Are Rental Contracts Ethical?
If so, then an eviction moratorium is not
On March 21, 2020, just as the United States was beginning to undertake measures to address the pandemic, I wrote,
Suppose that we think that many otherwise economically-viable households and businesses will not be able to pay their bills over the next few weeks, and this will produce a domino effect. Could we stem this liquidity crisis by allowing folks to overdraw their checking accounts temporarily, with the government promising the banks to make up any losses that result?
This was my farsighted idea for COVID relief. I was motivated by a concern that other ideas would involve breaking contracts. I saw those alternatives, such as a moratorium on foreclosures or evictions, as immoral. I still see it that way. Here, I want to spell out my moral objections to an eviction moratorium.
One may ask: why should anyone ever have to pay rent? People need housing, whether or not they can afford it. In theory, landlords could be forced to give people quality housing, and people who need housing would only pay rent to the extent that they could afford it.
That is not how our society works. In our society, we have contracts that renters and landlords sign with one another. These are voluntary agreements, and they spell out the requirement to pay rent.
When the pandemic hit, most of us had the urge to arrange for some sort of charity to be given to people who were particularly adversely affected by the pandemic and who were less than affluent to begin with. For most of American history, such charity efforts would have been carried out by civic organizations, primarily churches. But over the past 90 years, government has come to dominate, and civic organizations have withered.
Suppose that the financial resources that have greatly expanded government since the 1930s had instead gone to civic organizations. Then perhaps civic organizations could have provided the charity that needy people required to get through the pandemic.
But that is not how our society works, either. Government is now the primary instrument through which our society channels charity.
Suppose that we think that renters and mortgage borrowers are deserving of charity because of the pandemic. The government chose to approach this by breaking their contracts. In effect, government took resources from landlords and mortgage lenders in order to provide charity to renters and mortgage borrowers.
Unlike many other people, I find this approach for providing charity deeply offensive. If the government wants to raise the income tax and use that money to subsidize renters and mortgage borrowers, then that seems to me more ethical than to single out landlords and mortgage lenders to provide this charity.
Note that the government provided trillions of dollars in pandemic relief without raising anyone’s taxes. It simply borrowed the money. I happen to believe that such borrowing is unethical, because it imposes a burden on generations who have no influence because they cannot yet vote. But borrowing is less unethical than breaking contracts to steal from landlords and mortgage lenders.
I get the impression that many people are really happy to see government steal from landlords and mortgage lenders. They see landlords and mortgage lenders as privileged exploiters, and they see renters and mortgage borrowers as underprivileged and exploited. To me such a moral framing is primitive. It is what I call Camping-Trip Economics, which fails to appreciate how a complex economy depends on contracts and property rights.
Camping-trip economics takes wealth as something we are endowed with. Instead, wealth is something that is created. Land is not inherently endowed with valuable housing. Valuable housing is created by human ingenuity, effort, and institutions that facilitate peaceful cooperation. Among the latter are rental contracts.
I return to the question I raised earlier: why should anyone ever have to pay rent? If you understand that rental contracts are socially desirable in normal times, then you should be wary of the idea of having government break them during a pandemic. To put it clearly: anyone who advocates an eviction moratorium is being deeply immoral.
I agree with you, of course. But this is an obvious side effect of problems we have willingly ignored for way too long: wealth inequality, rampant rent-seeking, elites behaving badly with little repercussion, tax laws highly favorable to the wealthy etc etc. If elites want to gather ever-more wealth they should be cognizant of their public image and police themselves. Instead they do the opposite.
I think the authorities made a mistake with the eviction moratorium. I think the mistake occurred because the authorities (CDC) thought that we would see mass evictions when people stopped paying their rent. This thinking should have raised the question: Since landlords use evictions to limit the loss from non-payers, How could they limit this loss when many if not most in some markets would not have the ability to rent the apartment made available by the eviction? Landlords have costs when evicting a tenant. These costs would occur with out new revenues from new tenants to cover them. Thus, landlords would have some incentives not to evict.
Given these incentives, the landlords and their tennants could negotiate a new rental agreement with higher rents covering some, perhaps a very small portion of the losses, after some period of tim I can conceive lots of different arrangements that would satisfy both landlord and tennant. The imposition of the moratorium simply eliminated the possibility of these negotiated settlements.
Once the moratorium ends, these negotiated aggreements may still happen. However, the bargaining power of the tennants may change in ways they will not like. In addtion rents may become higher than they would have if negotiations had taken place earlier. Its not clear that landlords will regain the losses they suffered under the moratorium nor is it clear that the higher rents and possibly other new onerous provisions in new rental agreements will off set the gains ther renters received from the moratorium. I think its safe to say that total welfare will be smaller because of the moratorium.
This loss in welfare is enough to dislike and see the moratorium as a mistake. Although one could decry the moratorium as theft, that position will not allow a discussion of possible other actions during a crisis.