Last month, I wrote a blog post about how a strong safety net and temporary assistance can provide strong returns on investment to an economy. One of the examples I brought up was the COVID-19 eviction moratorium, which essentially acted as temporary rent assistance for low-income people.
Evictions are a major issue in the housing market, especially in low-income neighborhoods, where they can lead to social and economic instability. There is a lot of research on the effects of evictions, but there has been very little policy analysis done on potential solutions. A new working paper aims to address this gap by creating an economic model of evictions to explore what the impacts of these potential policies might be.
One of the key findings of the study is that evictions are inherently suboptimal from a social welfare perspective. In the competitive equilibrium, evictions occur when landlords, facing the risk of non-payment, decide to terminate a rental agreement rather than negotiate a lower rent. However, a benevolent social planner—who is focused on maximizing overall welfare—would not evict tenants who could potentially continue to contribute positively to the rental market. The social planner would allow these tenants to remain housed, recognizing that evictions result in significant negative externalities that impact not only the evicted families but also the broader community.
The study highlights how the current market dynamics lead to lower housing quality and supply for renters facing high eviction risk. This is because landlords anticipate lower future profits from units with high eviction probabilities and respond by reducing investment in these properties. The resulting lower-quality housing further exacerbates inequality and reduces overall welfare.
To address these inefficiencies, the researchers evaluate two types of policies: eviction restrictions and rent support. While eviction restrictions can reduce the number of evictions, they also lead to unintended consequences. For instance, severe restrictions can discourage landlords from investing in housing quality or even from providing rental units in the first place, leading to a reduction in overall housing supply.
On the other hand, rent support—where the government provides financial assistance to cover the rent of unemployed tenants—emerges as a more effective policy. Unlike eviction restrictions, rent support directly addresses the issue of non-payment without discouraging landlords from participating in the rental market or reducing their investment in property quality. The model shows that rent support can potentially eliminate evictions and even increase the supply of housing, as it provides landlords with guaranteed income during periods of tenant unemployment. Additionally, because rent support raises overall housing quality, it can have positive spillover effects on renters who are not directly at risk of eviction but who benefit from a more stable and well-maintained rental market.
The researchers also demonstrate that, in times of crisis, such as during the COVID-19 pandemic, temporary eviction moratoriums can raise welfare by preventing a sharp rise in evictions when job-finding rates are low and unemployment is high. However, even in such situations, the introduction of rent support alongside eviction moratoriums can better ensure that both housing stability and supply are maintained.
The model presented in this research provides compelling evidence that rent assistance is a more effective public policy than eviction moratoriums in both normal economic conditions and times of crisis. Rent support not only prevents the immediate social costs associated with evictions but also promotes a healthier and more equitable rental market by maintaining housing quality and supply. Policymakers aiming to reduce evictions and enhance overall welfare should prioritize policies that provide direct rent assistance to those facing temporary financial hardship, ensuring both tenant stability and a robust housing market.