government agency that is supposed to regulate health issues, should have never been in the position to take constitutional protections away from landlords.

The federal moratorium had questionable authority even at the height of the pandemic. I have seen this rent moratorium process as an unconstitutional taking of property without compensation. It should be up to the local courts to decide, on a case-by-case basis, if landlords and tenants are acting in good faith. Relevant state laws and judicial discretion should be used accordingly, as they have historically done.

Contrary to what has been reported, CDC rent moratoriums have not erased people’s contractual obligation to pay their rent. These arrears in rental payments are not only going to hit the renters’ credit rating and the ability to find housing later but it’s been hitting landlords hard. I’m not talking about big corporate conglomerates. Almost half of all rental properties are four or fewer units and of those, nearly 80 percent are owned by “Mom and Pop” landlords. Don’t think Larry and Leona Helmsley; think Larry and Leona Appleby. And they have mortgages to pay.

While many social advocates and the media continue to focus on the immediate potential homelessness of renters, more attention needs to be focused on the rental market beyond 2021. We are entering into an era, not a season, of devastating renter double jeopardy Specifically, landlords will be forced to raise rents to regain some of the financial footing lost during the pandemic, pricing many renters out of the market.

Another obvious repercussion of having tenants in arrears for over a year is that landlords will also have to tighten the process of financial pre-approvals, a bar many renters cannot meet after a year of bad rental debt. As for the renters still renting their properties, the vetting system has already begun to determine which are worth taking a risk on, long-term. Landlords continue to be willing to work with tenants via payment plans and other alternate resolutions so long as the tenant remains engaged in the process.

Too often, though, a tenant who knows of the government protections available are simply “riding out” these moratoriums without making best efforts on their end relating to their rent delinquency. With the additional federal unemployment being allocated and generous rental assistance programs, some of these tenants may have more access to assistance than ever before. But landlords still have underlying mortgages, taxes, insurance and maintenance costs to pay, much of which is increasing by the day.

The next logical domino to fall is municipalities that are going to find themselves cash-strapped due to a lack of revenue and will, in turn, undoubtedly raise taxes and add more red tape to their housing oversight — another roadblock to renters.

1 The CDC had not yet imposed continuing the moratoriums at the time of this writing.

Matthew Paletz is the CEO of Paletz Law in the Detroit area. He is a leading national advocate and supporter of legislative efforts on behalf of the real estate industry and has been dedicated to landlord-tenant law since 2003. Matthew is a graduate of the University of Michigan where he earned a B.A. in Communications then earned his J.D. from the University of Detroit Mercy School of Law in 2002.