A standard Economics 101 anecdote concerns the Law of the Maximum adopted in revolutionary France in 1793. The problem was a shortage of bread in Paris. The law set a maximum price that could be charged for bread with capital punishment for violators. Bakers were guillotined. The result was fewer bakers and less bread.
While that is a considerable oversimplification of history, the basic point is valid—politically popular solutions to problems often precisely contradict economic reasoning.
In the US today, beginning in March 2020, moratoriums on evictions for nonpayment of rent have been enacted at many levels of government. The moratorium of widest application and longest survival was ordered by the Centers for Disease Control starting September 4, 2020, and just extended again at this writing (June 26, 2021—the extension is promised to be the last one).
The rationale for the CDC order rests entirely on one foundational claim—that evictions increase residential crowding. The crowding leads to higher transmissions of CoVID-19, which leads to more illness and death. No empirical evidence or theory is offered for the proposition that evictions increase crowding. In place of that evidence, two deeply flawed correlational studies that made the same contrary-to-economics assumptions as the CDC were widely cited in the media, as well as by politicians and policy makers https://reason.com/video/2021/07/01/the-deeply-flawed-studies-behind-the-eviction-moratoriums/.
Economics argues the precise opposite. An eviction does not destroy a rental residence, the evictee moves out and a new tenant moves in. Crowding is number of renters divided by available residences. Eviction moratoriums encourage landlords to withdraw properties from the residential market. So fewer residences with the same number of renters means more crowding. You can’t create more rental housing for people in distressed financial circumstances by penalizing landlords for renting to them.
Now there might be other reasons to suspend evictions, such as concern for the welfare of potential evictees. But the CDC has no authority to legislate housing policy, its remit is limited to rules necessary to protect public health. From a public health standpoint, the goal is to maximize the amount of rental housing available in order to minimize residential crowding. A rational order would be to suspend enforcement of land use and occupancy rules that keep many potential rental properties off the market.
Most of the support for eviction moratoriums is likely due to sympathy for financially distressed renters rather than concern for public health. But here too, theory is negative. Even prior to the pandemic, we had lots of programs to help people get housing—government subsidies and public housing, eviction rules that allowed non-paying renters many defenses against evictions and that encouraged landlords to accept partial or delayed payment. These programs were ramped up in the pandemic.
If you think renters in financial distress deserve more help, these programs can be expanded further. But a blanket moratorium has a quite different effect. If you entirely remove the threat of eviction you don’t actually prevent many evictions as they are rare in the first place, but you do encourage millions of households to stop paying rent—especially those that are least distressed, and therefore unable to take advantage of existing housing protections. The number of households missing rent each month has been steadily rising even as pandemic infection and death rates have fallen, and the economy has improved, suggesting they are the result of eviction moratoriums rather than health or finances.
If you make the system more tenant-friendly you help the most needy and deserving tenants, without having to also help renters who are merely taking advantage of the crisis. By maintaining some possibility of eviction for the most egregious deadbeats, there is an incentive for everyone to pay rent if they can.
This is the dividing line between social safety nets designed to make life kinder and gentler, and socialism. The former cushion the force of economics, sacrificing some efficiency for humanitarian considerations. Socialism defies the laws of economics and mandates solutions that have to create bigger problems than they were intended to solve. It’s both radically inefficient, and inhumane.
Consider the analogy of tax enforcement. About 1,000 people per year in the US are jailed for income tax evasion. If you think that’s, too many you might cut it down by, say, increasing the minimum dollar amounts and percentages required for a criminal charge, or diverting offenders with no prior convictions to non-prison sentences. But if you completely removed the penalties for tax evasion, tens of millions of people would likely stop paying taxes. A complete ban, as opposed to making the laws less onerous, doesn’t help a lot more people, but it changes behavior of very large groups.
The moratoriums do not remove the obligations to pay rent—or penalties, fees and interest. In effect, they force landlords to make high-interest payday loans to people who are unlikely to repay them. If the landlords had voluntarily done what the CDC forced them to do, they would have been charged with violation of usury laws.
The loans come due when the moratoriums expire, and there are no good outcomes after that. Will new laws be passed to forgive the debts or have the government pay them? Will renters be forced into bankruptcy, and perhaps a lifetime inability to rent private sector housing? Will housing laws be expanded to force landlords to rent to people with histories of unpaid rental debt? Whatever the resolution, landlords will long remember the moratoriums, and be unwilling to rent to people without good credit and large security deposits.
Without much public debate, officials foisted a radical socialist policy on landlords and the results are exactly what economics predicts. Millions of households have racked up unpayable rental debt. Landlords will lose as tenants default. Tenants will lose as their credit is destroyed, particularly their credit in the eyes of future landlords.
The government may step up to pay off a lot of these loans, meaning people who struggled to make rent payments will lose out to people who did not. That may save many tenants from bankruptcy at great public expense, but it will not encourage landlords to continue renting to tenants with shaky credit as landlords now know what officials think of their property rights, and will not have confidence there will be future bail-outs.
Just as Paris had fewer bakers and less bread, we will have fewer rental units available to people in any sort of financial distress. That means more misery for poor people, more stress on public housing, more homelessness—and more crowding. The only winners are people who want a complete government takeover of housing—that is, radical socialists. And if we are to adopt socialism, it should be done by elected officials advised by economists, not unelected public health officials forcing their flawed economic beliefs on society by pretending they represent public health science.
