Patrick Power PRO
Economics PhD @ Boston University
Housing Reading Group
May 3, 2023
A Presentation of
BY: Boaz abramson
The Welfare Effects of Eviction and Homelessness Policies
Summary
- First dynamic equilibrium model of the rental market that explicitly allows for defaults on rents, evictions and homelessness
Develops
- “Right-to-Counsel” reform increases homelessness and slightly lowers aggregate welfare
- Means-tested rental assistance reduces evictions and homelessness and improves welfare
Finds
Motivation
- 3.6 Million Eviction Filings each year in the U.S.
- 600,000 people sleep on the streets or in homeless shelters in a given night
Homeless
Shelter
Policies
?
Eviction Prevention policies can protect tenants temporarily
Increase the cost of the real estate investor who may pass this onto future tenants
Homeless
Shelter
Provides access to free legal representation in Eviction Cases
Policy: Right to Counsel
Tradeoff:
Lowers the likelihood that tenants default on rent in the first place*
Expensive policy and benefits may be seized by the real estate investors
Homeless
Shelter
Policy: Rental Subsidies
Tradeoff:
$400 monthly subsidies to families with wealth less than $1000
\$400 \ \textrm{monthly subsidies to families with wealth less than} \ \$1000
Overlapping Generation model of households who consume housing and consumption and face job-loss/divorce risks
Randomized Control Trail on the Effectiveness of Legal Representation in Eviction Cases
Model
Key Data
+
+
Model
Key Data
⟹
\implies
Counterfactual Policy Assessments
Data & Facts
"High-Quality Eviction Data"
- Examines the drivers of Eviction (MARS)
Jobloss, Divorce⟹↑P(Eviction)
\textrm{Jobloss, Divorce} \implies \uparrow \mathbb{P}(\textrm{Eviction})
- Examines how the probability of these causes differ by age/education
Roughly Monotonically decreasing
- Low-income individuals are rent burdened
Additional Data
American Information Research Services (AIRS).
- Names, address, filing date of Eviction Cases
Infutor
- Demographic characteristics and address history of individuals
CPS
- Employment status and marital status
Shriver Act
- Shriver Act staff recorded eviction status, case length, and debt repayment orders for tenants.
Model
Income
yt={f(at,eˉ,mt)ztut,zt>0yunemp(at,eˉ,mt)zt=0
y_t=
\begin{cases}
f(a_t, \bar{e}, m_t)z_tu_t, \quad z_t > 0 \\
y^{unemp}(a_t, \bar{e}, m_t) \quad z_t=0
\end{cases}
f(at,eˉ,mt)
f(a_t, \bar{e}, m_t)
Deterministic Life-Cycle Component
at:age
a_t: \textrm{age}
eˉ:Innate Human Capital
\bar{e}: \textrm{Innate Human Capital}
mt:Marital Status
m_t: \textrm{Marital Status}
Persistent Component
zt∈{z1,…,zS}
z_t \in \{z^1, \dots, z^S\}
πz′/z(at,eˉ,mt,divt): Transition Probabilities
\pi_{z'/z}(a_t, \bar{e}, m_t, \textrm{div}_t) : \ \textrm{Transition Probabilities}
Transitory Component
ut∼πu(eˉ,mt,divt)i.i.d
u_t \sim \pi_u(\bar{e}, m_t, \textrm{div}_t) \quad i.i.d
Household Problem
Rental Leases & Evictions
qth(at,zt,wt,mt,eˉ)
q_t^h(a_t, z_t, w_t, m_t, \bar{e})
Rent
Eviction Filings
- Begin once the tenants default
- Continue until tenant is evicted or repays
Eviction
- Given default, occurs with exogenous probability
- Tenant pays fraction of rental debt
h:Housing Quality
h : \textrm{Housing Quality}
p
p
ϕ
\phi
- Tenant experience dead weight loss penalty
λ
\lambda
Real Estate Investors
Fixed Cost:Qth
\textrm{Fixed Cost}: Q_t^h
Cost of Ownership
Budget Constraint
None
Purchase/Selling Length
Instantaneous⟹ No Vacancies
\textrm{Instantaneous} \implies \ \textrm{No Vacancies}
Per-period Cost:τh
\textrm{Per-period Cost}: \tau h
Rents are priced in a risk-neutral manner, such that for each lease investors break even in terms of discounted expected profits
Rental Price
Landowners
Market
Representative landowner for each house quality
Setup
Perfectly Competitive
Government
Tax
Cost of Homelessness & Policies
Expenditure
Lump Sum tax on Investors
Equilibrium
Equilibrium Rents and Default Premia
Default premia increases when
- Default risk increase
- Probability of Eviction given default decreases
- Fraction of rental debt repaid decreases
p:Probability of eviction given default
p : \textrm{Probability of eviction given default}
ϕ:Fraction of rental debt repaid
\phi : \textrm{Fraction of rental debt repaid}
CounterFactual Results
Right to Counsel
Main Criteria
Household Welfare
Net Government Expenditure
$30.16 million from increase in homelessness
\$30.16 \ \textrm{million from increase in homelessness}
+
+
$33.86 million for legal counsel
\$33.86 \ \textrm{million for legal counsel}
≈$64 million
\approx \$64 \ \textrm{million}
Length of Eviction Case
38 days→50 days
38 \ \textrm{days} \to 50 \ \textrm{days}
Fraction of Rental Debt Repaid
71.5%→56.5%
71.5\% \to 56.5\%
⟹
\implies
Shriver Act RCT
Model Predictions
Rent
↑$100
\uparrow \$100
Homelessness
↑15%
\uparrow 15\%
Cost of Default
$288→$588
\$288 \to \$588
Interpreting the Reduction of EVICTION FILINGS
Rental Subsidies
Main Criteria
Household Welfare
Net Government Expenditure
−$91.90 million from decrease in homelessness
- \$91.90 \ \textrm{million from decrease in homelessness}
+
+
$85.77 million for housing subsidy
\$85.77 \ \textrm{million for housing subsidy}
≈−$6.13 million
\approx -\$6.13 \ \textrm{million}
Thoughts
- Understating the costs: mom & pop landlords risk averse?
- Overstating the costs: assumes per-period maintenance cost independent of tenant behavior?
- Overstating the benefits: landlords might increase informal evictions?
- Understating the benefits: the additional time might be key to ensure a smooth housing transition?
- By Race/Gender might be worth considering
Real Estate Investors
Tenants
Heterogeneity
Insights of the Paper
- Nature of the Risk of Default is Key
- Evictions can fall under the Right to Counsel because low-income households are screened out of the market
- The cost of the Right to Counsel on real estate investors is the product of the change in repayment rate with the lengthening of the eviction process
Housing Reading Group May 3, 2023
Housing Reading Group
By Patrick Power
Housing Reading Group
Presentation of Boaz Abramson's Working Paper: The Welfare Effects of Eviction and Homelessness Policies
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