Rent Strike 2020 -left wing nut jobs or something to worry about?

[Steven Lowe]

There is a growing political movement, at least on Twitter, called Rent Strike 2020.  Basically the message is that they are demanding that the governors of all states "freeze all rent, mortgage, and utility bill collection for 2 months, or face a rent strike".  They don't really explain what a rent strike would consist of but I understand it to mean if their demands are not met people will just refuse to pay rent.  Apparently people are supposed to show solidarity with this movement by hanging a white sheet in their front windows.   

https://www.rentstrike2020.org/

They also identify with a group called "The Socialist Alternative".  While I really would like to just write them off as a bunch of wacko left wingers, in desperate times like these, sometimes crazy people can get traction with an audience of people that are equally desperate.  

https://www.socialistalternative.org/

[Scott Trench]

First off, we don't do politics here. "Left-wing nut jobs" detracts from an otherwise strong discussion starter. Leaving it up because in this case, many of the rent-strike pages DO originate from truly communist organizations. But, let's leave the political stuff alone.

Moving on - Interesting post! Personally, I am not that afraid of a rent strike, even if some tenants DO organize around that. And, I believe that most landlords shouldn't be, either. 

Here are some statistics:

There are ~18M single-family rental homes in this country. There are about 8 million units of duplex, triplex, or quadplex housing.

80% of single-family rental units are owned by investors with 10 or fewer units. 60% are owned by investors with just 1-2 properties aside from their primary. We extrapolate similar ownership trends to 2-4 unit housing, as all of this can be purchased with fannie-mae insured mortgages. 

The people who own this property are individuals like you and I, they usually work a job (earn between $50K and $200K per year). They usually have multiple investments, including real estate, their home, a job, stocks, and often small businesses.

We polled our audience, and 75% of the people polled say they have over 3 months reserves (if ALL income dried up). 60% have over 6 months. A tiny, tiny fraction of you are worried about being foreclosed on or running out of liquidity.

About 3M people filed for unemployment last week. That’s huge, but it’s only 1% of the population of this country. Even if ALL of those folks are tenants, there are 45M units of rental housing stock in this country. So that’s less than 10% of tenants. Most of the folks who did get laid off are receiving final paychecks, some will receive severance, and most will be eligible for unemployment and the bailout checks. Many tenants are elderly, on disability, or receive social security, etc. Many tenants are on section 8 or other gov’t housing.

So the pool of potential renters who are truly out of luck and out of money in the current crisis is very small. 

Most small-time landlords have personal relationships with their tenants, or have reasonable property managers. Most have a somewhat diverse tenant pool. I've got tenants who are teachers, work in warehouses, nursing homes, healthcare, construction, one on disability, one retired on social security, and one in services. That's one tenant who is out of income out of my pool. Others will, of course, have different pools that make things harder. But, I suspect that 1/8 is going to be average or worse than the typical situation landlords find themselves in. 

Tenants who lose their jobs are not immediately SOL. They will receive a final paycheck, sometimes severance and accrued PTO and other benefits. They will be eligible for unemployment. Many may have savings or other liquidity. They are due to receive a gov't bailout.

A portion of that population of tenants are truly out of money and options - having lost their lost their job, being ineligible for unemployment, no gov’t bailout, no other savings, no other liquidity, no other income. Most discussions with landlords I've seen indicate an intent to make appropriate business and ethical decisions to treat these people fairly and share the burden. This is extremely generous, and wonderful to see from our community. Instead of donating hundreds or thousands of dollars to charity or keeping for their families, many landlords are literally choosing to donate the rent to their tenants. 

Of course, a few landlords are making grandiose statements about how the rent is due no matter what. These folks will make headlines and make the rest of us look bad.

The fear of landlords is of the tenant population who CAN still pay, who are still employed, who are eligible for the bailout, unemployment, have liquidity, other income, etc. It is THIS fear, that I believe is irrational. 

This is because while landlords certainly lose income when a tenant does not pay, the consequences for the rent-striking tenant are FAR worse than the consequences for the landlord in most cases. There are three key reasons for this.

1) Capitalization: The landlord, as we discussed earlier, is typically well-capitalized, with 6 months of reserves for precisely this type of situation. If ALL tenants stop paying, the carnage won't begin to impact landlords at scale for at least three, more likely 6+ months. A rent-striking tenant is highly unlikely to be well-capitalized - otherwise they would not risk their housing and credit for the long-term in order to capitalize on a temporary eviction freeze. This means that in a game of chicken, the landlords will typically win. This is downside protection.

2) Security Deposit: In the event of eviction, the landlord can keep the security deposit as collateral for one month's rent. This means that the tenant only actually gets a cash advantage if the strike continues for multiple months. If the courts reopen in 1 month, the landlord doesn't even lose that much cash flow. This is downside protection.

3) Eviction and Bankruptcy: When the courts do reopen, the landlord will accrue rent and late fees, file for eviction, sue, and bankrupt the rent-striker. This will ruin the rent striker's ability to find housing or qualify for other financings for many years, a minimum of 7-10. This is an absurd price to pay for an uncertain amount of "free" rent. Only a few crazies will be game for this. This is Mutually Assured Destruction, skewed heavily in the landlord's favor.

There's a horror story on reddit where a landlord owns a 32-unit apartment. The tenants are organizing to strike. Fair enough - a real scare for the owner of that property. The problem is that the tenants haven't even made any demands. They haven't asked for lower rents, better facilities, better whatever. This shows you how unorganized and reactionary these folks are. In the even that they do maintain a strike and put this landlord out of business, you can bet on the fact that the landlord or his successor will retaliate by suing each and every one of them for all unpaid moneys, bankrupting all of them, and evicting all of them in the end. Some win for the rent-strikers.

TL;DR - The vast majority of landlords who might confront a rent-striker face the potential consequence of a temporary loss in income from some tenants, likely a small minority, something that they can usually weather for months. The rent-striker has to keep the strike going for multiple months, and at the end faces a very real risk of eviction and bankruptcy. There is no way that a majority of tenants will play that game. 

Of course, some landlords who aren't well-capitalized may go broke right away. But, if they are already about to go broke, then they were going to go broke when the next recession (or nasty eviction in regular times, for that matter) came up anyways.