Stanford University Study Reveals Cost Implications of Tenant Protections
It is difficult to fathom the possibility, but “what if?” What if eviction and rent increase moratoriums, and the seemingly never-ending tenant protection programs put in place to help renters facing eviction actually might lead to increased homelessness rather than prevent it? Impossible you say? Think again…and read on.
This brilliantly, counterintuitive question has been raised in an academic paper that came out of Stanford University addressing how our society has been dealing the housing crisis, particularly the affordable housing crisis and homelessness. The study, “The Welfare Effects of Eviction and Homelessness Policies,” was published late last year and was written by Stanford University Ph.D. candidate Boaz Abramson using detailed data from the City of San Diego to measure the impact of eviction moratoriums on homelessness like those introduced during the pandemic. The paper also examined the long-term impacts of tenant protection ordinances such as right-to-counsel which are imposed to slow and sometimes prevent evictions.
Summary and Introduction
Research conducted at Stanford University by Ph D. candidate Boaz Abramson on the implications of rental market policies that address evictions and homelessness concluded that such policies ultimately lead to higher default costs that are borne by landlords resulting in higher rents and lower housing supply. The study, titled “The Welfare Effects of Eviction and Homelessness Policies,” looked at the impacts of tenant protections that make it harder for landlords to evict delinquent tenants such as, for example, providing tax-funded legal counsel in eviction cases (“Right-to-Counsel”) or by instituting eviction moratoria, which policies the study points out imply eviction and homelessness are less likely in the event of payment default. Yet, the opposite is true.
The study quantified the impacts of renters’ protections by modeling the City of San Diego rental market to look at effects on rents and evictions as well as how income and family structure impact delinquency rates. The study determined that “Right-to-Counsel” increased rents so much that homelessness increases by 15% and resulting tenant welfare is diminished. The study also concluded that increased tenant payment defaults are the ultimate result of tenant protections: “defaults on rent are driven by persistent income shocks, stronger protections are ineffective in preventing evictions of delinquent tenants, and lead to a large increase in default premia.” Measures implemented by government in response to the pandemic, the study also concluded, should only be temporary measures: “eviction moratoria can prevent a spike in evictions following a rare economic downturn…, and should only be used temporarily.”
In contrast, the study found, that rental assistance lowers renters’ default risks and, as a result, reduces homelessness by 45% and evictions by 75% while at the same time, rental assistance increases tenant welfare.
Some “Key” Take-Aways from the Stanford Study
The Stanford study emphasizes that there are approximately 2.2 million eviction cases filed against renters each year in the U.S. of which the majority are due to payment defaults, and (despite tenant protections in place) 600,000 people sleep on the streets or are in homeless shelters every night. In response to this, tenant rights groups have been pushing for action, and policymakers across the country have considered enacting more stringent tenant protections against evictions, such as by providing free legal counsel in eviction cases (“Right-to-Counsel”), controlling pricing (“rent control”), or by imposing eviction moratoria in extreme cases and a variety of other tenant protections (“just-cause” eviction rules).
The study describes the impacts associated with evictions, including homelessness and partial repayment of rent debt, and impacts of health deterioration and material hardship that renters experience. The study surmises: “Evictions are costly for society both because they impose a wealth loss for individuals, and because they lead to homelessness, which imposes an externality cost in terms of expenditure to a local government. The government finances the cost of homelessness through a lump-sum tax on investors.”
The study also found that the moratoriums put in place as a result of the pandemic were beneficial for tenants, allowing those who perhaps lost their job temporarily during lockdowns to stay in their homes and resume paying rent when the economy recovered. However, the longer-term tenant protection policies such as “right to counsel” have had unintended consequences of causing housing to become more expensive for those at the bottom of the income scale, and as a result, homelessness increased because a percentage of low-income tenants could not afford to rent in the first place.
While policies that make it harder to evict tenants who default on their rent protect renters from the costs of eviction in tough times, such policies can also lead to higher rents and lower housing supply as they “run-up” the costs of default in the form of lost rent, legal fees and more for landlords. In turn, the risk of homelessness increases when more households cannot afford to sign rental leases in the first place as rents increase out of necessity to cover higher costs of doing business.
As to “Right to Counsel” legislation such as laws as The Shriver Act, the study found that, on average, tenants with legal counsel stay in their house for 50 days from the date of missed rent payment to the day they are evicted as compared to only 38 days for non-represented tenants. Represented tenants also pay a lower share of rental debt when they are evicted: 56.5% versus 71.5% for non-represented tenants. Funded by the Judicial Council of California between 2011 and 2015, the Shriver Act established pilot projects to provide free legal representation for individuals in civil matters such as eviction cases, child custody, and domestic violence.
The study points out that “when risk is persistent, making it harder to evict is ineffective in preventing evictions of delinquent renters, because these tenants continue defaulting until they are eventually evicted.” This persistent risk is what drives evictions. The study identifies that the main risk factors leading to rent defaults are job-loss and divorce, which in turn are associated with persistent drops in income, and tenants who are at a higher risk to default on rent, namely the young and poor, are more exposed to job-loss and divorce risk.
Rental Assistance is a Better Solution
Rental assistance programs are frequently proposed as a measure for reducing homelessness and evictions. These types of programs include Section 8 Housing Choice Vouchers Program administered by the Department of Housing and Urban Development (HUD), public housing, and the Low-Income Housing Tax Credit (LIHTC) Program. Participation in these programs is means-tested and eligibility criteria includes limits on income and total assets.
The study points out that rental assistance is a better solution to housing insecurity because it lowers the likelihood that tenants’ default in the first place as opposed to making it harder to evict tenants who have already defaulted. Rental assistance reduces evictions and homelessness and improves welfare, despite its monetary costs. Research conducted on data for the City of San Diego concluded that the cost that homelessness imposes on the city is so high that rental assistance more than pays for itself. In other words, the study concluded “the savings in terms of expenditure on homelessness outweigh the cost of subsidizing rent.” The study further points out that “rental assistance lowers the likelihood that tenants’ default on rent and face eviction, and it prevents poor households from becoming homeless by subsidizing their rent.”
According to the study, by providing just $400 a month in direct rental assistance for lower-income renters, homelessness was reduced by 45% and evictions by 75%, and it pays for itself. The cost of the rental assistance is lower than the cost of paying for services needed to help those who have become homeless, like shelters and medical assistance.
The study acknowledges “rental assistance is expensive” and makes the point that taxes may need to be raised to cover the cost of rent subsidies and other types of assistance. But a quandary occurs in that as demand for rentals increases, housing supply declines and housing prices rise which implies rental policies affect not only poor households, but also richer renters. For some renters, this results in driving a shift in demand for housing from upper to lower housing quality segments as rent prices increase. Overall, though, the study concluded that rental assistance improves tenant welfare, despite its costs, and the policy pays for itself: “The savings in terms of expenditure on homelessness are larger than the costs of subsidizing rent.”
Despite ever-growing policy interest, “Right-to-Counsel” drives up rent payment defaults so much that homelessness rises by 15%. Although lawyers make it harder to evict delinquent tenants, they are unable to prevent ultimately their eviction. Rent defaults are caused by job-losses and divorces, which cause persistent income consequences and cannot easily be addressed in the short-term leaving impacted individuals in financial crisis.
Low-income households suffer the most in this respect since they experience the largest increases in rent and are priced out of the market. At the same time, some richer households are better-off, as the rent wealthier renters pay is lower due to the fall in housing supply and house prices induced by the policy. Overall, “Right-to-Counsel” carries with it an annual monetary cost of $37.4 million to the County of San Diego.
Means-tested rental assistance is a more promising solution. It reduces homelessness by 45% and the eviction filing rate by approximately 75%. The effective payment default “insurance” provided by the subsidy lowers the likelihood of default rather than making it harder to evict tenants who have already defaulted. Low-income households, who are eligible for the assistance, are the main beneficiaries. Some richer households are worse-off since the rent that they pay is higher. Rental assistance improves tenant welfare and provides needed monetary assistance, and the cost of subsidizing rent is lower than the savings in terms of lower expenditure on homelessness.
The study’s author acknowledges that the problem of homelessness is a complex and multifaceted issue, and that no silver bullet exists. The author opines that the moral and ideological beliefs of both the political left and right may be hindering the process of combating the homelessness issue both sides wish to address.