Yves here. I firmed up Richard Murphy’s headline a bit but it’s clear he thinks the economy will go into freefall if individuals have to foot too much of the costs of the probable coronavirus pandemic. He already discussed the obvious, that a rate cut never stopped a virus.
More generally, it’s important now to start staking out how losses should be apportioned. Readers recognize the banks got away with the greatest looting of the public purse in history in 2008 and 2009. We can’t afford societally to let something like that happen again.
And to Murphy’s targets, banks and landlords, Americans need to add the health care industry, particularly supposedly not for profit hospital chains with lavishly-paid executives, and Big Pharma. But the health care sector as a whole is fairly highly leveraged. So expect them to bleat about possible failure to avert the attention from the need to curtail top level pay and staffing levels.
By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK
I have already discussed the potential economic implications of coronavirus this morning. The purpose of this blog is to summarise the underlying economic logic of what I have said.
We will have an economic crisis in 2020 as a result of coronavirus. There can now be no doubt of that; the likelihood that this epidemic can now be contained seems to be very low indeed. The evidence from China is that the impact on productivity and the economy at large is enormous. Whether we can survive the impact of this epidemic without major economic consequences arising is largely dependent upon the effectiveness of the planning that the government undertakes now. What is apparent is that at present there are a few signs that this planning is taking place. We can hope for it in the forthcoming budget, but the signs are, so far, not good.
The key issue that the government has to decide upon is who will bear the economic consequences of what is to happen. I have already indicated in my first post on this issue that I think that the consequences of this epidemic will fall upon three clearly identifiable groups, which are individuals, businesses and government. However, when appraising who will bear the cost the criteria are slightly different.
It is unacceptable that individuals bear the cost of this crisis. There is simply too little economic resilience within the population as a whole for that to be the case. Far too many people have too few savings to survive major periods of economic inactivity without massive prejudice to their short-term and long-term well-being.
In addition, it is unacceptable that many businesses should fail through no fault of their own but that is what will happen unless the government steps in to prevent the major economic downturn that might happen this year. Cash flow issues will cripple many companies.
In that case it would seem that consequences of what might happen will fall, in the first instance, on the government.
As I explained in my previous post, the government can afford to bear a substantial cost from this epidemic precisely because it alone in the economy can suffer a cash flow crisis without risk arising. That is because the government of a country like the UK which has its own central bank and its own currency always has the means to create as much cash as their economy needs. This is, if ever there was a time to do so, the moment to appreciate that fact and use that ability.
But that is not to say that there are no costs to an epidemic: clearly there are. In that case the question has to be asked as to who should bear that cost. There are three groups who should.
Firstly, landlords should. I have already suggested that should the epidemic spread then as a matter of statutory right any tenant should be provided with a minimum three-month rent-free period to ease the stress upon them whilst this crisis last. I would suggest that the grant of that extension should be automatic to anyone who does not make a due payment of rent on the required date during the period of the epidemic. They should be automatically granted this extension by the landlord without having to make any further application or to complete any additional paperwork.
I stress that the cost of this will fall directly upon the landlords in question. I am quite deliberately suggesting that they should bear the heaviest burden of dealing with the epidemic. The reason is simple and is that whatever happens they will still have an asset at the end of this period, and no other sector can guarantee that at present. As a consequence they have the greatest capacity to bear this cost. And, if it so happens that some landlords do fail as a consequence, the assets that they have owned will still exist after this failure and so the economy can manage the consequences of this.
Second, I suggest that the costs of this crisis fall upon the finance sector. This is because, as I have also noted in my previous post, I think that anyone who has a mortgage or loan (including a lease) that they cannot afford to meet during the course of the epidemic period should be granted an automatic three-month extension to their loan period, which period might again be extended if the epidemic lasts longer than is expected. Once more I suggest that there should be no need to apply for this extension: simple default should be enough to trigger it. I am not in this case suggesting that the interest owing not be due though: it could be settled at the end of the loan. What I am saying is that cash flow must be eased.
What these two, straightforward, recommendations suggest is that it is those with wealth, and not those with low incomes or tight cash flows who should bear the burden of this crisis. That meets any definition of justice that I know of. But in both cases I am also being realistic: the value of financial assets of banks and other lenders is being preserved by this recommendation when if loan waivers were not in place it is likely that they would be prejudiced, whilst the value of land assets is not in any way diminished as a result of there being a rent-free period imposed for an external reason. To be blunt, given the risk that both the financial and rental sectors face as a result of an epidemic the proposed automatic waivers leave them in a better position than they would be in without them.
And what of government, which is the third party to suffer a loss? Its risk can be covered by coronavirus quantitative easing.
A plan of this sort is urgently needed, and now.
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Highly leveraged – great way for nationalising the IP while getting the investors carry the can.. The pandemics would give a perfect reason to do so.
Somehow, I don’t see that happening under either Joe or Donald though, more like “you’re saying that development of antiviral is expensive? Here’s a few megabucks…”
Pharma complais drug developmnet is expensive. Yes, it is. So why not fund it publicly, and retain the IP?
How much would the society really suffer if the state shoveled most of the money that goes to pharma to unis/public research labs for development of important (i.e. life-saving, major quality-of-life impact drugs), and leave private system with manufacturing generics based on the uni IP + any “lifestyle” stuff (i.e. botox and similar “must have because fashion” stuff).
Private goes where the profit is. There’s no profit (for pharma) in low cost treatment of common ilnesses. There’s tremendous societal profit (monetary and non-monetary) in doing so.
First, the most labor intensive parts drug development and primary research for drugs is publicly funded, we just have arrangements in place that cedes price controls.
Second, with microarrays, bioinformatics, increased computing power, and easier access to living models, drug development on the big pharma side of the house has never been cheaper.
Third, most pharma companies these days are hedge funds or M&A houses with a semi-profitable drug lab attached to them. Much the same as GM used to be a car loan bank with an unprofitable manufacturing arm. The industry has been consistently putting more funds towards share buybacks and stock manipulation than research for many years now. The companies also use all kinds of financial tricks to obscure the true cost of what they’re doing.
I place zero faith in any industry statements on cost or their need for further public support. If they’re that badly managed and need that much help, nationalize them and send the C-suite to flip burgers.
Butbutbut… the Job Creators!
They’ve told me that without them I’d starve!
They are starving you. Since when have you actually been able to afford your life?
The Fed lowered interest rates yesterday by a point, out of national duty, I guess.
Does that mean that my credit card interest rate just dropped by a point?
Am I correct in thinking that they charge me 29% a month, on money they borrow at 1% or so, isn’t that usury, or just outright theft?
I read this as an excuse, motive and rationale for defaulting on credit card payments, wholly or in part, and most certainly for any coronavirus related medical payments made on them.
The Fed 0.5% rate cut is a sop to the stock market and Trump. The 10-yr T-bond has been dropping like a rock and is below 1.0%. If COVID-19 starts a recession, we may see 0.0% or negative 10-yr rates. The 10-year bond rate has been dropping so fast that the mortgage companies aren’t even repricing mortgage rates because they can’t handle the current application load and see no need to offer lower rates yet.
People getting furloughed will reduce their income, they will miss payments, their credit score will drop, and their interest rates will go up.
I got my 5-yr old car serviced at the dealer yesterday and they had a person asking everybody getting their car serviced if they wanted an appraisal of their car for a trade. I suspect things like car sales are going to drop like a rock over the next 6 months, similar to 2008. In this case, they may also have an issue producing the more popular models due to lack of parts, so there would be both a supply- and demand-side shock.
Home sales are doing well right now but low mortgage rates don’t do anything if you aren’t working or rack up big medical bills on top of student loans.
Meanwhile, the 1% will just complain that the stock market is being irrational. But they will be hunkered down and won’t attend anything because they will figure out that many of them are in the age group with the high mortality rate. This could be a very interesting election season as the older politicians choose between campaigning or staying alive.
Well then! If I can get say, a 1% mortgage, I might just buy the house next door after the price drops substantially.
Wouldn’t that kick start the economy?
The problem is that your monthly us going to rise, as the homeowner will ask for more for the house. It is becoming increasingly apparent that the value of your home is directly related to the monthly payment someone can afford.
Mortgage rates right now are like gas prices. They are not dropping as fast as the 10-yr bond yield. It will likely take a couple of months of low bond yields and for the application tsunami to clear through before there is equilibrium.
The three Presidential possibilities are all pretty ancient. So the choice of ( hopefully much younger) running mates may be much more important than usual.
Neoliberalism ideology itself – its confidence in free markets as the most-efficient allocation of resources, its emphasis on minimal state intervention in economic and social affairs – will come under increasing attack as a failed ideology in the face of this pandemic.
We’ve come far enough to know what Biden didn’t know when he made bankruptcy a non-option, may he rot in hell. We now know beyond a doubt that interest can only be logically and morally expected when the economy is operating normally and wages as well as asset values are going up. Interest can only be expected to be paid in circumstances similar to those when the contract was signed. If things go south to zero, then the interest rate that is legally obligated should go to zero as well. That’s just a no brainer.
Yes to all your points. My larger rhetorical question is this:
Should the govt mostly concern itself with protecting the health of the Market (neoliberal ideology) or with protecting its citizens health (sane ideology)? In this event the neoliberal ideology has utterly discredited itself.
We will see what it can do. The powers that be have been doing their best to maim government for decades. First by starving it, then by deregulating it, and lately by picking the most incompetent boobs they can find to run it. All the smartest people go into science or finance or law and medicine, not government. I’m naively sentimental in that I think there is still a big place for good government in our country, and that a chunk of the dysfunction in society is directly attributable to a loss in patriotism because the country isn’t doing much for its citizens these days. However, I wonder what it would take to get a high functioning government again, if we ever had one. It might take decades.
*Justice*??
What’s that?
The elites: it’s “just us”
As a leveraged rental property owner, if I extend free rent to my tenants for three months, I am no longer the owner/ landlord. Paradoxically, our two kids are the occupant tenants. My Big-shooter idea of a slow build to intergenerational wealth.
No Soup For You!!
This will cascade back to banks.
They hold the marbles, I can’t imagine that they want to be landlords.
So, do they put the non-performing foreclosure property on their books, and sell into the flooding market, or do they do a workout, let everyone stay. This ain’t a Jimmy Stewart/ Capra movie or era…
OR, will those folks who have the post-2008 bailout/ fractional reserve banking / stock market and other investment-generated wealth swoop in and yet garner even MORE assets?
I’m betting on the latter. More wealth aggregation, more folks on the street.
Biden and Trump will support cronies and that scenario.
Warren and Bernie most assuredly will not.
The Covid-19 couldn’t have happened at a better time to perhaps get us out of our Dancing with the Master Chefs stupor.
Supreme Irony that the double-edged Chinese ‘wish’ of “Living in Interesting Times” came from the manufacturer of our era, China.
Don’t let your own local oligarchs off the hook as “manufacturers of our era” — those US industries didn’t ship themselves across the Pacific, eh?
@jefemt
March 4, 2020 at 11:08 am
——-
So, like the tenants and homeowners, you should also get a three-month (or more) deferral of payments. I don’t understand why Murphy did not include small property owners like you. I have a feeling he was thinking of Blackstone and the other hedgies who own so much rental property. They surely don’t need any help.
Murphy also proposes that loans be automatically extended for three months. Would that solve your problem, jefemt?
Agreed.
Yves, do the landlords get to skip their semi-annual property tax payment to .Local Gov? Crook County ILL will not like.Think of the government pensions for gosh sakes!
And this is why they keep printing endlessly, the system as is can not even have a smallest bit of deflation.
I notice you too have spotted the substantial tax advantages of buying and renting to a related party. Renting to the kids is a brilliant idea!
Yeah. If the wealthy had to pay for everybody’s housing before they got any, there would be no homeless. If the wealthy had to pay for everyone’s healthcare, we would have cheap and efficient health care. And we’d eat better, too.
If the wealthy had to pay for everyone’s necessities, they would be delivered efficiently and with minimum overhead.
Instead, we pay them, and the more inefficiently and wastefully the rich deliver these necessities to us, the greater their profit.
And the greater their accumulated wealth.
Anyway, what I’m waiting for is when this “Capitalist Paradise” we’ve all been working so hard toward is going to appear.
Oh, it’ll be another QE situation, providing **liquidity** (i.e. free money) to banks (who are now extremely well capitalized) to insure them against suffering. Where I live in Silicon Valley, we had IPO investors beating out average people with all cash offers with hardly a penny loss on housing prices. There were investment groups, family money funds and more with huge reserves buying up the Mom & Pop homes to remodel and sell at profit. Hell, we had Berkshire Hathaway REAL ESTATE and Property management emerge. Yea, I somehow don’t think that the average person is going to be getting any of that largesse. For sure, free market theory is a fail here. *still waiting for prices to drop since 2009… The next big investment wave will be tiny homes (aka sheds in Potter’s Fields) for whoever is remaining.
“The reason is simple and is that whatever happens they will still have an asset at the end of this period, and no other sector can guarantee that at present.”
Not if they dont pay the bank.
Well they don’t really own the property then, do they?
I like the way you think Ian. (High-5)
It is always easy to be generous with other people’s money. This post is very uneven, as there is a great leap from suggesting that governments bear the burden (those with sovereign currencies can print as much as they need to take care of the problem) to proposing that landlords somehow provide relief to tenants.
Where to begin? First, who are these landlords? They may be large businesses (e.g., REITs), but many are small mom-and-pop operations. There is an assumption that all landlords are wealthy. But this is not true. I know several retired folks whose only income comes from rental properties, and they live quite frugally. While they waive rents, how are they supposed to live? Second, many landlords have mortgages on their properties – how would those be paid? Third, no one is proposing to waive property taxes – those still have to be paid, and – part. in the US – these are very high. Yes, landlords have real assets, but they also have real expenses that must be covered as the year goes by.
And fourth, while the assets may remain, their values are not static. As we all know, they are typically subject to market fluctuations, so to justify this proposal by saying that the asset would be preserved was likely not made with reality in mind.
The final point – regardless of pros/cons, I cannot see anything like this being realised – part. in the US (which is not to say that governments should not work to alleviate at least some of the potential burden – but it has to be well thought out). I propose asking all squillionaires, with fortunes above $5 billion to chip in 1% of their wealth into a corona-virus fund. Let’s see if we can pull this off.
Perhaps an alternative would be for the monetary sovereign to disburse 3 months of payments directly to each renter/mortgagee? In this way, the stimulus would start at the bottom where it belongs, while providing direct relief to those at the bottom of the pile — as opposed to the ridiculous “injection from the top” of the GFC
+100
That sounds like a Citizen’s Dividend which we should have anyway to replace all fiat creation beyond that created by deficit spending for the general welfare.
Of course, if we had ethical finance to begin with (or say from 1913) then equity would be much more justly distributed with much less private debt and much less need to rent. In other words, we would have a much less precarious economy.
But who wants ethical finance? You Mr. Murphy?
Landlords generally in 2 flavors: 1040 Schedule E are Mom and Pops, Schedule C or more exotic tax maneuvers, like Blackstone and Mittens R.
My wife and I looked at purchasing a couple of properties for rental a couple of years ago. It would have been for cash, so no mortgage, and with about half our stock portfolio cashed up for it. It was primarily as diversification against the effect of another 2008 on a 100% stock portfolio. After much consideration we chose not to do it.
But had we done so and our tenants been unable to pay rent how does that differ from a company in which we have shares being unable to pay a dividend? If you can’t afford to maintain mortgage payments for an investment property and lose it, how does that differ from borrowing to buy shares in a company that goes belly up? Why should anyone who chooses to risk investing in a property for a rental return get more favourable treatment than those of us who risk investing in a company’s business? If you take the risk of borrowing to buy a property in the hope of a return why should you expect a safer ride that someone who borrows to invest in the sharemarket?
In the end we chose to stay in the sharemarket precisely because we could spread the risk across a wide variety of companies, many of which are likely to come through any present crisis if any do, rather than sink a large slice of our capital into a couple of possibly vulnerable assets. That was our assessment of the risks and benefits. Why should someone who assesses (or who should assess) the same risks and benefits and comes to a different conclusion get protected from the consequences of that decision in a way we don’t?
There’s no contractual obligation to pay a dividend. But, TBF you could have said go bankrupt instead of pay dividends, which also can happen to a tenant
And yes to your point, businesses and real estate should be treated the same. Which this post is calling for the exact opposite of.
Agreed. My response was to those posters who are argue that tenants – and thus landlords – should somehow be supported by rental payments from Govt. while companies, and thus shareholders, be allowed to go under.
Yet laissez-faire helps neither landlord nor tenant, who faces a build-up of arrears and possible eviction just as letting a company go under takes its employees and shareholders with it. The solution IMHO is a Universal Basic Income which allows renters to continue to pay rent and consumers to buy the things companies make, to keep things chugging along.
I wonder how many leases have force majeure clauses. Easy peasy way to ignore rent.
None that i have seen. Perhaps commercial leases do?
A couple thoughts: Landlord doesn’t necessarily equal wealth. Plenty of landlords are leveraged through mortgages. The author acknowledges this, “if landlords fail as a consequence, the assets that they have owned will still exist after this failure”. assuming the landlord fails, the cost is then burdened by individuals despite the article calling against this
Additionally, there are other types of wealth that this policy would preserve at the expense of others. Intangible assets are still assets. If a business goes out of business (through no fault of their own) demand “will still exist after this failure and so the economy can manage the consequences of this” as another business owner steps in. Same as a physical building. It’s not clear to me why one business owner is deemed worthy of saving, while another is tossed under the buss.
I can’t help thinking that the thrust of this article is that we should tax “rent seekers”, which certainly many landlords are a part of. But surely other businesses are as well (and some mom-and pop landlords aren’t rent seekers).
like me. I own exactly one property, my condo in Chicago, which I am renting out while relocated to help my 90yo mother in North Carolina. I pay rent for my apartment here. I realize this is a privilege, but I work two days a week in order to be available for my mom. I am a psychotherapist at a private practice which does not provide bennies so I buy my high-deductible health insurance from the ACA. Working two days a week I net approximately $2k a month (when people don’t show I don’t get paid, and I not only pay employee taxes out of my billing but my share of the employer taxes as well as staff salaries, rent, and use of our EHR).
My monthly rental income less assessment and a local property manager is $1k and that doesn’t count property taxes or maintenance expenses. I would be so screwed if I had to automatically forego rent. Although I suppose then I would not have to pay my corporate apartment complex here their rent…
Dick: Thanks for your thoughts about me carrying the burden during the coronavirus outbreak. Even though I have owned my properties for a long time, the recent 300 percent increase in local property taxes, coupled with your three month rent holiday would mean my buildings would be foreclosed upon, and a group of oligarchs, you know, the Richie Riches, would sweep in and take them away and everything that I have worked for during the past 30 years would be lost.
Great idea!
This is not the neolib way. Slippery slopes…
Violates the golden rule, he with the gold writes the rule. Certainly in this society with this gov.
If m4a can’t pass now we need a big crisis… maybe the results of the current system in the face of CV will bring about change. Some day far off in the future if we get to choose between biden and trump.
Coronovirus seems, from my ants-eye view, to be a perfect storm as far as what would hurt the economy most, which means the people who saw none of the gains suffer while those that have “recovered” are protected. Years of easy financing has encouraged lots of corporate borrowing, and even if rates remain low those bonds will eventually mature and just in time for companies to face a cash crunch. From FT:
The author speculates that any downgrade could have unpredictable runaway effects, as institutional investors who are either prevented from investing in junk-rated bonds or have a policy of doing so will be forced to sell and zombie companies have fewer places to hide. This all seems dreadfully plausible to me, though I know only what I read about subjects like this.
I mention all this in the context of this article because I worry that the same looting of the purse after the GFC will occur again, only with non-financial corporations, who have a ready-made excuse for asking the government to bail them out. After all, it wasn’t like they released the virus, though they did blow a lot of that easy money buying back their own stock.
The Fed said before they cut rates that they have limited ability to blunt the impact because they can’t do anything about disrupted supply chains, reduction in air travel, etc. This is also coming as the election heats up so the US Congress will be an even more difficult place to pass meaningful legislation, except for maybe corporate handouts. Add to this the many aspects of the US healthcare system that leave us particularly vulnerable to public health concerns and it seems like a very bad picture is coming into focus.
This article, and the request, is sarcasm, right? When have bankers, landlords, or whatever come up to you and say “We’ve got your back, don’t worry.”
The reality is previously mentioned:give more tax breaks; more interest rate cuts; hell why not throw in another $100 billion for the Military. National crises and all.
A plea for bankers ‘to do good’ did make laugh. So that’s something.
Once upon a time, long, long ago, community bankers and landlords, especially in smaller communities, who knew their customers, and who knew underwriteing – very important point! – would do this ‘ forebearance in a crisis for their reliable customers’ (know your customers), knowing that helping out a customer during an unforeseen ‘act of god’ was better for their business and the community, long term, than a cold, green-eye-shade, “but profits” narrow calculation. Those days are mostly gone in the large metropolises, for now.
Yeah .. once upon a digm !
Brother, Can You Paradigm?
Thanks for the reference. Al Jolson sings the ‘anthem’ of the Great Depression, ‘Brother Can You Spare a Dime.’
https://www.youtube.com/watch?v=4F4yT0KAMyo
If the economy is in stasis — rents and loan payments should also be placed in stasis until the economy resumes — and then general forgiveness must be enforced by the Government between loan payers and note holders. But I doubt our Government in the U.S. will take any reasonable actions.
Cambodia’s garment industry is running out of fabric, much of which is/was produced in China.
Prime Minister Hun Sen … said factories “strongly affected” by the tariffs or coronavirus would be exempt from tax for at least six months, according to Reuters.
The government has also pledged to help pay partial wages to workers if production is halted. “When these factories suspend operations, they will pay 40% of the current minimum wage (to their workers), while the government will pay workers an additional 20%. So, in total, workers will get 60% of their current wage,” Reuters reported Sen as saying.
https://english.cambodiadaily.com/business/cambodia-government-offers-tax-relief-to-garment-factories-160575/
If I am very polite, this article might be described as provoking discussion. But really it is intellectually incoherent. The only sensible comment is the sovereign has no cash-flow constraints.
Many of us would agree that the current economy favours rentiers. I would advocate for the Chicago plan to buy back the entire mortgage stock and a land tax to remove economic rents.
But using a full blown public health and humanitarian crisis to screw the “land rich cash poor” 10% so the 0.1% can gorge on the pieces is absurd. There are plenty of ‘accidental landlords’, many of whom are more humane that PropCorp, who would be foreclosed on in 3 months. How does bankrupting them help? A case in point, my grandmother paid her care home fees from renting her property. It was never quite enough each month and there was no cushion. Should she have been turfed out of the carehome so the ultrawealthy could buy her property cheaply in foreclosure?
This proposal of “austerity for thee but not me” makes no sense. It would make more sense from an MMT perspective if the government made rent for those affected, I.e. In UK terns they immediately qualified for housing benefit. Everybody keeps spending.
Universal benefits are the way forward. I am not that old and i remember the property crash of the late 80’s, when unemployed people with mortgages would have them paid by the then benefit system, whatever their size. They abolished that benefit pretty promptly!
If you want to stick it to the man, tax three months interest payments off the banks, to cover the rent subsidy.
On a related note, Intu PLC, a UK shopping centre operator, pulled its £1.5bn rights issue today. In this self-isolating market, everybody is avoiding commercial real estate like the, er, plague.
If the tenants can’t pay the rent and we have widespread coronavirus and a lot of people suffering hours cutbacks and not having cash, do you seriously think a lot of new tenants would be in a position to fill a vacant rental? You are really not getting the severity of what could happen in particular parts of the US.
And we’re going to see people who rented or owned for AirBnB getting hit first and trying to turn those illegal hotels into normal rentals. They’ll be there competing for any tenants.
Your supposed small landlord would do better to stay put and work with his tenant, and being forced not to be short-sighted would be in his interest. As you ought to know, move outs also impose costs on a landlord (they create wear on the apartment and the landlord at a minimum usually has to paint).
In addition, in the US, even single family home rentals are dominated by private equity. Your picture of the individual owner as landlord is a myth. Even as far back as 1996, institutional investors owned most of the US rental property. As of 2015, only one in six rental units was individually owned, and even then, that would include a lot of AirBnB, not landlords with ongoing tenants.
With all due respect – a vary small property manager we used to work with – who has at least 80 mom-and-pop properties – would disagree about the myth part. I can very quickly count at least nine people in my narrow circle of acquaintances, who all have at least one rental. No doubt, there are many large owners, but small owners are not infrequent. The proposal, as described, is not realistic.
I think, too, that Yves’ is very USAcentric view. In other parts of world, esp. Europe and Australasia, which are just as likely to be hit in much the same way, private ownership of one, two or a few properties for rental is much more common than in the US, where it might indeed by a ‘myth’.
I am not a myth.
Correct, you are an anecdote.
Sufficient anecdotes becomes a sample.
It is important for myths to maintain the fiction that they are not myths. If myths started going around admitting they were myths then nobody would believe them anymore. Therefore, “I am not a myth” is exactly the sort of thing a myth would say.
You’re going to have to do better than that!
I’m thinking of Carol Kane poking her head around the corner every time an exasperated Steve Martin declares,
That’s a Myth! A Myth!!!
She beguilingly responds, ” Yeth?”
jeez, I provided details above about my situation. I am no professional landlord and maybe as Yves says I have no business being one. But I chose to be here in Carolina for my mom and didn’t want to lose my home of 20 years in the Chicago neighborhood where I lived my whole adult life and raised my son. My tenants’ income is quadruple mine. I rent below market because I love my vintage (1908) condo and want good people in it who will take care of it.
I would never try to squeeze blood from a stone but that is a two-way street and a one-size-fits-all solution misses the mark.
If they can pay, they should pay. I’m pretty sure Yves was just talking about the folks living hand to mouth who find themselves with no resources as the ones who get an extension.
What are you going to do anyway? Show up at corona virus ground zero with the sheriff and drag the quarantined out on the lawn? It would me more hygienic to just torch the building with them inside.
(Legal disclaimer: I’m not actually suggesting you murder your tenants. I feel a rent holiday would go better for everyone in the end.)
Yves, I am not sure if you are replying to me or to another commenter. If it was my, you misunderstand my comment. I think the article is misguided and I am certainly not advocating evicting any tenants. I just don’t think landlords should be squeezed either.
In the pandemic crisis, the government should keep both whole. This will do more for the economy on MMT principles, representing a nett stimulus, than sterilising the gift to the tenant by transferring the liability to the landlord, for a net zero. The time for the euthansia of the rentier is afterwards, when the dust has settled, and democratically, not under emergency powers.
And just on the private landlord market, I don’t know about the US but in the UK, the buy-to-let market is huge (my UK cousin bought up a bunch of houses on the Michigan coast after the property crash and made 20%+ yields (rent + rebound)) and pension funds etc. are negligible actors. Institutional money in residential is only in niche multi-occupancy sectors like purpose-built student housing and residential care.
Talk to pretty much any UK extended family other than the working poor and you will find somebody, usually the older members, have a rental property. The C2D’s who voted for Mrs T also bought their council houses and either traded up or bought more of them or both. The biggest residential landlord (other than charities and the great landed estates) in the UK is a couple of retired teachers who owned thousands of houses in the south-east, largely let to EU accession migrants.
My point still stands. If they can’t take three months of no rental income, they are too desperate to be in that business. Shit happens, like big leaks that require major sudden capital expenditures. Even in normal circumstances, you need a few days after a move-out to prep the property for a new tenant, and if you lose a tenant at a bad time of year (they die or just disappear), you can easily face a vacancy of two months. I was subletting my apartment, and the first time, it got snapped up, the second time, it took six weeks, and this was for a prime property I was renting below market to comply with rent regs.
If there is a crisis, you’ll see tons of people with no money, including no money for a deposit because they had to use their emergency funds. Where is the replacement tenant to come from? And why are they a better bet than letting the current tenant stay in place with rent relief?
The point I am making is the article proposes that the tenant does not have to pay and the landlord takes the hit. The economic damage still happens but it falls on the landlord. Offering them relief on mortgage payments after they are in default and have trashed their credit score is hardly helping.
The alternative is that the government could give the tenant the money and the landlord would not take a hit. Much better from an MMT perspective.
It is not reasonable to compare this to a flood from a water leak. We went through one of those two years ago in a holiday cottage we rent out and it was a disaster but we had insurance which covered much (but not all) of the cost very quickly.
Nobody has insurance against COVID. If you could insure against it, perhaps it would be fair to say the landlord should have carried insurance. If it is uninsurable, it is unfair to say people without three months cash in the bank should not be in business. This site has covered the fact many people live paycheck to paycheck. You cannot blame people for owning a rental property but not being plutocrats! People of all stripes below the 0.1% are desperate, that’s a fact, and we should not design policies that make it worse!
On a related insurance point, in the UK, there are serious issues with payouts in the holiday let sector already, because the government did not make it a notifiable disease and most policies only cover properties if they are closed by an authority, not if they lose a booking.
There are all sorts of things insurance does not cover, and my point still stands. If you can’t go without three months of rent, you don’t have any business being a landlord.
And it’s time capital shared in bearing costs of disasters. That is what this article is about. The UK does not have the inflation headroom with Brexit to do much MMT. The currency is already weak and much in the way of MMT would crater it. You’d see a big spike in fuel, pharma, anything imported costs. A big enough fall in the currency would kick of what Willem Buiter called a triple crisis: currency, banking, fiscal, just like what happened in Iceland. He already fingered the UK as particularly vulnerable by virtue of having a banking sector of about 450% of GDP, and that has not changed.
Yes these responses are weird: “But I can’t afford to not have rent for 3 months!”.
But the tenant gets sick and can’t pay. Makes excuses for missing the first month. Then just doesn’t answer the phone when they miss the second month.
Then you start eviction proceedings, which every small landlord in the world will beat your ear over “how hard that is to do”.
You’re guaranteed to lose 3 months at least off the top and then you gotta find another tenant. I don’t understand why people aren’t getting that. How they can be landlords and not have that kind of cushion available.
Being a former landlord of a 2 unit apt house, I often gave rent relief. And I was usually treated well by my tenants, but not always. And while I was handing out rent relief the bank was handing me no mortgage relief.
I happened to buy in a small town in Upstate NY just as factories were closing all over the place, usually shipping their jobs off to Mexico, and later China. Again, no mortgage relief as people, including my tenants, lost their jobs.
I was not alone in my town, most rental properties were owned by middle class people in the same town. Eventually I wore out and sold off, at a loss, both on the property and overall during the 6 years of ownership.
In the town I live in now, I personally know 4 different people that own anywhere from 2 to 6 or 7 units (1 to 3 duplexes) that they use to ensure some retirement income, hoping the mortgages will be paid off by the time they retire and add to their retirement income. Two of them are self employed with large costs for health insurance, etc. and spend much of their free time maintaining their rental properties. This is common here as well as in the town I left in Upstate NY.
I’m missing some of the points above completely. The big guns are in the big cities, they aren’t in Nowhere, Nebraska, WhyNot, NC, or Big Flats, NY.
Can someone explain to me why the small players in small towns should not get some sort of mortgage relief when they give their tenants rent relief?
There is mortgage relief mentioned??? Did you read the whole thing?
> I think that anyone who has a mortgage or loan (including a lease) that they cannot afford to meet during the course of the epidemic period should be granted an automatic three-month extension
The pain trickles up, for once.
Yeah, these “small” landlords want to put the squeeze on people who have even less property and money than they do in the midst of a crisis. What in the world are they thinking? First, rentierism is a two edged sword — if you cut yourself you had it coming. (And it’s even worse because it’s rentierism of dwelling places. Yuck.)
Second, we need to pull together, not bicker like rats over scraps. This is exactly what happened in 2008 with small-minded greedy dbags like Rick Santelli moaning about paying other people’s mortgages. What happened next? A permanent redistribution of working class houses to the 0.01%. How great that worked out. We need to think bigger than that.
The sacrifice can’t come from people who already can’t afford a $400 expense. This is going to break the American worker. What comes after that? Jesus.
“The sacrifice can’t come from people who already can’t afford a $400 expense. This is going to break the American worker.”
Then have it come from the federal government and spread the pain over everyone. There’s no reason to arbitrarily choose certain victims who happened to decide to invest in a multifamly unit rather than the stock market
I happened to have been one of those who diversified by buying a multi unit, so admittedly I may be biased (but also not all landlords are giant corporations)
Indentured servitude.
Well, according to some in the field, The Experts, in ten years, hapf of Jobs are gone. So, what happens to the worker? We are so unprepared on so many fronts.
What happens to the local government who no longer extracts local tax revenues? States? The only sovereign that can choose to print and fund and direct is the Federal gub-mint.
And, apropos of nothin on this comment strand— small potato rentals— the ONLY way to do it is to own it outright. Having a mortgae associated is a losing proposition-
pay the interest to the bank
pay the taxes and insurance for the bank
bear all maintenance for the bank. Do it all yourself and forsake free time and leisure.
Second homes and rentals need a deeper look— a person can barely manage to manage and maintain their primary residence. To have more may well be both a physical and moral over-reach.
“work with his tenant” and stipulating an automatic 3 month free rent are two entirely different things. This is noted for mortgages, “I am not in this case suggesting that the interest owing not be due though: it could be settled at the end of the loan”. Why does one situation call for working with the customer, but another a free handout at the expense of another.
You don’t know as many stupid/greedy landlords who see their rent as an entitlement as I do. Even supposedly savvy ones in NYC. Want to know why there are so many vacant storefronts? It’s not Amazon. Tons of stories about beloved and still successful stores going out of business due to rent increases.
In my former ‘hood (Third Ave in the 70s and 80s, and to a fair degree on Madison), the landlords all doubled the rent about 4 years ago. The result was tons of storefronts vacant >50% of the time. They’d get new silly tenants in (like an upscale frozen food store, who who is upscale wants pricey frozen food save maybe some soups and desserts?) that would leave in ~ 1 year.
I’m not sure its necessarily stupidity (on landlords part at least). I wish I could hunt down the article, but “a” rationale for not reducing rents can be the negative impact on the value of the asset and in turn, the implications this may have for a property owner.
Specifically, if a lower rent is accepted this in turn can and often will reduce the value of the asset if/when it is valued.
A lower value asset will reduce the borrowing that can be done against the asset. If a property owner is at the limit of their borrowing with respect to the property, revaluing the property downwards could be a basis for the bank to call in the loan/sell the property.
Of course, this reason would give an incentive to work with the tenants if it means keeping an artificially high sticker price, so I’m not sure we’re discussing exactly the same thing anymore.. At least an interesting point though I think
Quite so. But forbearance is a two way street. Might as well clear house and get rid of the pains in the proverbial. Particularly since the really broke ones will never catch up. Worth noting that there is a very small supply of truly affordable housing.
Speaking as one of those vanishing small landlords
Yves, you are speaking for me here. I own a total of six apartments in NW Denver — three in my own residence and three in a little property across the street. I’ve always had the belief that by treating my tenants very well, by not being greedy about rent rates, and by fixing everything, I would have stability in my apartments and in my neighborhood, because my tenants are also neighbors. This has worked so far (26 years.) If a tenant gets into difficulty, I always work with them as much as I can. This is not, however, entirely a business strategy. I also think that I have an obligation to deal honestly and fairly with my tenants. Life is short. It seems to me that underlying the Richard Murphy article that has occasioned this rather acerbic string of comments is a fundamentally moral argument that landlords should treat other human beings decently. That this will not be accepted by banks etc. is no reason for individuals not to do so.
….everybody is avoiding commercial real estate like the, er, plague.
In the US in the early 2000’s, commercial real estate lend kept smaller community banks afloat in the then age of subprime lending. No big TBTF bank cared about small business commercial lending. The fed and govt didn’t care about small business lending. So relatively small, local community banks stepped into this market to provide business loans to keep local businesses going.
adding: I could tell tales about the local small business owners who were long time customers of a TBTF band suddenly finding their loan requests denied, or deferred, or sent through a bureaucratic maze, when they’d been renewed without difficulty before.
Then the small business owner needs to find an alternate lender for stock purchase load, etc. Enter the small community banks.
So, TBTF bank drives small business owner to the wall for no reason ( and yucks about it internally, and yes, I know what I’m talking about). Small business owner suddenly needs a new option. You get the picture.
I think the model for this will be the housing crisis in the mid-2000s where the financial sector got funds from the Fed and Treasury to buy foreclosed housing and turn it into rental housing. That benefited everybody except the country’s citizens.
I suspect this COVID-19 is going to become a bureaucratic nightmare. Everything will be means-tested so you will need to prove you can’t pay before they will provide coverage, which will require you to provide seven years of financial records while in the ER. They will come up with programs to help people who have trouble with paying for housing as they can’t work and these programs will be managed with the same set of rules as the public-service student loan forgiveness with 99% rejection rates on the first five tries. So far the CDC has shown its bureaucratic efficiency chops by basically requiring you to be dead before you can get COVID-19 testing. I am sure they will get awards for superb response.
One of the hallmarks of the US federal and state governments these days is that government assistance is given so grudgingly and with so many hoops that there is almost no point in even asking for it unless you are in the top 1% and have the lawyers to handle the paperwork.
Non Illegitimus Carborundum
My old dad used to lob out that fractured Latin… Don’ let the bastids grind ya down
He was a frugal Yankee bohemian anarchist anti- Po-leece ski bum (10 second couch-time retrospective)
Let’s hope companies aren’t loaded up with debt and have spare cash to tide them over bad times.
Any companies that did have spare cash to tide them over bad times were raided by activist share holders and loaded up with debt.
Oh dear.
Individuals have also been running on debt and personal debt is at all time highs
The whole thing has been running on debt and the central banks have had to keep lowering interest rates to keep everything running, and that’s in the good times.
They are now pretty close to zero around the world.
How do you service all that debt in the bad times, when you’re on the edge in the good times?
Can you see when the UK started running on debt?
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
Maggie introduced us to this new ideology, neoliberalism, that runs on debt. The underlying economics ensured no one realised what was happening.
The economics of globalisation has always had an Achilles’ heel.
In the US, the 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
Not considering private debt is the Achilles’ heel of the economics of globalisation.
Copying here a comment I just posted on another thread, but which is even more rel eff vant here, it seems hardly anyone is thinking about the economic consequences of 10% of aging baby boomers checking out this year.
Lots of empty homes coming on the market.
Deaths will be especially concentrated among those in poorest health, e.g. those morbidly obese with diabetes. There will be a lot of life insurance payouts. But a significant drop in Social Security payouts. The survivors will be selected for good health and live longer than current averages. Major expenses for public and private health insurance short term, but lower long term.
As both rental property ownership and high rates of death from coronavirus are concentrated among older people, and the U.S. will be completely unable to take the steps needed to prevent nearly everyone from eventually contracting this virus, about 10% of Americans over 50 will be gone a year from now.