A rent strike could create short-term relief but potentially at the renters own expense. Learn why in today’s podcast.
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Eric Worral: (00:00)
Hey everybody. Welcome back to another episode of RentPrep for Landlords. This is episode #307 and I am your host Eric Worral. And today we are going to be talking about the ramifications and fallout of a nationwide renters strike. I found a really interesting article on this topic that kind of explains some things that I was never aware of and how they worked as far as mortgage-backed securities and what the larger fallout could be from a national renters strike. I’m sure you’ve seen some articles floating around online. I’ve seen him showing up at the RentPrep for Landlords Facebook group more often of tenants threatening the strike. And I just wanted to kind of get down to the fundamentals of this and what would actually happen if something like this were to occur. We’re going to get to that right after this.
Voice Over: (00:48)
Welcome to the RentPrep for Landlords podcast and now your host Eric Worral!
Eric Worral: (00:52)
So today’s featured article comes from citylab.com and the author is Kriston Caps. It was authored on March 31st, 2020. And the title is The Problem with a Corona Virus Rent Strike. I’m not going to get into the entire article cause it kind of a is talking about some things that are dated because this is moving so fast, right? Because this was an article was written two weeks ago as of recording this. But there was one section that I thought was really interesting. So where it picks up is a, it talks about some experts in what they’re warning, what the fallout would be if there was a nationwide rent strike. So I’m going to read some of this and then we’re going to discuss and kind of go back and forth and some really interesting tidbits here. So picking up on the yard halfway down.
Eric Worral: (01:37)
It says that some experts warn that any sustained suspension of rent and mortgage payments would have grave consequences for the broader economy. The buck doesn’t stop with landlords. Those mortgages are often securitized, says Carol Galante, faculty director for the Terner Center for Housing Innovation at the University of California-Berkeley. It must be a pain in the butt to write that on her resume. So she says that they are packaged up into bonds. So those being the mortgages, they’re packaged up into bonds and they’re sold as investments and those investors are expecting a certain interest payment off of those securities on an ongoing basis. If they don’t get those, those investors suffer. So this is, she’s saying like, yeah, well this is a life or death situation. Full-blown disaster. Sorry investors. But that’s capitalism, right? Well, Carol says, so you say, well who cares about the investors?
Eric Worral: (02:28)
Galante says, but the fact is that many of the investors are things like pension funds and those pension funds support teachers, first responders, and others in ways that they may not be wholly apparent every time tenants or homeowners write out the rent and mortgage checks, negative impacts of pandemic paws on rents could play out for years to come. If the government were to declare a rent jubilee, which I’ve never heard that term before, rent jubilee a, it might discourage investors from buying mortgage-backed securities since they might fear that they lose out in the event of another rent jubilee. Yes, these are the same securitized mortgages that contribute to economic collapse in the last financial crisis. Insurance companies and pension funds are some of the primary investors in mortgage bonds. So entities that everyday people have an interest in keeping solving. Oftentimes policies look good on their face, but there are effects that stem throughout the whole society and can even hurt people who are benefiting in the short term by the jubilee says Kathleen Engel, a research professor at law of Suffolk University.
Eric Worral: (03:34)
So basically what this article is getting into is that if there was a runner strike that it could provide short term relief to the renters. But let’s say that renter, you know, is a first responder or a teacher or somebody who’s benefiting from certain sort of pension fund. When these securitized mortgages, right, they become these bonds that are being bought up by these pension funds. When they go bad, that pension fund is hurt, right? So that same person that might be getting short term relief might actually be hurting their own pension fund by having that renters relief happening or that renters strike in this particular case. So I thought that was pretty interesting. We talked about this last week as far as markets that are being affected by this. One of the things we talked about in episode three Oh six, was that domino effect in especially like a market like Vegas, right?
Eric Worral: (04:27)
So we talked about how, you know, if somebody can’t pay their rents, then those landlords can’t pay their mortgages and then the domino effect, it just kinda goes up. Well, I think you’re kind of talking about something very similar in this particular case. If there was a renter’s strike or a rent pause for a very long time, that it’s going to affect those pensions and those people that are expecting a return on those securities. And it’s just going to have a negative implication on people’s longterm investments. And especially if you’re counting on that pension to be your source for retirement. So I just thought this was a really fascinating article on, honestly, I’ve only touched on about a quarter of it from City Lab here. And it does get into Fannie Mae and Freddie Mac as far as the fact that they cover the, their default covering the risk of those mortgage-backed securities.
Eric Worral: (05:13)
So the exposure for pension funds is likely minimal. But it is getting into some other arguments on why pausing all evictions and, or excuse me, pausing all rent payments for a long time would be a not a good idea. So I want to keep this one a pretty short podcast. I thought you guys might find it interesting to read the article as well. I’ll link to that in the description of this week’s podcast. All right guys, I hope you’re doing well. I hope you’re safe. Hope you’re healthy and you know, continue doing your part to get through this pandemic. I know we are here at RentPrep. We’re practicing social distancing, still working. It’s still you know, getting, getting the work done that needs to be done, but we’re doing it from the safety of our homes and you know, we keep each week with each other.
Eric Worral: (06:00)
We actually, we did a social happy hour last Friday, which was fun. And just, you know, finding those ways to connect with people, you know, keep your sanity. You know, even if it’s just a silly zoom chat and you’re having a drink with an old friend or something like that, who cares. Right? just keep connected with one another, but stay safe and hopefully, you know, as soon enough, I won’t be doing content like this on the podcast because this will be in the rear-view mirror. All right, guys like I said, stay safe, stay healthy. And I look forward to catching up with you next week. Take care.