Who will landlords rent to after an eviction wave?
Who will landlords rent to after an eviction wave?
Most landlords don't rent to people with eviction records
This question has been bothering me ever since it became clear that, in the absence of some kind of rent cancellation, an end to the various eviction moratoria will trigger a wave of eviction filings. After mass evicting families from already struggling neighborhoods, who, exactly, do landlords plan on renting to? Beyond the obvious—kicking families while they are down—landlords will also be shooting themselves in the foot if they proceed with mass eviction.
The argument here is that landlords are throwing the baby out with the bathwater—the demand out with the tenants:
There is currently a pool of renters, x, and a stock of rentable homes, y.
There is a “normal” rate of evictions that does not disrupt the basic equilibrium between x and y and the corresponding vacancy rate. Of course, this “normal” rate of evictions does cause long-lasting disruption to the lives the poor.
Eventually, the eviction moratoria will end. Landlords are chomping at the bit to begin filing evictions.
If these evictions proceed, the pool of renters, x, may very rapidly shrink to, say, 0.97x, thanks to the fact that a large share of landlords prohibit people with eviction records from leasing their apartments.
Landlords hoping to fill the units vacated by evicted families will be met with a reduced pool of eligible renters—that is, a sustained demand reduction. In order to fill homes, landlords may be forced to relax tenant screening standards or even reduce prices, neither of which they will be eager to do.
I’ll lay out some of the research on the pieces of this argument below.
Tenant Screening
According to a 2016 study on outcomes for people with eviction records, How Eviction Perpetuates Health Inequity among Low-Income and Minority Tenants, people with evictions on their records have serious difficulty leasing an apartment after an eviction occurs. This seems to be driven, for the most part, by the increasing adoption of online tenant screening services—background checks.
The founder of one such online tenant screening service was quoted in a 2006 New York Times article, saying:
“It is the policy of 99 percent of our customers in New York to flat out reject anybody with a landlord-tenant record, no matter what the reason is and no matter what the outcome is, because if their dispute has escalated to going to court, an owner will view them as a pain.”
It is difficult to find perfect data on these screening processes, but anecdotes like the one above paint a picture of widespread use of eviction records to reject tenants, and it is fair to assume that these online tenant screening services have only become more prevalent since 2006, especially considering the nationwide trend toward ownership consolidation of multifamily property following the housing financial crisis. The near ubiquity of tenant background checks makes a date in housing court a scarlet letter for anyone looking to rent a home.
Evictions and Vacancy Rates
In general, landlords are less likely to file evictions in markets with more slack, according to research from Matthew Desmond on serial eviction filing rates in 28 states:
The serial eviction filing rate was estimated to decline as a neighborhood’s rental vacancy rate increased. This suggests that the repeated threat of eviction is deployed to a greater extent in tighter markets, where vacated homes can be replaced more quickly.
This is an intuitive finding. If a landlord expects to have some difficulty replacing a unit due to low demand in the neighborhood, it may ultimately be more costly to evict and spend months finding a new tenant.
If landlords already know that serial eviction in low-demand neighborhoods is not always in their best interest, how will they respond to the lifting of the moratoria? This presents a coordination problem. The first to evict will have the least trouble filling units, but the later into the wave you get, the harder it will be to fill a vacant unit. I suppose it’s possible that landlords will recognize this issue. But I think it’s more likely they will pile in the door the day the courts open.
Tenants Behind on Rent, Landlords Itching to File
The most recent reports on the conditions of the rental market tell a grim story. According to a recent report from the National Equity Atlas, there are nearly 6 million renter households behind on rent (about 14% of rental households) for a total of nearly $20 billion in arrears. A dashboard tracking this data can be found here. Other estimates put these numbers even higher just a few months ago, but it’s likely emergency rental assistance programs have had some impact on bringing these numbers down.
National Equity Atlas also estimates that more than 60% of renters who are behind on rent are people of color, and nearly 80% are low-income, making less than $50,000 per year.
Considering the stark economic and racial segregation in many American cities, one conclusion we might reasonably draw is that the renters who are behind on payments are concentrated in specific neighborhoods. This fact unfortunately pushes back on the helpful landlord disincentives to evict in low-demand neighborhoods found by Desmond, above. And it spells tribulations for families, neighborhoods, and local governments, described below.
Long-term Impacts of Mass Eviction
Beyond these specific questions of what may happen in the near term with an eviction wave, there are also some recent findings on the impacts to neighborhoods of serial eviction behavior by landlords.
A 2020 paper, Eviction and the Dissolution of Neighborhoods, finds that the long term impacts of serial eviction—namely, high vacancy rates—lower neighborhood cohesion and engagement, measured by the number of requests for services from local governments. Lower requests for services, of course, leads to fewer services. Fewer services means abandonment, and higher vacancy rates. And there you have a simple, vicious cycle.
A Better Way
Landlords enjoy strong bargaining power. While there is no real monopoly in the rental housing market, groups of large landlords do effectively model some cartel-like behavior to maintain their power over tenants, e.g., by collectively refusing to rent to anyone who has ever been to housing court.
In the wake of the pandemic, many millions of households fell behind on rent by no fault of their own. If evicted, they will be forced into the tainted, unrentable class. Landlords will be shooting themselves in the foot if they proceed with a mass eviction event. Collectively, they would be better off forgiving rent and giving households a clean slate. If not, they will forced into a reduced demand situation and may have to put an end to background checks or even reduce rents, and even then it will likely not be the larger owner who budge first. The outcomes remain to be seen. But green pastures do not appear to be on the horizon for tenants or the landlords who plan to evict them.
Perhaps a more visionary framing is this: how is it that we have devised and encouraged a property system where, in the face of mass unemployment, we seem to channel all of the downside risk to as many small owners—many of whom are too small to absorb the shock—as possible? Would it not be both more just and efficient to pool our social real estate risk? A public backstop—a large, social housing portfolio—could smooth many of the problems here.
The effect would be not only to socialize the downside, but also the upside—the profits—which I am sure has some more socially beneficial uses than dividends for the few. Perhaps, simply, dividends for the many.