Proposed new Senate Bill negatively impacts housing supply and affordability

Washington State wants landlords to supply affordable housing, and it also wants landlords to guarantee their tenants a dwelling unit, whether or not rent is paid. These two wishes are in conflict with each other.

Affordability

Years ago, the state passed the Growth Management Act (the “growth must pay for growth” law). It required builders to pay not only for all the infrastructure associated with their housing project, but also the infrastructure beyond the project, such as schools, streets, sewers, storm ponds, etc. Growth paid for growth, but the cost of all housing skyrocketed. 

How can jurisdictions expect housing to be affordable when they continually raise the cost of producing it? The answer is obvious by the number of blue tarps we see along our roads. If the proposed bill passes, we will have more tarps and fewer rental units.

For most tenants, their wages can sustain a certain amount of rent increases, although the situation has become more precarious recently. Along comes the pandemic, and the government shuts down the economy. A lot of those wages disappeared, and with them the ability to pay rent. To avoid even more homelessness, the taxpayers stepped in to temporarily cover wages for renters.  To a lesser extent, landlords were compensated. Neither one of these measures is sustainable.

But landlords now are struggling to comprehend some destructive legislation that saddles them with a problem they did not cause. Any why, if more housing is desired, are they legislating something that will reduce the supply?

Certain state legislators (Sen. Patty Kuderer et al) want to protect tenants from losing their homes (the Eviction Moratorium provision of the bill) when they (a) can’t pay rent, or (b) choose not to pay rent or (c) behave in a way that jeopardizes themselves and those around them.

Let me assure the reader that the whole purpose of being a landlord is to provide housing and services to people in exchange for rent. A reasonable bargain, but one which will no longer exist if the landlord is forced to allow that tenant to remain without paying rent.

There is an even worse provision in the bill: that the landlord loses the ability to quickly remove a misbehaving or disruptive tenant (the “Just Cause” provision).

These legislators will tell you that the landlord may evict and may apply to the government for rent payments. Why should a landlord apply to the government to get rent paid?  And why should a destructive and disruptive tenant be allowed to remain while the dispute drags on in the courts? The rules are so onerous (endless documentation and red tape), expensive (legal expenses for a non-paying unit) and time consuming (months will pass with no relief) that the only recourse for the landlord is to increase rents, deposits and screening rigor. Landlords will leave units vacant rather than risk being stuck with lawsuits, legal bills as well as property damage. The amount of housing stock will diminish. Why would anyone own or build a rental property under these conditions? Why would a bank make a loan on such a risky investment? Higher risk = higher interest rate = higher rent. Bank regulators are already placing rental real estate in high-risk pools, precisely because of what is happening. It ain’t rocket science.

Proposal: A new type of rental insurance

There are better solutions that would alleviate the situation for everyone concerned. We should look at a type of rental insurance that guarantees a consistent stream of rent from tenants. This is common for homeowners (Private Mortgage Insurance PMI) but non-existent for renters. And furthermore, until this crisis abates and workers can earn wages again, that the premiums for this insurance be paid by the government.  This arrangement ensures that tenants can remain in their homes, the landlords get paid, and, importantly, that homelessness is not further aggravated by legislation that will backfire.

As to the “Just Cause” part of the bill, the best thing is to eliminate it. It guarantees a reduction of the housing supply at a time when we urgently need to encourage it.

Priscilla Terry is a former owner/partner of Prime Locations, Inc. a commercial real estate company based in Tumwater. She is now retired but maintains an avid interest in local issues, serving on County level committees that are involved with restoring dignity and responsibility to all residents of our community.