Could Moratoriums Tip Us Into a More Severe Crisis?

Rent moratoriums may seem kind-hearted, but in reality they might only worsen the affordable housing crisis that politicians have engendered for years, contends Grace Hill's Dru Armstrong.
Dru Armstrong

Politicians, academics and activists have been calling for rent moratoriums to continue, to ease the economic crisis that has arisen from the coronavirus pandemic. They are not being helpful. They don’t have the full picture and they’re being shortsighted.

Rent moratoriums may seem kind-hearted. In reality, unless balanced more effectively with mortgage payment moratoriums and other relief measures, they are wrong-headed job killers that will only worsen the affordable housing crisis that politicians have engendered for years.

Getting the timing right

It’s true that Congress has worked to advance mortgage forbearance for multifamily property owners. But as the National Multifamily Housing Council pointed out early in the process, the program started by only providing relief to owners who have federally backed mortgages. And the program also limited forbearance to a 90-day time period. That doesn’t make sense if there is a 120-day eviction moratorium, for instance.

Failure to fix this fast enough as events evolve could mean a collapse of the rental housing market—a collapse that could take whole communities with it.

Making problems bigger

When government permits residents to skip or postpone rent, halts all evictions or alters rental regulations overnight, major pains in the future are inevitable. The rental market depends on the law of supply and demand. Without payment of rent, or even payment plans in place with residents, a core lever to drive the right choices in rental markets disappears. Once that happens, real estate management and development and all the jobs that go with it decrease. Rent pays for people, including the 17.5 million workers the multifamily housing industry supports.

The entire economy is at stake. Most landlords are small-business owners, not big corporations. In addition to hiring workers and financing construction projects, they pay mortgages that keep local banks alive, property taxes that fund schools, insurance bills that protect housing stock and utility bills that keep the lights on. Today, because of the coronavirus, property owners are also spending more on training and new technologies, even as they face greater personal risk to themselves.

Bad choices

Yet many of the proposals that continue to be floated will force property management companies to make hard choices about the service levels they can provide, and what bills they should pay at the exact time their services and investments are needed more than ever—when many citizens among the 100 million renters in America try to figure out reopening, shifting quarantines or the possibility of sheltering-in-place orders returning. Without rent, landlords can’t staff or provision people’s homes, undermining the quality of our housing and potentially endangering lives.

Rent relief programs coupled with mortgage relief programs would take enormous pressures off property owners. These programs should restructure payments temporarily as the crisis continues, however, not give carte blanche to renege on payments. Americans who can pay should pay, even if only proportionally. Most landlords are already making those arrangements with tenants. Government intervention that doesn’t take the needs of owners into account only makes that process harder.

After all, renters can’t simply stop paying indefinitely. That would only light the fuse of another housing crisis that would explode later, hobbling the post-pandemic recovery. Contracts are in place. Late fees will accrue. Sooner or later, landlords will seek any relief they can find in the court. Meanwhile, legal costs, debts and fears of nonpayment will put further upward pressure on rents, making it harder for new renters to find housing.

Shelter

Talk of moratoriums and the programs that have been put in place have already sent a chill through the industry, setting a new bar for risk management, which adds costs. If the first thing we do when a crisis develops is stop paying rent, the viability of real estate as a business is on the line. We are setting ourselves up for a fall if we can’t navigate these times in financially responsible ways.

In the 1940s, as World War II raged, psychologist Abraham Maslow developed his famous hierarchy of needs. Shelter was among the first requirements he listed for humans to lead a full life. But shelter doesn’t appear out of thin air. Builders need to build it. Landlords and property managers need to maintain it. We can’t protect one without the other.


Dru Armstrong is the CEO of property technology company Grace Hill, which focuses on policy, training and assessment software designed to develop, retain and build talent.