Curve

Serial eviction trends hint at a new housing crisis

Rose McMackin
The Mortgage Reports editor

Could serial evictions become the next American housing crisis?

A new Georgia State University (GSU) study hints that they might be, says MarketWatch.

The study examined serial evictions — when a landlord repeatedly threatens a tenant with evictions in order to collect late fees and boost their rental income.

MarketWatch notes, “Researchers found patterns of landlord behavior and intentions, some of which are reminiscent of the worst of the housing crisis a decade ago.”

If you’re a renter, this is a study you want to pay attention to.

Climbing eviction rates in the U.S.

Today, MarketWatch reports, nearly half of Americans are “rent-burdened.” That means they spend more than 30% of their income on rent.

Sociologist Matthew Desmond—who won a Pulitzer in 2017 for his book Evicted: Poverty and Profit in the American City—estimates that 2.3 million evictions were filed in the U.S. in 2016, at a rate of four every minute. As a result, homelessness is on the rise and, by some estimates, 1 in 7 children have experienced eviction.

“Eviction isn’t just a condition of poverty; it’s a cause of poverty,” explains Desmond. “Eviction is a direct cause of homelessness, but it also is a cause of residential instability, school instability [and] community instability.”

Desmond’s latest project, The Eviction Lab, composed of researchers and students at Princeton University, is working to create the nation’s first database of eviction.

“We’re in the middle of a housing crisis, and that means more and more people are giving more and more of their income to rent and utilities,” Desmond says.

Eviction filings are the overdraft fees of housing

The authors of the GSU study revealed an underlying purpose for eviction filings: “The literature suggests that serial filings are aimed less at removing the tenant and more at disciplining the tenant through state-sanctioned threat of removal.”

Additionally, “Serial filers may cater to tenants who are economically fragile, and like banks charging overdraft fees, they may have identified a way to capitalize on this fragility.”

In other words, one-time evictions are still used to remove problematic tenant. However, serial evictions likely serve as an additional source of income.

The study references previous, local studies that illustrate this predatory trend in Baltimore, Cleveland and Dallas, noting these previous studies “found that some landlords viewed the additional revenue from late fees, enforced by the threat of an eviction filing, as a supplemental source of funding in addition to the regular rent roll.”

The authors note that much about these trends parallels the behavior trends that preceded the subprime mortgage crisis. They write, “The effective premium that tenants pay through late fees is a systemic penalty that the lightly regulated rental market inflicts on those who are economically fragile, not dissimilar from the interest rate penalties that subprime lenders inflict on those with previous credit challenges.”

Trend toward corporate property management

Serial eviction filings as a revenue boosting tool was more often done by large, corporate property managers, note the study authors. They also note that property management is increasingly likely to be large and corporate.

The study authors point to another parallel with the subprime mortgage crisis.

“The shift from smaller-scale owner-operators to large, corporate owners using larger property management operations is reminiscent of the transition in mortgage lending from primarily portfolio lending (dominated by savings and loans) up through the 1970s to an originate-to-distribute business model in which lenders sold off loans after originating them,” the authors say.

Effects of eviction

Trends in the mounting eviction crisis echo the impacts of the foreclosure crisis in that they disproportionately impact African-American communities.

In Milwaukee, black women are evicted a rate three times higher than the average for the general population. Similarly, in Seattle, black renters are evicted four times as frequently as white renters.