Your Real Estate and Your Life Are Now Worth Less In California

Your private property is acquired as a direct result of your invested life energy, time, talent and capital. Therefore any attack on your private property is an attack on your life. It is also true that restrictions on your freedom to work are restrictions on your liberty.

Well, in California, not only have many people been denied the right to work but now property owners have been denied an essential right of property ownership.

As of a few days ago, the right to evict non-paying tenants has been suspended. This is another unintended consequence of the government-forced shut down. In essence, some of the financial burdens stemming from the restrictions on work are now being shifted to property owners who are forced to continue to provide a service to those who cannot pay for it. It is the equivalent of being forced to do your job without pay – otherwise known as slavery.

So we have an incredible situation where some people are prevented from working and others are forced to work for free. And governments are to blame.

Expect a wave a foreclosures beginning in about 6 months in both the residential and commercial property market.

What does this mean for all parties going forward?

In the next 4 to 12 months (when and if landlords are finally permitted to reclaim their properties and unemployment payments run out) expect to see higher vacancies and a short-term dip in rental prices as jobless people “double up” and move in with friends and family members, or worse, are forced to live on the streets as the newly created homeless.

This dip in rental prices will be short-lived. The excess supply will eventually be absorbed due to the fact that the incentive for investors to build and develop more rental properties in California has been greatly diminished. This coming shortage – plus the inflationary stimulus money – are what will eventually drive rental prices much higher.

You may ask, “but won’t this inflationary stimulus also drive up the prices of my real estate?”

At some point, yes, but it will also drive up the prices of everything else you spend money on. The only people who will benefit are those who have fixed-rate mortgages (which means they can pay back their debt with cheaper dollars) but this assumes they will be fortunate enough to have an income that keeps up with inflation. Most people will see their standard of living fall as rising inflation erodes their purchasing power. When hyperinflation kicks in, they will be devastated.

How can impacted tenants and property owners navigate this crisis?

First, demand that the right to work be reinstated. Next, communicate with each other and work out an equitable compromise if you can as soon as possible. Many tenants live paycheck to paycheck so it is unrealistic for landlords to expect that these tenants will be able to pay accumulated back rent.  It also unrealistic for tenants to expect free housing at the expense of the property owner. You are not each other’s enemy. The real culprit is the government actions that have put you in this situation.  If you can’t make your mortgage payment, contact your lender immediately and negotiate what you can.

The government stimulus package will have other perverse impacts on the economy. For most mid to high level income earners it won’t be enough to cover the shortfall in their living expenses. But the minimum wage workers, who are able to collect unemployment, will end up collecting an equivalent or higher income for the next 4 months! This means it will be hard to hire these people back to work when they can earn just as much sitting at home doing nothing.

Essentially, businesses that rely on low-wage earners will have to compete with the government for workers. This will drive up the cost of goods and services (primarily in the food and service industry) for the next 4 months while limiting your consumer choices. With higher costs of labor many businesses will not survive long enough to pick up workers when the unemployment benefits run out.

The longer that people are prevented from working – or paid not to work – the worse it will get for everyone.

Below is an analysis from a legal expert discussing the recent ruling on eviction suspensions.

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