The COVID lockdowns forced on us by governments continue to do a great amount of economic damage. We’re still reeling from the lockdowns, with shortages of materials and labor wreaking havoc on businesses and supply chains, and rising prices resulting from the money created to stimulate the economy.
One of the most damaging actions to the economy was the action taken by governments to suspend evictions. All of a sudden, rent payments stopped flowing to landlords, with some renters taking advantage of the eviction moratorium to stop paying their rent even though they could pay.
Many landlords found themselves in difficulty, facing their own payments to creditors. And eviction moratoria still haven’t been fully abrogated in many areas. But now the government of California is proposing a solution that could be even worse than the problem.
California governor Gavin Newsom is proposing that the state pay all past due rent due to the state’s eviction moratorium. It would make all landlords whole and wipe away all the debt owed by renters. But there are numerous problems with the proposal.
For one thing, when the government pays for something, it’s actually taxpayers paying for something. So taxpayers, including those who continued to pay their rent, are now going to be charged to pay for people who couldn’t pay their rent. That’s a massive transfer of wealth away from those who tried to be responsible to those who in some cases weren’t.
The proposal also aims to make landlords whole, which is essentially a bailout. While no one wants to see landlords lose money, one of the risks you take as a landlord is that some of your tenants might not pay. It just comes with the territory. Not having rent paid is a loss you have to be willing to accept as a real estate investor, just like stock investors also have to be willing to lose money. Investing isn’t a risk-free activity, and bailing out landlords sets a bad precedent. If landlords can be made whole, what about other companies that saw their business hurt by the lockdowns?
We’ll see whether California has the political will and more importantly the money to see this new policy through. The odds are great that it will be both expensive and counterproductive, not that that ever stopped a politician from doing something stupid. But the cost and the resulting higher taxes that will be required to pay for it will probably result in even more California residents deciding to leave their high-cost, high-tax state.
