Housing affordability was an issue long before the COVID-19 pandemic and the housing programs proposed by President-elect Joe Biden and Vice President-elect Kamala Harris during their campaign could change the ways Americans rent for the worse by pushing out small landlords and making rental housing more expensive.
Both Biden and Harris have expressed support for rent assistance in some form. Earlier this year, President-elect Biden proposed rent forgiveness and his running mate suggested banning evictions for 18 months due to the pandemic. Banning evictions could particularly devastate the 50 million unit American rental market, in which over half of landlords are small-time entrepreneurs. The problem is that if tenants do not pay their rent, then many property owners can’t afford to pay their mortgages.
Although it is fair to note that none of these policies will be implemented without Congressional approval, it is important to understand the type of policy proposals the two most senior elected politicians are inclined to support.
Thanks to the 2008 financial crash, many Americans know mortgages are often securitized, meaning they are packed into bonds and sold as investments. And investors expect growth. If mortgages start failing, it might discourage investors from buying mortgage-backed securities. This could send shock waves throughout the housing market as lower investment could lead to higher interest rates and borrowing requirements. Housing opportunities could be restricted, especially for less financially secure borrowers.
A cornerstone of Biden’s housing reform proposal from his campaign is the expansion of Section 8, also known as the Housing Choice Program, that helps subsidize rental expenses to eligible (mostly low-income) families. In particular, Biden has proposed to provide enough vouchers so that no one has to pay more than 30 percent of their income for rental housing.
But giving people access to more federal money will cause inflation. Rest assured, rents will be raised accordingly. Landlords will know that tenants in these situations will be able to afford it. While it’s true that some markets will be bound by other regulations, like caps on rent, limits to rent raises and rent-control, the overall impact will be a higher price tag that doesn’t accomplish the policy’s goals.
Perhaps the most impactful potential change that was proposed by the Biden-Harris campaign is a permanent expansion of the rights of tenants, which includes providing legal assistance for those facing eviction and giving state attorneys general subpoena power in landlord investigations. Although there is no doubt that protecting the rights of tenants is important, tightening the already over-regulated market would draw strong backlash from landlords.
While it may seem unrealistic here, for an example of a worst-case scenario look at Venezuela, where the government’s attempt to fix the country’s shortage of affordable housing resulted in the collapse of the housing market. The Venezuelan government expanded its control over tenant-landlords. As a result, it became nearly impossible for landlords to evict tenants and repossess their properties. This made landlords reluctant to rent out their properties at all and led to the rental market shrinking from 30 percent of the country’s housing options in 2004 to only 1 percent of housing in 2014.
A similar story is happening right now in Berlin, Germany, where years of rent control and regulation have raised rents and driven housing investors out of the city. When the rights of tenants are prioritized to the point that it makes it too risky and unprofitable for landlords to rent out their properties at all, then landlords often move on to other markets.
Injecting more money into existing rent programs, while raising taxes on landlords and increasing regulations won’t have the effect advocates hope for. Instead, the administration Could focus on strategic zoning deregulation. Zoning has proven to generate overall efficiency losses in the housing market and disproportionately impacts low-and moderate-income families. Traditionally, housing markets that are less regulated have grown the fastest and provided the greatest amount of housing options to local residents.
Biden and Harris are about to inherit an affordable housing landscape that was already bad even before it was made worse by a global pandemic. Now’s the time for the next administration to reassess the long-term economic impact of its housing reforms and choose policies that will lead to growth and competitive prices in the rental market, rather than inflation and decline.
Jen Sidorova is a policy analyst for Reason Foundation and a Young Voices contributor.