The CDC Has Stopped Evictions, At Least Until the End of the Year. Big Players Will Benefit.

The Centers for Disease Control and Prevention, operating under the US Department of Health and Human Services, assumed jurisdiction over private residential leases nationwide and has curtailed evictions until at least the end of the year. The CDC’s new directive threatens federal criminal penalties against landlords who ignore the ban that include up to $500,000 in fines and one year in jail. Over time, this eviction moratorium will create a lot of distressed properties for landlords that cannot pay their mortgages.

The CDC is essentially voiding contracts by allowing one party to stop performing, and blocking the other party from suing for non performance, radically altering the bargaining power of the parties. When contracts are not enforceable, each transaction has a much higher risk.

The Centers for Disease Control and Prevention, operating under the US Department of Health and Human Services, has asserted jurisdiction over private residential leases nationwide. It intends to curtail evictions until at least the end of the year, and in fact its new directive threatens federal criminal penalties against landlords who ignore tenant “declarations” made using CDC forms.

As Jeff Deist put it, “This is astonishing, even by 2020 standards.”

Salim Furth, a senior research fellow at the Mercatus Center at George Mason University, notes that landlords don’t want vacancies so they’ve largely been working things out with tenants during the first few months of the pandemic.

Free markets work.

But now we have the heavy hand of government setting the rules.

Who the hell is going to want to be a landlord in this kind of environment?

Deist again:

The fallout from suspending rental contracts will be deep and long lasting. Many landlords will find their situations untenable and stop making mortgage and property tax payments. New rental housing stock will be depressed, as owners worry about the next suspension of rent payments now that the precedent has been set. After all, why wouldn’t moratoriums happen again when the next pandemic or financial crisis hits? Rental housing units will drop in price as more landlords abandon the business—setting the stage for commercial and private equity buyers to grab units on the cheap from individuals and small owners. Ultimately, foreclosures, evictions, and tax sales will happen no matter what the federal government does. The likely outcome is bigger players owning more and more of the rental housing stock, consolidating the permanent renter class and adding to the rootlessness many Americans feel. Even the most modest home ownership creates skin in the game and encourages better neighborhoods, while areas dominated by rentals lack the same incentives for improvement. And the new owners of rental units will pass all the uncertainty, risks, and potential losses on to millions of Americans in the form of higher rents.

And you guessed it, the blunt instrument of government edicts will result in other madness.

 Todd Drake, small property owner, Empire Real Estate Management, LLC in Albany, NY tells WRGB News of the problems he is already having because of the New York state eviction moratorium:

No matter what they do, there is nothing we can do. The police can’t help us. The courts won’t help us, and the New York State government won’t help us. We had somebody in the building that invited another person to live with him and was not on the lease. She began- I think she uses substances or has mental health issues – she began smearing feces all over the walls in common areas. The other residents were appalled. I have moms that scared to be on the property because the next-door neighbor can’t be evicted.

And to Deist’s point about apartments falling into the hands of bigger operators, Bloomberg reports:

Daniel Kattan, co-founder and managing partner of PIA Residential, a private equity real estate firm based in Miami, says that corporate landlords are not likely to suffer under the moratorium, because institutional investors are better equipped to weather a short-term downturn…“In the long term, this eviction moratorium will, unfortunately, create a lot of distressed properties for landlords that cannot pay their mortgages,” Kattan says. “For us, it will be an opportunity to buy more.”

The CDC regulation calls for landlords who violate the ban to be subject to penalties ranging from $100,000 to $500,000 in fines and one year in jail.

“Housing advocates” are planning to guide renters in filling out the CDC forms that will help them certify that they’ve lost income or suffered extraordinary medical expenses and that eviction would put them on streets.
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5 months ago

As a small landlord, I must now be more selective to whom I rent, making it harder for poor and young people. As it happens, most of my property is not mortgaged at the moment.
The landlords who fail will provide great opportunities for those who have cash or bitcoin to buy. Small landlords will suffer like the small restaurants. Only the strongest will survive. The losers will be encouraged to trust socialism rather than free market.