Feb 22

[Thank you to Joe Murray for the research]

First, let me preface this that in general, I feel that Governor Evers has done well in the distribution of housing aid during the pandemic.

However, his proposed budget has a number of concerning provisions.  And how the heck does Wisconsin allows laws unrelated to spending to be part of a budget is well beyond me.

  • If passed, municipalities will be able to restrict how you screen, what you can charge, prohibit showing occupied units, making certain you lose a month or more between tenants, limit charging for damages, limit or prohibit security deposits and allow for rent abatement for minor issues.  
  • If passed municipalities will also be able to enact their own eviction moratoriums.
  • If passed, you will be inhibited from evicting for criminal activity. That should make other renters and neighbors feel safe — Not!  
  • If passed you can be required to disclose code violations “regardless of whether the landlord has actual knowledge of the violation

Actual details are below.  
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Local landlord-tenant ordinances

Current law prohibits political subdivisions from enacting certain ordinances relating to landlords and tenants. Political subdivisions may not do any of the following:

1. Prohibit or limit landlords from obtaining or using certain information relating to a tenant or prospective tenant, including monthly household income, occupation, rental history, credit information, court records, and social security numbers.

2. Limit how far back in time a landlord may look at a prospective tenant’s credit information, conviction record, or previous housing.

3. Prohibit or limit a landlord from entering into a rental agreement with a prospective tenant while the premises are occupied by a current tenant.

4. Prohibit or limit a landlord from showing a premises to a prospective tenant during a current tenant’s tenancy.

5. Place requirements on a landlord with respect to security deposits or earnest money or inspections that are in addition to what is required under administrative rules.

6. Limit a tenant’s responsibility for any damage to or neglect of the premises.

7. Require a landlord to provide any information to tenants or to the local government any information that is not required to be provided under federal or state law.

8. Require a residential property to be inspected except under certain circumstances.

9. Impose an occupancy or transfer of tenancy fee on a rental unit.

10. Current law also prohibits political subdivisions from regulating rent abatement in a way that permits abatement for conditions other than those that materially affect the health or safety of the tenant or that substantially affect the use and occupancy of the premises. 

The budget bill eliminates all of these prohibitions.

Local moratorium on evictions

Current law prohibits political subdivisions from imposing a moratorium on landlords from pursuing evictions actions against a tenant. 

The budget bill eliminates that prohibition.

Notification of building code violations

Under current law, before entering into a lease with or accepting any earnest money or a security deposit from a prospective tenant, a landlord must disclose to the prospective tenant any building code or housing code violations of which the landlord has actual knowledge if the violation presents a significant threat to the prospective tenant’s health or safety. The bill eliminates the condition that the landlord have actual knowledge of such a violation and that the threat to the prospective tenant’s health or safety be “significant”; under the bill, the landlord must disclose to a prospective tenant a building code or housing code violation, regardless of whether the landlord has actual knowledge of the violation, if the violation presents a threat to the prospective tenant’s health or safety.

The budget bill eliminates these provisions.

Terminating a tenancy on the basis of criminal activity

Current law allows a landlord, upon providing notice to a tenant, to terminate the tenant’s tenancy, without an opportunity to cure the tenant’s default, if the tenant, a member of the tenant’s household, or a guest of the tenant 1) engages in any criminal activity that threatens the health or safety of other tenants, persons residing in the immediate vicinity of the premises, or the landlord; 2) engages in any criminal activity that threatens the right to peaceful enjoyment of the premises by other tenants or persons residing in the immediate vicinity of the premises; or 3) engages in any drug-related criminal activity on or near the premises. 

The budget bill eliminates these provisions.

Feb 08

You are permitted to forbid smoking in your units and in fact HUD has forbidden smoking in public housing since February 2017, mandatory since July 2018. HUD specifically forbids marijuana, as even though some states purport to have legalized its use, it is still federally illegal.

The Public Health Law Center has a great Q&A on this that states

Q: Can tenants smoke marijuana in multi-unit apartment buildings if they live in states where the use of medical or recreational marijuana is legal?

A: There is no absolute right to smoke medical or recreational marijuana in any state, especially when smoking impacts others. Secondhand smoke, whether from combustible or aerosolized tobacco or marijuana products, spreads throughout multi-unit dwellings. A recent U.S. study reports that even in multi-unit buildings where smoke-free policies were enforced, 50 percent of residents experienced smoke entering into their units from adjacent units. Multi-unit residential property owners have the legal authority to make their properties smoke- free, which includes prohibiting the smoking or vaping of medically prescribed marijuana in individual units and common areas, even in jurisdictions in which the use of medical marijuana is permitted by state law.

https://publichealthlawcenter.org/sites/default/files/resources/Marijuana-in-Multi-Unit-Residential-Setting-2019-1.pdf

Feb 05

At my company, we have tenants on bi-weekly, weekly, and alternative pay dates because I have long known the cost to us when a renter fails.

The alternative pay date can be a legal gotcha under Fair Housing. Let’s say a renter receives Social Security Disability, and their check arrives on the 3rd of the month and you have a pay before the 1st policy that has a late fee or unrealized discount after the 1st. If the renter asks you to change their due date to the 4th so that they can receive their payment and get it to you and you refuse this “reasonable accommodation” or may be in violation of Fair Housing.

Jan 24

Separate from any eviction moratorium that was applicable to lessors under the CARES Act, evictions of persons from properties securing FHA-insured Single Family mortgages, excluding actions to evict occupants of legally vacant or abandoned properties, are also suspended through March 31, 2021.

https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-03hsgml.pdf

Note this covers all tenants in HUD insured single family properties

Jan 18

President elect Joe Biden proposes a $15 minimum wage claiming it will lift 1 million people out of poverty.

Clearly, it is not possible to pay current rents working full time at the current minimum wage. That needs to be addressed. I said similarly in New York Times interviews in 1991 and 2010:

“On $673 a month, how do you buy tennis shoes for the kids, clean shirts for school and still pay your rent?” Mr. Ballering said.
($673 was the W2, WI’s welfare program, cash payment in 2010)

https://www.nytimes.com/2010/02/19/us/19evict.html

I do not think increased minimum wage is the answer though. Such programs will cause rapid inflation, leaving those making minimum wages in a similar position in a few years as they are today. A better answer is something like FoodShare for Housing, which addresses the needs without rampant inflation.

The person with some skills who is making $15 dollars an hour today is not going to accept the person with no skills making the same amount, they will demand more. Now that the former $15 an hour person is making $25, the one-time $15 an hour person will expect $40—this causing the costs of goods and services to rapidly increase.

The other factor is it will result in far less lower-paid jobs, as companies will move work overseas and automate all that can be done by a machine. But you can’t replace the hamburger flipper … oh wait, they just did. Miso Robotics Flippy robot for $30,0000 replaces 3-4 employees, produces better quality and works 100,000 hours between major servicing. 24/7 staff for 30¢ an hour, no overtime, no worker comp, no paid holidays, no calling in sick because there was a Packer Game last night…

At many fast food places, when you talk into the drive-through speaker, you are speaking to someone that is in an off-site call center. When was the last time you were at Home Depot or or the large grocery chain store that the checkout person was not you? 😉

The winners of the increased minimum wage programs will be people who own hard assets when the increase becomes law. THe more you own at the beginning of an inflationary cycle, the more you win at the end.

The biggest winners will be those with a fixed rate mortgage. Let’s say you own a $100,000 duplex with a $75k loan. Today you have $25k and 25% equity. Ten years at 7% inflation, and it is worth just shy of $200k. Now you have $125k and 62% equity, plus your principal paydown. If inflation hits 12%, you reach those numbers in 6 years.

Crazy- This will never happen. But it did. From 1973 to 1981, we saw an average of 9.25% inflation, with three years over 12%. Mortgage interest rates in 1981 were north of 18%. Interest rates were over 8% for the entire period of 1973 to 1992.

If they pass a new minimum wage, the smart answer might be to buy as much highly leveraged real estate as you can manage, unless, of course, the inflation it causes and the trillions spent on COVID relief crash the entire economy…

Jan 17

The overview of Jesse Tree is at https://www.jessetreeidaho.org/. The details of their Badge program are at https://www.jessetreeidaho.org/sign-up-for-workshops. They promote eviction prevention through rental assistance, mediation services, and working with property owners. A quote from their homepage:

It costs $1,000 on average for Jesse Tree to keep a family housed, compared to $5-10,000 for a family to find new housing after being evicted.

Evictions also result in significant costs to the property owner. TransUnion found in a 2014 study that “the true cost of an eviction can range from $3,500 up to $10,000” TransUnion infographic on eviction costs.

Between the cost incurred by the renter and the cost incurred by the property owner, as well as hidden costs incurred by the community such as the impact on MPS, evictions have a significant economic impact on the community

The Jesse Tree Badge workshops remind me of the 1990s UW-Extension “Good Neighbor/Good Tenant Program” for Milwaukee County residents.   HACM, Milwaukee County, and the City of West Allis provided the funding. It was a $52,500 County budget item in 1995. 

The UW program provided training to renters with evictions or no rental history. Renters that completed the program were given a partial move money grant. More importantly, the program had a rent guarantee for the first year of the tenancy that would pay a month of rent if the renter failed to pay. With what was in essence, two months security, owners were more likely to take a chance on a renter that would not otherwise meet screening criteria. Owners that participated had to offer certificate holders a special deal. I think most owners gave a 25/month discount if the rent was paid by the 5th.

My company was a participating owner in the Good Neighbor/Good Tenant Program. I considered the program successful.

Jan 07

There was a discussion on the free  Apartment Association listserv about application fees and move-in fees. One member told of how large management companies charge many hundreds of dollars in application and move-in fees.

In WI an owner can charge for a credit check fee up to $25 actual costs and, if the applicant is from out of state, additional actual background costs, up to $25. In WI all other application and move-in fees appear to be illegal.

WI Administrative Code ATCP 134 RESIDENTIAL RENTAL PRACTICES.

134.02 (3) “Earnest money deposit” means the total of any payments or deposits, however denominated or described, given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord. “Earnest money deposit” does not include a fee which a landlord charges for a credit check in compliance with s. ATCP 134.05 (3).

coupled with

134.05 (2)(b) A landlord who receives an earnest money deposit from a rental applicant shall do one of the following if the landlord enters into a rental agreement with that applicant:

1. Apply the earnest money deposit as rent or as a security deposit.

2. Return the earnest money deposit to the tenant.

makes it clear that all application and move-in fees, except credit reports and out of state background checks, are illegal in WI.

Owners that try to circumvent this with fancy wording will eventually find themselves in trouble as “any payments or deposits, however denominated or described” is extremely clear.

Dec 30

Matt Desmond author of EVICTED often claims “the rent eats first.”

However, the truth is municipal governments are first at the table for that rent check, with their ever-increasing property taxes, sewer and water bills, those extras that are attached to the water bills as well as all the special assessments added to the tax bills.

Municipal governments also are the ones who will be paid even if you don’t and even ahead of the mortgage holder.

If rents increased year over year the same 9-286% as the city taxes, there would be rioting in the streets. There are a lot of news articles where there has been outrage at modest rent increases because that is not what one expects in an economic downturn.

However, owners will have to raise rents substantially to cover these tax increases. Add to that the reduction in rent collected many owners are experiencing this year and 8-20% rent increases will be required just to maintain the financial position of last year.

When costs exceeds the property’s income, the property will eventually fail. If this happens on a widespread basis, all tenants will be harmed and face much higher rents in the future.

Dec 22


https://www.jsonline.com/story/news/2020/12/22/landlords-tenants-say-rent-assistance-needed-part-eviction-ban/3932908001/

“I  don’t think a landlord should be expected to shoulder the burden of taking care of a property for several months or a year,” when a tenant stops paying rent, said Dawn Anastasi, a landlord who owns 18 properties on the northwest side of Milwaukee. “It’s not the tenant’s fault, but it’s not the landlord’s fault either.”

Even with the rent assistance, landlords will be left holding the bag for much of the unpaid rent, predicted Tim Ballering, treasurer of the Apartment Association of Southeastern Wisconsin.

“The unpaid rent will never be paid, let’s be honest about that,” Ballering said, noting that even when a tenant is evicted the landlord seldom collects the past due rent. 

As a result, Ballering, who is also a landlord, predicted a spike in the number of local landlords who sell their properties to large absentee rental companies.

“Is that a good thing or a bad thing?” Ballering asked. “That depends on your views. Do you think that the small American farmer being driven out by large corporate farmers is a good thing?”

Heiner Giese, attorney for the association, said the $25 billion in rent assistance will be helpful though he agreed it would likely only last a couple of months.

Giese noted that the federal bill will allow landlords to file for rent assistance, unlike other rent assistance programs that require the tenant to apply

Giese, who is also a landlord, said he has seen cases where tenants signed the required CDC declaration that protected them from eviction but then did not apply for any rent assistance.

“They would just say he’s going to evict me anyway, so screw it,” Giese said.

Dec 20

How do landlords think unemployed people will pay rent?:

…an average of 8% of renters don’t pay rent in normal times. During the coronavirus crisis to date, that share has gone up to 15 to 20% of renters not paying.

“But generally, I think we need a better approach instead of just pitting owners versus tenants,” he says. Both the tenants and landlords need some larger, holistic fix from the government that acknowledges that there just isn’t as much money flowing through the system as there should be.

Nearly 12 million renters will owe an average of $5,850 in back rent and utilities by January, Moody’s Analytics warns. Last month, 9 million renters said they were behind on rent, according to a Census Bureau survey.   

The over $70 Billion in unpaid rent, as reported by Moody’s will cripple many housing providers and will cause a housing crisis that will impact both tenants and municipalities for years, if not decades.  In May of 2020 Milwaukee property values finally recovered from the 2008 Great Recession. 

Less than 2.5% of rent judgments are paid in Milwaukee County five years after the eviction.  And eviction judgments represent only a small fraction of the unpaid rent.  In surveying owners, we see on a high end 42% of their lost rent is included in eviction judgments, with most owners reporting less than 10%.  Some owners never pursue money judgments. So the million dollars a month in eviction judgments represent somewhere between $28.5 million to $100 million a year in money that should go into housing but does not.  I peg the number at least to be $48 Million a year in lost rent in one county.  This is just insane. 

The right answer is for the government to step up to the plate and create a portable housing voucher to cover a portion, to all, of the rent /housing costs for people below a certain income, similar to food stamps.

Instead, the government pits tenants against landlords in a zero-sum game where one must lose for the other to win. In the end, this makes housing more expensive or limits choices.

This has been a problem long before COVID. In 1991 I was interviewed by the New York Times on evictions. I asked the reporter, “On $574 a month, how do you buy tennis shoes for the kids, clean shirts for school, and still pay your rent?” Nothing has changed much since then. $574 was the AFDC (now W2) payment amount. Twenty years later in an NYT interview, my comment was basically the same:

“On $673 a month, how do you buy tennis shoes for the kids, clean shirts for school and still pay your rent?” Mr. Ballering said.” 
https://www.nytimes.com/2010/02/19/us/19evict.html 

Some suggest canceling mortgages and rents, thinking that this equivalent and will prevent the economic failure of housing.  Sadly, it will not.

The average mortgage payment is 36-39% of gross income. The average owner earns 7-9% of gross income for their investment of capital, financial risks, and physical efforts.  If you stop mortgage and rent payments, as well as prevent owners from being paid for their investment and efforts, there is still 52-57% of gross rent that is needed to cover other operating costs such as sewer, water, property taxes, maintenance, insurance, etc.

In Milwaukee, for most properties, the City takes a far bigger cut of the rent in property taxes, and sewer/water bills, than the owner gets to keep.

If you read the Brookings report, you will see this plus the “local economic multiplier” effect of wages and other monies expended by owners.

The Census Bureau reported in 2018 that, on average, every unit generates almost $1,200 in wages. Those wages, the property tax money, etc, circulate throughout the community many times over.

Here’s what scholars believe will happen if there is a moratorium without rental assistance; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3641859 It goes into the economic impact on housing and the cost borne by other current and future tenants. It is an informative read.

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