How Landlords of Small Rental Properties Decide Who Gets Housed and Who Gets Evicted
Nathaniel Decker (UC Berkeley)
About half of US rental housing is held by small-scale “mom and pop” owners. These owners often have only one or two units and, historically, have rarely drawn the attention of scholars or policymakers. However recent work on eviction and the impact of the Covid-19 pandemic and eviction moratoriums on small-scale landlords have brought “mom and pop” owners into the headlines. In this article I answer a basic question: is there a difference in how “mom-and-pop” owners manage their properties relative to larger, more professional owners?
Specifically, my article describes how large and small-scale owners of single-family rentals approach tenant selection and eviction. Finding rental housing is often challenging for low- and moderate-income tenants, as is keeping housing. There are too few affordable units in the US, so tenants frequently pay 30% of their income or more for housing, which leaves them vulnerable to sudden increases in expenses or reductions in income. Owners of rental housing, conversely, determine who gets to live in their units and also what happens when a tenant misses a rent payment.
I find that tenant selection and eviction are linked. Larger-scale owners, for the most part, put property management systems in place to ensure that the tenant selection is efficient, effective, and unbiased. When larger-scale owners are not paid promptly, they are far more likely than small-scale owners to bring eviction cases against the tenant, even as they work with them to get the tenant current and avoid eviction. For the most part larger-scale owners engage in tenant selection and eviction with consistent, standard processes.
Small-scale owners, on the other hand, often have an ad-hoc approach to tenant selection and rent delinquency where what they do depends on who their tenant (or prospective tenant) is. They typically have labor-intensive tenant selection methods that place a lot of weight on face-to-face interactions. These methods often raise concerns from a fair-housing standpoint, as owners frequently generalize their prior experiences with particular “good” or “bad” tenants. However, they also appear to be effective – smaller-scale owners were less likely to report a missed rent payment at a randomly-selected property in their portfolio.
From a policy perspective, the article highlights one problem and one solution. The problem is that the standard method that small-scale owners use to do tenant selection is, at best, questionable from a fair housing perspective. For the most part small-scale owners want to get a sense of who their prospective tenants are, and many (at least before the pandemic) required meeting them in person. In-person meetings provide a wealth of information to rental property owners, including information that is illegal to consider in tenant selection, such as the race and national origin of tenants, and whether they have children. Owners must then ignore this information, which can be difficult if a prior tenant who shared these characteristics was a particularly “good” or “bad” tenant in the owner’s mind.
The solution is in the fact that larger-scale owners appear to file at higher rates at least in part because it fits into a routinized response to rent non-payment. If rental property owners were provided with an attractive alternative to rent non-payment that fit into a routinized response, it seems likely that many would take it. One promising alternative that has been implemented across the US in the past months is emergency rental assistance. A follow-up survey of small rental property owners that I fielded early in 2021 suggests that larger-scale owners have tapped rental assistance at much higher rates than smaller-scale owners. The landlords of small rental properties typically take an active role in dealing with missed rent payments, regardless of portfolio size. But larger-scale owners are more accustomed to dealing with government programs and processes. The basic structure of rental assistance could be made permanent and adjusted to deal, not with the exceptional circumstances of the pandemic, but with the norm of low- and moderate-income tenants being occasionally unable to make rent.
Nathaniel Decker is a postdoctoral scholar at the Terner Center for Housing Innovation at UC Berkeley. His research focuses on rental housing markets, particularly landlord behavior, policy, and finance.