Moratorium Effects 2021
Wednesday, May 6, 2021, Judge Dabney Friedrich overturned the national eviction moratorium that the Center for Disease Control and Prevention had put in place on September 4, 2020, due to the Covid-19 pandemic.
If you have been living somewhere other than “planet earth” and have no clue what a moratorium is, by definition a moratorium is a temporary prohibition of an activity. That activity I am referring to was a ban on eviction filings as well as many other protections for tenants in certain rental properties with federal assistance or federally related financing.
This has caused a series of debates between landlords, tenants, county officials, state officials, and congress since the start of the Covid-19 pandemic.
I would like to discuss some of the moratorium effects with a focus on a few key topics (listed below) and open it up to the audience for feedback to learn and hear other's thoughts/perspectives on the situation.
I have provided several topics to allow readers to choose one, or all that is most relatable to them.
Discussion Topics:
- #1. How did the CDC ever have control or authority to make this ruling in the first place?
- #2. Who has suffered more due to the moratoriums? Landlords or tenants?
- #3. How do the different branches of government play a role in all this? (State, County, Federal)
- #4. How has the stimulus helped with the recovery process?
- #5. Who is behind on rents and what does this mean?
- #6. As an investor do you still buy during a moratorium or wait?
#1 CDC and control?
For more than 70 years the Centers for Disease Control and Prevention has been the nation’s leading science-based, data-driven, service organization that protects the public’s health. Their bold promise is to work 24/7 to protect the safety, health, and security of America from threats here and around the world.
Great right? Now, what do eviction rulings have to do with safety, health, and security? That is the concern in question, is it not? A federal judge (Dabney Friedrich), not I just struck the ban down that was originated from the CDC and ruled that the national moratorium exceeds the agency’s authority. Yes the CDC did this for safety, health, and safety reasons but was it the right thing to do?
How many pandemics like the Spanish Flu and Covid-19 has America seen? With these other pandemics has the CDC ever stepped in to ban evictions? Do you agree with Judge Dabney or the CDC?
#2 Landlords vs Tenants? & #5 Who is behind on rent payments?
Who has suffered more due to the moratorium? Landlords or Tenants? Well, I would have to go with the landlords. Tenants have had more protections and grants awarded to them if compared to landlords, and landlords have more risk associated with obligations to lenders if purchased with debt financing and the upkeep of the asset itself.
Shepard Smith with CNBC currently estimates that 10 million Americans or 18% of renters or behind on their payments. Presumptively this means that 82% of Americans have found a way to survive through the pandemic, keep their payments current, and adhere to their rental contracts.
As a property owner, your leverage with difficult tenants when they don't follow the rules or are non-compliant is your ability to remove them from your property for issues listed in a lease (contract) that both parties sign and agree to.
If I am wrong someone, please correct me. Let me hear your thoughts, what are other options you think would have been justified in this pandemic? I would love to hear from the tenant’s perspective as well. (I am currently a renter by the way and was in 2020)
#3 Branches of Government? (State, County, Federal)
Since the 19th Century, our government has seen attempted mass eviction. The Trail of Tears removed around 100,000 American Indian families from their homeland and created the Treaty of New Echota in 1835. In the 20th Century, we had the Great Depression from the Wall Street Crash in 1929. Most recently in the 21st Century we had the Great Recession between 2007-2009.
My point is that stuff happens and the government will do its best to step in to normalize and restabilize the economy. However, there always seems to be a problem between the levels of government and their harmony. The states say one thing, the county may or may not allow, and the feds say another, and it comes down to who has the most power.
Well with this pandemic at least 17 states have stepped up and provided their own moratoriums on behalf of their citizens in hopes of doing what is best for the local economy. Did you think they made the right decision?
How do you feel governments should have reacted? Do you feel other states should have a moratorium in place?
Learn more about moratorium policies from Newsweek.
#4 Stimulus Package
The American Rescue Plan Act of 2021 is a $1. 9 trillion Covid-19 rescue package designed to facilitate the United States’ recovery from the effects of the Covid-19 pandemic. We are going to focus on the numbers related to the real estate industry.
$21.55 billion for emergency rental assistance through September 30, 2027
$5 billion in emergency housing vouchers through September 30, 2030
$100 million for tribal housing improvements
$100 million for rural housing through September 30, 2022
$5 billion to assist people experiencing homelessness
The added $21.55 billion has increased the overall assistance to $45 billion from Congress for renters. With the addition of personal stimulus checks, increased unemployment benefits, and assistance for small businesses through programs like the PPP loan (which is forgivable). There have been several opportunities for financial assistance for citizens to take advantage of if used properly.
Prior to the Biden administration, the Trump administration passed the CARES Act which was an initial $2.2 trillion signed March 27, 2020, when the pandemic first began.
The government has been printing bills like crazy to turn this economy around. Quick math here will tell you that total that is $4.1 trillion in economic relief. Any more relief the value of the dollar may just be cut in half.
How do you feel about the relief packages presented by both administrations? Do you think the United States will see an increase in production? Or will goods and services just cost more making our dollar worthless? How has Covid-19 changed the value of the dollar? Check this article out from MoneyWeek.
#6 Investors!!!
Since I wrote this blog to my real estate investor audience the big question is, have you still been buying during the pandemic? Why or why not?
Have your property evaluations changed due to moratorium effects? Are you still able to evaluate properties on cash flow or only value-add?
A quick read from Connected Investors on COVID-19 Impact On Real Estate Investors.
Thanks for reading, I know it's a pretty lengthy blog but I have been holding my thoughts back for some time now and with the most recent ruling it just felt like a good time to communicate with the real estate industry as a whole to gain more understanding.
Fletcher L. Clardy III
@Fletcher Clardy Well written blog! Lot of great topics here. With regards to #2, who has suffered more. I would agree that landlords have suffered more initially. However, tenants will suffer more in the long run. Mainly because of three reasons :
- Many who have not paid due to the protections of the moratorium, regardless if justified, will be evicted and have this eviction on their record preventing good renting opportunities going forward.
- Many landlords who have suffered in Class C properties will no longer buy such property types. When there is no exchange on a product, ie this asset type, the product stagnates. Meaning it does not improve or in this case receive renovations or repairs as much. This ultimately leads to less quality affordable housing for tenants.
- Due to now forbearance and rent rolls showing lack of payment on properties, lenders will be hard pressed to and not lend on properties again in Class C or affordable housing. This again will cause lack of exchange on these type of properties and lead to non-renovated or improved properties.
As is often the case, when government attempts to control supply and demand, it ultimately worsens the situation. Russian attempts at real estate privatization and farming subsidies in the U.S. come to mind as examples.
@Chris Levarek Thank you for chiming in and adding your perspective on things. I certainly agree with you about the tenants suffering more in the long run. My managing director and I have been discussing this for weeks and we understand the issues you present relating to the long-term effects.
It is very concerning to think about the results of the pandemic as it relates to affordable housing. Inventory for affordable housing in low-income communities is already very low and most low-income communities are being gentrified.
This situation can certainly expedite the process and potentially increase homelessness. I am very curious to see what 2022 will look like.
Thanks for taking the time to write this. It's far too much to address but I agree the CDC never had the authority and was saying that from Day 1. I also disagree with the claim that CDC makes "science based" decisions because most of their claims were unscientific and their decisions were in direct contradiction to what the data shows. We're over a year into this and they still can't seem to get anything right.
I think they should have had people apply for Rental Assistance via standard Welfare Route with an expedite for the COVID problem.
It's un-American to pawn off what are basicaly Welfare Cases on business owners.
They didn't force McDonald's to provide 3 square meals a day for these people (for FREE).
They get food Stamps for that, and McDonalds takes them in return for the food--and MAKES A PROFIT--off of them.
No one wants to see more people go homeless (or hungry), but this is not the answer.
@Nathan Gesner Thank you for taking the time to read and offer your thoughts. I would also have to agree with you on the CDC's claim to make "science-based" decisions. As you stated in your response most of their actions are in direct contradiction of what the data has shown. I also think there is a big issue with the data overall.
Have you heard any cases where hospitals were changing the cause of death on death certificates to Covid-19 to bump up their case numbers and receive more support from the government?
This would also skew the numbers being reported to the CDC. I honestly don't think any entity has a true number of cases/deaths due to Covid-19 or even close to accurate for that matter. There has been too much finessing going on in an attempt to reap the maximum benefits.
@Scott Mac Thank you for your thoughts as well. It is very un-American to pawn the issue on business owners and suggest that people will be safer from Covid-19 if we prevent them from being evicted. You have no way of controlling someone's everyday movement or routines. People still have been leaving their homes and socially engaging.
What has happened from eviction prevention and increased unemployment benefits is a surge of people abusing the system and utilizing this as a break from life and reality instead of working harder to figure out a way to provide for themselves and their families. Several individuals have stood on the Covid-19 relief platform and played the waiting game.
I think this is just outright lazy and I don't support it one bit. If you were working and lost your job due to Covid-19. I am not saying that it has not been difficult for you. Just saying that there have been more rental assistance programs to help you pay to rent and also the increased unemployment benefits during this time period.
I think we will see an increase and filed bankruptcies in the near future which is not good for the economy.
Originally posted by @Fletcher Clardy:@Nathan Gesner Thank you for taking the time to read and offer your thoughts. I would also have to agree with you on the CDC's claim to make "science-based" decisions. As you stated in your response most of their actions are in direct contradiction of what the data has shown. I also think there is a big issue with the data overall.
Have you heard any cases where hospitals were changing the cause of death on death certificates to Covid-19 to bump up their case numbers and receive more support from the government?
This would also skew the numbers being reported to the CDC. I honestly don't think any entity has a true number of cases/deaths due to Covid-19 or even close to accurate for that matter. There has been too much finessing going on in an attempt to reap the maximum benefits.
I wrote a long, detailed rant about CDC, the COVID-19 response, shutting down schools and small businesses, and much more. I was chastised by BiggerPockets and basically told to shut up,. It's not my website and it's not directly tied to real estate investing, so I let it go.
If you want to discuss it further, create a new thread in the "off-topic" forum and I'll share my thoughts. I suspect you and I are already on the same page.