The Economics of Canceling Rent and Mortgages
It’s no surprise to anyone that the advent of a global pandemic is inducing a worldwide
economic meltdown. For months offices have been turned into ghostly shells, busy city streets into silent lanes, and restaurant halls dormant all because coming into close contact with another person holds the potential to be lethal! This has caused upwards of 20.5 million Americans to lose their jobs as of May, marking a 320 percent jump from 3.5 percent unemployment in February to 14.7 percent now. This is particularly felt among the working class
and communities of color, who are experiencing unemployment at higher rates than their more privileged counterparts.
Although COVID relief legislation has been passed to provide some financial assistance and delay the collection of rent, many are saying that this is not enough. In fact, a sizable number of activists are calling for an entire cancellation on rent! From Organizers in New York to Ilhan Omar’s recently proposed bill to cancel all rent and mortgage payments throughout the pandemic, “cancel rent!” has become one of the latest rallying cries. But how can a cancellation of rent policy be achieved practically?
Well, let’s start with what would happen if rent were to be canceled. Rent payments are usually mandated because the individuals and/or institutions who own the property may need to make payments on the mortgage they took out to purchase everything in the first place. If their source of income is cut off, then the lack of cash flow to the institutions who sold them the physical space could force them into foreclosure, which would be devastating for everyone involved. Given that nearly half of properties are held by individual landlords, a blind rent cancellation without question would bring great consequences. Paired with the fact that a multitude of non-renting homeowners have lost their jobs and would also need assistance, most calls for rent cancellation are usually paired with a mortgage one too, as outlined in Representative Ilhan Omar’s bill.
So where would things go on from there? Well, a mortgage freeze would lead to a stop of money flow to financial institutions such as banks, credit unions, and non-bank lenders. If these agencies do not receive their funds, then they risk the possibility of going broke and triggering a replay of the 2008 financial crisis. To prevent such a thing from happening, the federal government could instead intervene and cover residential rents and mortgages. According to the table below, the federal government would have to pay around $1.61 trillion to cover the cancellation of all rent and mortgages for a year (barring the administrative cost of implementing the system). Although this may seem like a lot of money, keep in mind that the COVID stimulus package cost U.S taxpayers around $2 trillion, and that canceling rent would help stimulate the economy by letting consumers spend more money on goods and services. Given that no country in the world has canceled rent or mortgage payments, the U.S can show its leadership by being the first.
Furthermore, a suspension on city taxes would lead to a drastic loss of revenue for
municipal governments, which are already buckling under the weight of the COVID economic downturn
|Number of units
||43 million rental units 1
||128.8 million households 3 * 64.8% homeownership rate 4 * 62% have a mortgage 4 = 51,425,280 households with a mortgage
||$1,343 per month 2
||$1,486 per month 5
|Total payment 12 months
||~ 1.61 trillion
1Number of renter occupied homes in the U.S. from 1960 to 2019
2Average two bedroom rent in the United States
3Total number of households in the U.S
4U.S Mortgage Statistics
5U.S Average Monthly Mortgage Payment
The total cost of rent and mortgages can be found by taking the number of rental and mortgages housing units in the United States, multiplying them by the average monthly rental price and mortgage price respectively, and then summing their values.
Although the math and economics work out, the idea of canceling rent might seem too extreme to some. In fact, given the lack of support of Ilhan Omar’s bill in congress, this action may never see the light of day. But before one criticizes rent cancellation advocates as being unrealistic, there needs to be recognition that this rhetoric can shift the Overton window of political possibilities towards a more renter-centered stance. “Cancel Rent!” could also be an effective rallying cry for movement Tenants, BIPOCs, and lower-income individuals are facing the brunt of this economic fallout, and canceling rent is the desire for a substantial number of them. Given that the current economic stimulus is fairly minimal by many standards, channeling this fury can lead to a very beneficial outcome.
So what else can be done to help with the rent burden if it won’t be canceled? Well, the Federal Government could simply cut it for lower-income households. By covering the households that fall under less than 80 percent of the Area Median Income (the normative guideline for lower-income status in the U.S) and covering their rents or mortgages, their fiscal security can be ensured. Another tactic that can be used is for governments to cover part of the salaries of workers who have been laid off. One example can be found in the Netherlands, where the government has pledged to cover upwards of 90 percent of the salaries of employees whose businesses have been experiencing rough times due to the COVID epidemic. Another action that may be taken would be to mandate renters to be able to stretch their repayments over a long period of time. For example, instead of having to pay all of the missed rent at once, they could pay 1/12th of it over the next year.
The call to cancel rent has been growing fast. The economic crisis induced by the COVID epidemic has disproportionately impacted tenants and Black and Brown communities, and the need for drastic relief is acute. Although canceling rent looks promising to many and could make economic sense, it’s completely experimental in nature. But consider this. The cost of inaction on this could leave millions of Americans with crippled finances and hundreds of thousands on the streets. This could potentially be an even greater strain on public finances than paying for their housing. Whatever action the U.S decides to take will have ramifications for decades to come, whether it be a massive spike in homelessness or civil unrest.