Seattle’s Winter Eviction Ban: What could possibly go wrong?

The unintended consequences of Seattle’s proposed Winter Eviction Ban are perhaps not that hard to predict. While the intention of the legislation is to curb homelessness during winter it is very likely to have the opposite impact. The perverse effect will very likely be increased rents and increased homelessness.

The proposed ban, would if passed, stop evictions from November 1 to April 1. There are a few exceptions for extreme circumstances such as criminal behavior or owner-occupied properties but otherwise, the law would make it impossible to evict someone from a rental until during this period of time. It’s not difficult to predict how this will go horribly wrong.

The eviction process in Washington state takes from three to six weeks. This depends a great deal on how aggressive the landlord is on persuing the eviction and on how aggressive the tenant is in fighting it. When you add this to a five-month eviction ban it is possible and highly likely that some landlords will be faced with nonpaying tenants for six months or longer. For landlords, this effectively means that if you have a non-paying tenant and haven’t started the eviction process by October 1 you may have just lost half a year of rent. For renters, this means that if you don’t want to stay where you are, you can probably stop paying your rent in September and still have a place to live all the way through March.

Of course, most renters will continue to pay on time and this will not be a problem. However, it doesn’t take much to turn the profitability of a rental property upsidedown. Let’s not pretend that landlords are not in the business of renting property to make a profit. Of course, they want to make a profit. If people cannot make a profit renting properties out they just won’t do it. This leads to two simultaneous problems; increased rents and decreased development.

This is nothing new, cities that have forms of rent control have long run into this exact problem. If I as a property owner cannot charge market rates or earn a profit from my property, what incentive do I have to build new rental units particularly the type of units that might be rented to lower-income individuals? Indeed this type of ban will make it more difficult for low-income individuals to find properties to rent.

If I am a developer and I am considering developing a multifamily property for the rental market in Seattle what kind of property am I now going to consider building? Will I build a property containing many smaller modest units with few amenities that will rent for reasonable prices or will I build a luxury property containing few expansive units and many amenities that will rent for large amounts of money? It all comes down to one simple question, who is my target rental market? Who is going to rent these apartments?

If I build modest units I will be renting to people with modest incomes. These individuals are, like many Americans, more likely to live paycheck to paycheck with little in the way of savings. If I build luxury units, I will be renting to people with high incomes. These people have money and savings, care about their credit score and will almost certainly pay their bills on time and in full. If I can no longer evict someone for non-payment for half a year I will be far less likely to take a chance on lower-income individuals.Why take the risk?

If I am an institutional investor looking to develop properties, why would I take on this extra risk of investing in Seattle when I can take my investment to another city and avoid this risk entirely.

Even if I am an owner of an existing property containing modest units I now have to consider raising rents for everyone. I need to do this in order to cover the losses from my inability to evict non paying tenants for long periods of time. I expect to see rental increases of 10–20% as a direct result of the passage of this legislation, this is on top of any standard inflationary increases.

The solutions to combat homelessness in Seattle are complex. However, short-sighted proposals like this will only serve to exacerbate the existing problem. Increasing the risk to investors only serves to push investment elsewhere. Decreasing the development of modest units only serves to stratify housing stock. While increasing rents of modest units will push those at the very bottom out of the housing they already have while putting a strain on everyone else. In the end, what we will have is even more people made homeless and evicted. On the bright side at least it will be warm weather when their stuff is being put out on the curb.