We’ve already seen multiple cases of tenants, primarily in the larger American cities, proposing or launching “rent strikes” where they refuse to pay their rent until the pandemic crisis passes and people are allowed to go back to work. This includes one Democratic congressional candidate in New York City named Pete Harrison, who doesn’t want anyone to have to pay, even if they can afford it. Harrison picks a rather easy target for his wrath because his apartment building is owned by a major investment banking firm.
But what Harrison and the rest of the rent strike proponents fail to realize is that not all rental properties are owned by giants of the financial industry. Many are owned by small businesses or individuals who frequently are not prepared to take a major financial hit any more than the tenants are. Bloomberg News interviewed a number of such landlords this week to see how they are faring and examined what the long term effects of a rent strike could have on them, their tenants and the economy in general.
Nobody’s bailing out Connecticut landlord Maribeth Shields.
More than half of the tenants in the 27 low-income apartments she owns in the city of West Haven and its vicinity aren’t paying and there’s nothing she can do about it. The state banned evictions until July and allowed tenants hurt by the pandemic to defer with no penalty.
But Shields can’t pay, either. Her profit last year came to only $24,000, and now she’s behind on $1.2 million in mortgages. Like millions of other U.S. landlords, who owe lenders more than $1 trillion combined, her fate is tied to renters now urgently focused on their own self-preservation.
“My tenants think I’m rich,” Shields says. “They have better cars than me, better nails, and better tax refunds.”
Ms. Shields is far from the only person in that situation. The report includes interviews with plenty of other landlords in similarly dire straits all around the country. And that’s what many of these so-called rent strikers don’t seem to realize. Of the roughly 43 million rental units in the United States today, roughly half of them are owned by small businesses or individual owners like Shields. And profits from such properties are typically not that high when you consider the amount of overhead involved and other challenges presented by having transient populations of tenants. Many are owned by people who barely make any money off of their rental units but who are trying to build equity in the property in the hopes of eventually selling it for a profit.
For those saying “so what” to this issue, they should consider the downstream effects that are coming if large numbers of landlords suddenly begin going bankrupt. If a new owner with sufficient resources to keep the operation running isn’t found quickly, the tenants could find themselves with no place to live or being stuck in apartments with no maintenance services being available.
But the damage would extend much further than that. Landlords who can’t collect rent don’t pay state and municipal taxes, driving government revenue down even further at a time when public sector resources are already strained. That impacts the support network for everyone, including the tenants. Beyond that, this situation represents a clear and present danger to the stability of our financial systems. There is currently more than $1.6 trillion (with a “T”) in outstanding mortgage debt on privately owned, multi-unit housing in the country. If enough of these landlords start defaulting, the falling dominos could add up to another “too big to fail” situation.
There has been no federal assistance for landlords in these situations to this point, nor is it clear if that sort of bailout would be effective or affordable. So when governments tell landlords that they can’t evict tenants in favor of new applicants who are able to pay their rent and overzealous renters who still have jobs refuse to pay “on principle,” all we’re doing is pushing those landlords closer and closer to the brink. Yes, things are very hard for renters who have lost their jobs because of the pandemic, but they are far from the only ones feeling the pain.