Since Covid, Landlords have been portrayed as the big bad wolf and the root cause of pretty much any housing woe you can think of. Legislatures have jumped on the bandwagon essentially declaring war on landlords with the number of tenant laws doubling in three years. What has happened as a result of the war on landlords? What does this mean for rents and real estate prices? A California University quantified the impact and the findings were a huge surprise.
Key legislation from the war on landlords:
Covid set off a tsunami of unprecedented laws/initiatives aimed to help struggling tenants. Many of these lasted for four years after the pandemic began and set in motion a wave of tenant friendly protections that jumpstarted the “war on landlords” that has been accelerating in recent years.
In just three years, local governments have passed 217 measures across 16 categories, including caps on rent increases, restrictions on lease nonrenewals, mandates for landlords to participate in the federal housing-voucher program, and strict limits on security deposits and fees. Pre-Covid, 288 such laws existed nationwide. In other words, since the pandemic, states and localities have nearly doubled the legal framework governing residential leasing.
- Evictions bans: 43 states and hundreds of local governments used emergency powers during Covid to enforce their own wider proscriptions of tenant removals. While some lasted for just a few months, others extended for years. Eviction bans lasted in New York and Minnesota until 2022, and in parts of California until March 2023.
- Rent caps: Many cities have implemented various forms of rent control to essentially halt rent increases even though insurance is increasing, taxes, etc…
- Rent Forgiveness during Covid: Landlords lost billions of dollars due to rent forgiveness that was not collected from tenants.
- Much more difficult eviction process: Even post covid, the time and cost to evict has increased substantially costing landlords time and money and ultimately pushing small property owners out.
Colorado a posterchild for what happens in war on landlords
Colorado’s homelessness has skyrocketed, rent prices have increased, and yet the solution from the Colorado legislature has been to radically increase tenant protection laws. Below are just a few recent examples:
In Colorado there is a new law that was recently passed that prohibits landlords from collecting damages from many tenants even if they intentionally damage the property. Furthermore there is another law that prohibits the use of security deposits for repairs if a property has carpet in the unit.
Couple these laws with habitability bills in Denver and it is no longer profitable to operate a cost effective rental in Colorado as the costs and liabilities far outweigh the income from a lower priced tenant.
As a result, Denver has a huge affordability problem and homelessness has skyrocketed as affordable housing has been either sold or updated to bring in higher returns. The increased burden on property owners has created an affordability crisis throughout many cities in Colorado.
War on Landlords creates more corporate ownership
With all the new laws, it is not possible for a small landlord to survive as it is nearly impossible to keep up with the rapid changes in the legislature that cost landlords time and money. For example evictions could now take 6 months to a year. A small landlord who has only a few units and a mortgage will not be able to absorb these costs.
We can look no further than what happened in banking. As the government continued to increase the requirements on banks, there was a huge consolidation with over half of small community banks closing/being sold in the last 10 years or so.
War on Landlords reduces affordable housing
The war on Landlords is a troubling development that can not alter basic economics. As it becomes more expensive to evict and various other laws are implemented, landlords are responding by selling lower priced properties and only focusing on mid to upper tier properties as the risk for owning affordable housing is now too great.
As the war on landlords continues, basic economics will continue to rule and ultimately eliminate cost effective rentals and force any remaining rentals into government programs. A University of California study, out of a very liberal institution, backs up this theory with numbers.
Here is an excerpt from a University of California Study:
We construct a search-theoretic model of landlord and tenant search and matching, which predicts that an increase in the cost of eviction reduces the number of evictions but raises rents and homeless rates and lowers housing supply and vacancy rates. To test these pre-dictions, we construct an annual index to measure the level of the legal protection of tenant rights in each state. Our instrumental variable results indicate while a one-unit increase in the Tenant-Right Index reduces eviction rates by 0.32 percentage points, rental housing is 1.8 percent more expensive in areas where tenants have more protections against landlords. A higher Tenant-Right Index is also associated with an increase in households. There is also an increase in the homeless rate and a decrease in vacancy. Taken together, our findings highlight a significant trade-off between tenant protections and rent affordability and the negative effects of the increased demand for rental housing.
The war on landlords does not work
Even though various cities, states, and municipalities continue to tout the benefits of tenant protections, the proof is apparent. An increase in legislation to protect tenant actually has the polar opposite impact. For every increase in tenant protection, the cost to every other tenant is 600% greater (.3 decrease in eviction rate leads to 1.8% increase in costs for everyone else). Long and short, regardless of how cities or states like Colorado try to defy economics, at the end of the day it doesn’t work.
Economics always rules and the study from the University of California further confirms what we all know. There are tradeoffs with every policy and the trade offs to prevent evictions and provide crazy tenant protections merely transfers more costs to everyone else that ultimately lead to much higher homelessness and ultimately construction of fewer affordable units. Look no further than California, New York, or Colorado to see how these policies play out in real life.
A side note: Huge shout out to Francis Q. for the links/idea. I appreciate everyone who assists and forwards
Additional Reading/Resources:
- https://www.city-journal.org/article/covid-eviction-bans-landlords-tenants-laws-trump
- https://coloradohardmoney.com/new-co-law-makes-landlords-pay-for-damage-to-their-property/
- https://coloradohardmoney.com/you-should-not-buy-a-rental-property-in-denver/
- https://edcoulson.weebly.com/uploads/3/8/1/2/38122127/evictionrentpaper__2_.pdf
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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