Coronavirus: How to Deal with Late Rent Payments

One side affect of the pandemic that I've thought about is what is the right rent policy when it comes to those who have become unemployed due to COVID-19 and can't pay their rent. I lean towards the libertarian point of view when it comes to government and economics, but a pandemic that has stopped the ability of many to work has to result in some leniency it terms of government involvement -- at least for me.

The LA Times (Feb 2) has an article up about the issue of rent payments.

Renters across the nation are dipping into 401(k)s, taking on higher-interest debt, and scrambling for risky, essential-worker jobs to pay the rent. Research from Moody’s Analytics and the Urban Institute estimates 9.4 million U.S. renter households owed an average of $5,586 in back rent, utilities and related late fees as of January, for a total burden of $52.6 billion.

If one has a large 401(k) plan, I could see the case for dipping into it to pay your rent. My definition of large would be maybe in the $500,000 or more range. I'm not sure it is fair to just have your landlord take the hit or have the government cover you. Due to the CARES Act, a person could withdraw up to $100,000 from a 401(k) in 2020. I don't know if that was extended into 2021, but hopefully the government did so. If you're taking on debt, well that seems to be financial suicide and one should just depend on the moratorium on evictions.

If the total burden is $52.6 billion (and maybe include additional billions for those who took out high-interest debt), I would hope this is largely taken care of via federal aid. That seems to be the case via the below quote. 

States are planning to get federal aid funds, which have begun to flow, into the hands of landlords to reduce the debt load on tenants. California, where median rent is 50% higher than in the nation at large, has passed what state leaders characterize as the strongest statewide measures to address the crisis, providing a potential model for how states could distribute rent funds.

Now a major concern would be fraud. I would hope that after the $11.4 billion unemployment benefits claim fraud in California that states would be more cautious about dealing with back rent. Of course, being more cautious means taking more time. The article mentions that President Biden extended the moratorium on evictions until March while California extended it to June. At least in California, that seems to be plenty of time to carefully make sure you minimize fraud.    

The article brings up the concern about future issues around evictions. 

Eviction and debt can make it difficult to find new housing, take out loans, get some types of jobs or budget for necessities like food. In California, where rent was unaffordable for most tenants to begin with, the debt pile-on compounds a long-brewing problem . . . Prospective landlords often screen tenant candidates through their former landlords, allowing them to learn of debts they aren’t supposed to base decisions on.

For some reason, I'm just not sure that will totally holds true. Yes, if you have a high debt level, this will impact someone's willingness to lend you money. But will an eviction be held against someone? I would think landlords would over-look those years if you can prove you were impacted by the pandemic and then were able to right yourself.  

I'm not a fan of rent-control laws, but the below actually provides a reason why rent-control could cause a property owner not to take federal aid. In a situation like this, I would make a provision in the CARES Act where money could flow directly to the renter who can than transfer it over for rent. I'm sure there is a way to implement this so that money can be tracked and not diverted for other means.   

California’s rent-control laws may complicate the landlord’s decision, said Tina Rosales, a lobbyist with the Western Center on Law and Poverty. Under state law, landlords can charge as much as they can get for a rent-controlled unit once it becomes vacant. So it could be more lucrative to pursue an eventual eviction and not forgive debts if a tenant is paying significantly below market rates.

What isn't addressed in the article is homeownership. My bet in terms of homeownership is that a lot of banks will just re-negotiate the loans. My thinking is that they might forgive a portion of the missed interest payments and add the remaining to the loan balance and then extend the re-payment period.