Irrationality can take many forms, but one of the most common is context-dropping. When one drops context, one considers an issue in isolation, disconnected from other issues and known facts. When one drops context, one looks only at the immediate moment in disregard for the long-term implications.
The pandemic and government’s response to it has been filled with examples of context-dropping. And because government officials have been dealing only in the moment, we are more than a year into the pandemic with no end in sight. And in the meantime, millions of businesses and lives have been destroyed.
If we want to make wise and rational decisions, then we must consider the full context. We must consider all of the known and relevant facts. We must consider alternative solutions to a problem, as well as the pros and cons of each. If we don’t, we aren’t considering the full context. And if we don’t consider the full context, we are likely to make unwise and irrational decisions. As an example, consider the “Cancel the Rents” movement.
The movement has put forth numerous proposals. Some—including members of the United States House of Representatives—have proposed a temporary halt to rent and mortgage payments for the duration of the pandemic. Others have called for a permanent end to rent and mortgage payments. This latter group is firmly committed to the fantasy that housing is a right, but they are not the focus of this post. While both are guilty of context-dropping, the former is the focus.
In April 2020, Ilhan Omar, Alexandria Ocasio-Cortez, and other members of their clique introduced the Rent and Mortgage Cancellation Act (RMCA) into the United States House of Representatives. The act would cancel all rent and residential mortgage payments during the pandemic. Tenants and mortgagees would be absolved of any responsibility for the unpaid amounts. Evictions, foreclosures, and late fees or penalties would be prohibited.
The RMCA would establish a landlord relief fund to provide payments to the owners of residential rental properties. The owner would be required to apply for relief and agree to certain stipulations, including a five year freeze on rents and the acceptance of housing vouchers. If the bill is enacted, the consequences are easy to predict.
The bill gives landlords two choices: receive no income from a property or agree to the government’s terms and conditions. It is akin to being forced to choose between a lethal injection and being slowly poisoned to death. The only issue is how long one will suffer and to what extent.
Relief funds will provide only temporary relief for property owners. While they would no longer be responsible for mortgage payments on their rental properties, they would still need to pay other expenses, such as property taxes, insurance, and repairs. A freeze on rents would prohibit the owner from recovering any increases in those expenses, and over five years those increases can be substantial.
As one example, the property taxes on seven properties I have owned for the past five years have increased 47 percent during that period. Insurance expenses have increased 16 percent. During the past five years, I have had to replace three HVAC systems and one roof, along with an assortment of less costly repairs. In addition, I have had three vacancies with an average make-ready cost of $2,500. If I can’t recover these costs, or at least a substantial portion of them, through rent increases, I won’t remain in the rental business for long.
If I decided to accept government relief funds, I would have to make a vacant property available to recipients of housing vouchers. The process to do this can take several months, which means that the property would remain vacant and generate no income. And in the meantime, I would still have to pay property taxes, insurance, utilities, and the make-ready expenses. Further, I would be giving government officials nearly complete control over the property, a prospect that is far from appealing.
While many property owners might gladly accept the relief funds, many would simply try to sell their properties. But who would buy a rental property when they can’t charge rent? The simple answer is: probably nobody. Which means, a growing number of properties would sit vacant—making the affordable housing crisis worse—because government officials failed to consider the full context.
Consider further the implications of suspending mortgage payments. It is doubtful that lenders will extend new mortgages if they know that they won’t be paid for an indefinite time. Those trying to sell their home will have difficulty finding a buyer, and those seeking to buy a home will have difficulty getting the necessary financing.
The purported purpose of the RMCA is to keep people in their homes. Undoubtedly, it will accomplish that for some, but it will destroy the housing market and make the affordable housing crisis worse. That outcome is predictable and knowable, but only if we don’t drop the context.