The American government tends to make economic policy in the worse possible way. An example of this is the current COVID-19 moratorium on evictions.
Economically, it could not be less effective for renters, commercial owners, or our entire U.S. society. In the name of compassion, the government is interfering with commercial contracts between owners and renters. It is doing great economic damage to commercial real estate investment. Ultimately, since it isn’t a forgiveness on the debt accruing but rather a moratorium, government fiat is kicking the reckoning day down the road.
Tenants will find themselves owing more money that they can ever pay. Without cash flow, owners will defer maintenance of their investments, fall behind in their bills, and have difficulties paying their mortgages and real estate taxes. At some point, marginal housing becomes substandard, and as we have seen time and time again, abandonment and neighborhood decline can be the result.
Especially in residential circumstances, tenants do need help and deferred payments. That help or deferred payments should not be borne by the commercial real estate sector. What our government has done is waved a magic wand and said one group (real estate owners) are to subsidize another group (tenants). This policy is unfair and ultimately destructive for the very people it was designed to help. In many countries such as Belgium, the state is paying the rent and tenants are signing agreements with the government to pay it back to them.
Throughout the rest of the world, most governments believe in a capitalistic free market. Governments even those with a free-market system do provide limited public housing through public ownership of housing. It is usually substandard and not well maintained. The largest “slumlord” in New York City is the New York City Housing Authority.
In socialist nations, the government owns and provides the housing. Tenants pay a minimal rent and usually receive substandard homes. Look no further than the old Soviet Union to see the results of that system.
Most OECD nations do not regulate private rental contracts. It is a market-based system. The United States is one of the few nations that has rent controls which are administered on a local level. Most other nations do not attempt to place the burden of housing the poor on the private owner. Instead, they provide financial assistance either directly or through vouchers to those that cannot pay their own rent.
At first moratoria on evictions were widespread throughout the OECD. As the pandemic has continued, it has been recognized that commercial owners could not be the funding source for those unable to pay rent. The United States has become the exception more than the rule in allowing a moratorium to continue. It would seem the American government’s point of view is do as little as possible.
The rest of the world is looking at the pandemic from the perspective that “we are all in this together.” The U.S. is taking stock of the political problems that may arise from tax increases for vast Covid expenditures, and therefore would rather have one sector support another. This is unsustainable and will only hurt the real estate investor that provides so much of the nation’s housing stock.