Those who promote government intervention in the economy often have good intentions. But, as economist Thomas Sowell quipped in his best-selling book, Basic Economics, “nothing is easier than to have good intentions but, without an understanding of how an economy works, good intentions can lead to disastrous consequences for a whole nation.”
Comedian and Conan O’Brien’s former sidekick Andy Richter recently provided a valuable lesson in unintended consequences on Twitter when he complained about a request that a landlord made of him while looking for an apartment for his college-aged son. In a now-deleted tweet, he wrote: “My son is looking for a studio apartment around USC, and one that he applied for a couple days ago told us that the owner wanted 6 months rent up front (after he and I both paid app fees). No wonder people f—–g hate landlords and the management companies that facilitate them.”
This tweet came just one day after the Supreme Court struck down the CDC’s eviction moratorium — a policy that Richter says “yes, I am” completely in favor of.
The irony must have been lost on him that the policy he supports was most likely behind the landlord’s request.
Why Would a Landlord Make Such a Request?
For anyone trying to rent an apartment, hearing that the owner of the building wants six months rent upfront would understandably cause frustration. This is doubly true if you simply don’t have the money to pay it upfront, and that cost is prohibitive. Given that the average rent is $1,124, we’re talking about $6,744 paid upfront. How many Americans can afford that? Not many (although Richter probably can). Indeed, some surveys show nearly 70 percent of Americans have less than $1,000 in savings.
This is undoubtedly a problem. However — in order to see where the blame should be directed — it is important to understand why a landlord may have made that request in the first place.
Under the eviction moratorium, each new renter posed a huge financial risk to the property owner. Under normal circumstances, a tenant would agree to pay rent to the landlord in exchange for the use of the landlord’s private property. If either side violated the agreement, it would become void.
But, under an eviction moratorium, the tenant, in many cases, has no obligation to live up to his end of the bargain — and the landlord has no ability to enforce it. In other words, it creates a scenario where if the renter fails to pay rent, then the landlord may be on the hook for housing them for free at a significant financial loss. The worst possibility for a landlord is not if someone does not pay rent; rather, it is if they are unable to replace the person who refuses to pay rent with someone who will. In that case, landlords are essentially paying for other people to occupy and use their private property.
And if the landlord does not wish to risk his income vanishing one day — a completely reasonable wish — then asking for six months of rent upfront is a sensible thing to do.
The reason a landlord may ask for six months of rent upfront is in order to mitigate this risk. He is using this enhanced deposit as a type of insurance policy so that his income is secure for the foreseeable future. After all, the government has already shown that it is eager and willing to implement eviction moratoria. And if the landlord does not wish to risk his income vanishing one day — a completely reasonable wish — then asking for six months of rent upfront is a sensible thing to do.
This predicament is even better understood when one considers the fact the eviction moratorium has put numerous small landlords in financial ruins, and even left an Air Force veteran homeless. (Watch the valuable video below from vlogger Peter Santenello to better understand the human side of the problem).
The popular perception of landlords as real estate tycoons is far removed from reality. There are over 22.5 million rental units owned by “mom and pop” landlords, which is nearly the same number as are owned by businesses. These mom and pop landlords — who are normal, everyday people just trying to make a living — own, on average, just two rental units. Moreover, among these individual landlords, more than half of them did not even originally buy the property in order to rent it out and profit off of it, but rather just to use it as their residence.
But the truth is that the landlord’s decision itself is not the problem; the government action that led to the decision is the problem.
It is a sad reality that the government has put these landlords in a position where they have few other choices — for the sake of their families — to take measures that mitigate their risk.
Similarly, it is also a sad reality that fewer people will be able to rent because the initial costs to do so are rising. But the truth is that the landlord’s decision itself is not the problem; the government action that led to the decision is the problem.
And landlords asking for a certain number of months of rent upfront is not the only — or even the most significant — unintended consequence of the eviction moratorium. It also has affected the incentives associated with putting new rental units on the market, meaning it is likely that there will soon either be a shortage of housing or prices will skyrocket. If either happens, increased homelessness will be the result.
This Outcome Was Inevitable
In his book Bureaucracy, economist Ludwig von Mises wrote that “Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter.”
Mises is correct. That a policy intended to make housing more affordable and accessible is actually turning out to do the opposite should not be surprising. Government intervention often hurts the very people it is trying to help. One would have thought that we would have learned our lesson by now. But it seems that we never will.
Watch more from Peter Santenello:
The post Conan O’Brien Sidekick (Accidently) Exposes Unintended Consequences of Government Intervention in Housing Markets was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.