Why the eviction moratorium is so important for the Minnesota economy

Gov. Tim Walz has continued to extend a ban on evictions resulting from non-payment. The most recent executive order, which became effective August 4th, prohibits evictions except in cases in which tenants have caused significant damage to the property or are performing illegal activities, or if the  owner needs the property for personal or family residence. 

Recently, the federal Centers for Disease Control and Prevention (CDC) issued its own directive that forbids evictions, and lasts until the end of the year. The directive does not provide rental assistance, nor prohibit landlords from forcing tenants to pay back all the preceding months beginning in January. The directive only applies to “covered” persons and renters are required to meet certain obligations, which some call subjective.

It’s true that evictions have decreased this year, but that’s likely due to the patchwork of eviction moratoriums and federal COVID-19 relief funding, which included a steep increase in unemployment benefits. 

If these interventions — limited though they are — were to end at the end of the year as currently planned, the result would be catastrophic, both for the families affected but also for the broader economy. 

Here’s why: 

Between 2000 and 2016, an estimated 61 million evictions occurred nationally, according to The Eviction Lab at Princeton University. This equates to roughly 3.6 million evictions per year. Evictions have a waterfall effect on people’s personal safety and security, and, in economic terms, on their productivity. After all, without a home, contributing to the economy is far more challenging.  

Having an address is a prerequisite for getting a job, which means a wave of evictions would prevent the unemployed from finding work that would fix their housing crisis, hurting the economic recovery.  

Because we lack emergency housing infrastructure — see Twin Cities parks for evidence — homeless families would likely turn to friends, family or public shelter. Which would create ripe conditions for the continued spread COVID-19. Which is ultimately what’s causing all the economic hardship to begin with. And, sick people can’t work. 

Renters are already feeling uncertain about their ability to pay back their missed rent, and this rental debt number is likely to be huge: Around 27% of U.S. adults said they missed their July rent payment. The Minneapolis Fed has been tracking non-payments for the past several months for the five states which make up the 9th Fed district, including Minnesota, Montana, North Dakota, South Dakota and Wisconsin. 

The data shows that people of color are struggling disproportionately in making rent and mortgage payments. And while white Minnesota residents seem to be recovering from missing payments, Black Minnesotans are struggling even more so now than in the earlier months of the pandemic.

The CDC directive may end up being a band-aid on a dam which is showing signs of collapsing. In August, the Aspen Institute projected that as many as 30-40 million people could be evicted in the next few months. 

As the study notes, small property owners comprise roughly half of the housing rental market. If these “mom and pop” property owners miss their own mortgage payment, they risk foreclosure. In that situation, the property may be repossessed by the bank and the tenants may be required to vacate their home anyway.

To understand the risk of a wave of foreclosures, look no further than the last financial crisis of 2008-09. When millions of homeowners defaulted on their mortgages, we got a tight credit market. Banks stopped lending money virtually overnight. This lack of access to credit caused businesses to default, close up shop and lay off millions of Americans. The effects rippled violently through the economy. 

The pandemic presents the same risk as back then, only in a slightly different package. Estimates show that hundreds of thousands of homes could be foreclosed on in the first few months of 2021. Notably, these estimates are only for homeowners, not property owners. 

If renters — already financially burdened by soaring rent costs prior to the pandemicn — are unable to pay rent, and by extension the property owner can’t make payments to the bank, the property may be foreclosed on. If this happens and foreclosures rise to even half the level of 2008-2009, banks could again turn off the lending spigot. 

The global pandemic might be considered a special case, but what the coming eviction crisis points to is the broader failure of American housing policy. 

A study by The Joint Center For Housing Studies at Harvard University showed that 20.8 million were “cost burdened” renters as of 2018. This means that they spent more than 30% of their income on rent. Another 10.9 million renters spent more than half of their income in rent during the same year. These figures occurred during 2018, a year in which unemployment hovered around only 4%. Fast forward to 2020 and the spike in unemployment: We are stressing the rental market as we rarely have. 

We should deal with the current crisis with moratoriums and rental assistance, but the long term solution should be considered just as pressing: Affordable housing for all.