The failure of rent control: Sweden edition
Even though both theory and evidence show that rent control is bad public policy, Minneapolis’ city council continues to pursue it as a solution to the city’s shortage of affordable…
In March, Governor Tim Walz enacted an executive order that banned evictions. This was in response to increasing unemployment due to Covid-19. The moratorium was supposed to shield unemployed low-income individuals from eviction. The order has been tweaked now to include some exceptions. However, the order still maintains that landlords cannot evict tenants for nonpayment during the peacetime emergency period. The emergency period currently extends until November 12.
The Governor’s executive order only allows eviction under strenuous circumstances. These include a tenant posing serious danger to the safety of other residents, causing significant damage, or violating other laws. However, according to landlords (or Minnesota Multi-Housing Association), this standard is very subjective and courts have been interpreting it fairly stringently, which prevents landlords from addressing bad behavior.
In addition, Minnesota landlords are also bound by the CDC eviction moratorium that took effect on September 4th and expires December 31st. It allows evictions under property damage and other more lenient provisions. While these moratoriums are intended to be helpful in the short run current events point to a potentially exacerbated housing crisis in the future.
Minnesota has an affordable housing crisis, and this pandemic will probably make things worse. And unfortunately, the eviction moratorium will just compound the issue. Here is why.
Much like any businessman, property owners, or people who invest in property are looking to make a profit. And most of all, these people incur costs in their pursuit of profit and they rely on rental payments to cover these costs. Denying property owners the right to enforce evictions affects their revenue and jeopardizes their ability to meet their financial obligations like mortgages, property taxes, employee salaries, and utilities. This is especially crucial for small property owners who for the most part do not have large portfolios to help ease their financial burden.
Additionally, the eviction moratorium effectively works to discourage investments in and additional investments into new rental housing, and also maintenance of existing houses (leading to deterioration or loss of value). Small property owners may be forced to sell their property. A combination of all these factors would especially hurt rental housing in the lower end of the rent spectrum, by reducing supply growth in the long run.
In fact, Minnesota property owners have already been hugely affected. In September, the Star Tribune reported about some landlords putting off renovations and upgrades because of the moratorium. Additionally, so many other small landlords were taking drastic measures to stay afloat.
Small landlords are growing more economically and emotionally strained as the state’s eviction moratorium continues amid calls for social distancing and staying home during the COVID-19 pandemic.
In surveys of landlords, Gather Minnesota heard stories of some taking out money from their retirement to cover bills. Some tenants had stopped paying for utilities. Others abandoned their units without notice. Some tenants are telling their landlords they won’t pay rent, knowing they can’t be evicted.
While tenants can access rent assistance programs and other social services, Minnesota landlords have expressed anxiety about still needing to pay for property taxes, repairs and utilities.
The covid-19 crisis has disrupted supply chains, halted construction projects, and potentially reduced the growth trajectory in new construction budgets. So, even while well intended, these eviction moratoriums (both state and federal) will only work to make things worse in the long. This is especially true for the state of Minnesota where the crisis was already much worse.