Why Wall Street Won’t Cancel Your Rent

On October 23, 2020, a group of landlords and property management companies in northern Ohio filed a lawsuit against the federal government, challenging the eviction moratorium imposed by the Centers for Disease Control (CDC) at the beginning of September. Never mind that on that very same day the country would report more than 80,000 new Covid-19 infections, surpassing that inauspicious milestone for the first time while careening headlong into a bruising second wave of the pandemic. Never mind, too, that in the cities where the landlords owned and operated properties—places like Akron, Canton, and Toledo—unemployment rates had approached 25 percent earlier in the year, and daily case counts were just then setting all-time highs. No, despite the widespread suffering confronting Ohioans and so many other Americans in that moment, the landlords had other problems on their minds when they submitted their court filing in the U.S. District Court of Northern Ohio. They wanted their rent.

In their suit, the landlords—who were joined by the National Association of Home Builders, one of the largest housing industry trade associations in the country—argued that the eviction moratorium represented a “sweeping assumption of power,” which exceeded the constitutional authority of the executive branch. They claimed, without evidence, that the eviction ban failed to “substantially advance CDC’s cited public health goals” and offered the dubious contention that by preventing landlords from removing non-paying tenants, the ban would “adversely affect low-income prospective tenants in need of housing” and thus “might contribute to the very problems it purports to mitigate.” Above all, the plaintiffs argued that the eviction moratorium “forces one segment of the population—landlords—to bear a disproportionate share of the costs of the pandemic”—and they demanded that the moratorium be immediately and permanently lifted. Conspicuously absent, meanwhile, was any mention of the federal assistance that landlords received in the form of small business loans through last year’s Paycheck Protection Program and Coronavirus Aid, Relief, and Economic Security (CARES) Act, or the indirect subsidy that landlords garnered via the $17.4 billion in additional funding that the CARES Act funneled toward rent relief and other housing aid.

The Ohio lawsuit, Skyworks, Ltd. v. CDC, was just one salvo in a fusillade of legal actions taken by the real estate sector over the last year, which have taken aim at the various restrictions and outright bans on evictions that have been imposed at the federal, state, and local levels. There have been other federal lawsuits filed in District Courts in Georgia, Tennessee, and Louisiana; suits filed against the states of New York, California, Massachusetts, Washington, and others that have passed their own eviction moratoria; and a raft of legal challenges in counties and municipalities where local governments have adopted additional tenant protections during the course of the pandemic.

Across this barrage of litigation, landlords have attempted to reframe the conversation around eviction moratoria by portraying them as an unfair hardship imposed on struggling small business owners dealing with their own pandemic-induced “cash flow problems,” as the Skyworks plaintiffs put it. But a closer look at the groups and networks of influence behind many of the lawsuits reveals a different story. More than a campaign for short-term relief from Covid-19-related economic regulations, the eviction lawsuits are really a stalking horse for a much long-standing campaign, orchestrated by the libertarian wing of the Republican Party and their dark-money corporate backers, to roll back the so-called “Administrative State” in the name of laissez-faire capitalism.

The Ohio lawsuit . . . was just one salvo in a fusillade of legal actions taken by the real estate sector over the last year . . . tak[ing] aim at the various restrictions and outright bans on evictions that have been imposed at the federal, state, and local levels.

Nowhere is this clearer than with two of the right-wing public interest law firms and advocacy groups that have brought cases on behalf of landlord clients in a number of the larger lawsuits filed during the pandemic. One is the Pacific Legal Foundation (PLF), which is representing the plaintiffs in Skyworks, as well as another group of plaintiffs suing the CDC in the District Court of Western Louisiana; a landlord who is challenging eviction restrictions imposed by the State of Washington and the city of Seattle; and a property owner appealing Los Angeles County’s moratorium on evictions of commercial tenants. The other firm is the New Civil Liberties Alliance (NCLA), whose clients include a Winchester, Virginia-based landlord suing the CDC and a Cherry Hill, New Jersey-based landlord who is suing Governor Philip Murphy over an executive order that allows New Jersey tenants to use their security deposits to cover rent payments.

PLF is a venerable force on the corporate right. Founded in Sacramento in 1973 by former staffers to then-Governor Ronald Reagan, who wanted to create a legal clearinghouse for bringing forward cases that could chip away at the postwar welfare state, PLF was one of the first stars in the emerging constellation of business-backed think tanks, policy shops, and advocacy groups. Much of PLF’s initial funding came from the California Chamber of Commerce and from billionaire philanthropist Richard Mellon Scaife, once described as the “funding father” of modern American conservatism.

NCLA, on the contrary, is a much newer creation. It was launched in 2017 under the leadership of Philip Hamburger, a prominent conservative legal scholar at Columbia University and a leading critic of the “administrative power” claimed by the American state to regulate economic affairs since the Progressive Era. Hamburger is the public face and voice of authority at NCLA—but the éminence grise behind the scenes is Charles Koch, the energy sector magnate and leading funder of libertarian causes whose family foundation has provided NCLA with virtually all of its early seed money.

PLF, meanwhile, has more recently developed its own connections to the Koch empire. The firm is an associate member of the Koch-financed State Policy Network (SPN), which connects and supports state-level outfits pursuing pro-business, anti-regulatory political agendas. And PLF and NCLA are hardly the only Koch-connected groups that have been involved in the fight against the various eviction relief measures put into place around the country. Also representing the plaintiffs in the Skyworks suit is the 1851 Center for Constitutional Law, a Columbus, Ohio-based SPN affiliate “dedicated to protecting the constitutional rights of Ohioans from government.” The Beacon Center of Tennessee, which works to “empower Tennesseans to reclaim control over their lives,” submitted a friend-of-the-court brief in a separate federal eviction moratorium lawsuit filed in the District Court of Western Tennessee. SPN member-groups like the Cascade Policy Institute in Oregon and the Pioneer Institute in Massachusetts have been beating-the-drum in support of landlord lawsuits targeting eviction rules in their own states. Koch-affiliated activists and organizations also played a role in the various anti-lockdown protests last spring and summer and are currently involved in legal challenges against other Covid-19-related public health and economic regulations, like mandatory contact tracing and school closures.

Like so many Koch-sponsored and supported campaigns, the eviction moratorium lawsuits are often couched in faux-populist terms. The parties involved spend a lot of time talking about the plight of “mom and pop property owners,” as the chairman of the National Association of Home Builders likes to put it, and the suits typically feature lead plaintiffs like Howard Iten, the commercial landlord in PLF’s lawsuit against Los Angeles County, “a retired auto mechanic who greatly depends on rental income from his one commercial property.” But as with so many Koch campaigns, this is all only so much smoke and mirrors. Above all, it is the rental industry’s largest corporate landlords—and especially the growing corner of the market that is occupied by hedge fund- and private equity-owned landlords—who stand to gain the most if the moratorium lawsuits are successful and a significant wave of tenant evictions ensues.

This was one of the critical lessons from the last major eviction crisis, which came during the subprime meltdown that began in 2007. After more than 10 million Americans lost their homes in the wake of the crash, Wall Street–based investors moved quickly to buy up foreclosed properties and transform them into rentals. None were more aggressive in pursuing the “buy-to-rent” approach than the Blackstone Group, whose $600-plus billion in assets make it the largest private equity and asset management firm in the world. By 2013, the company had spent $7.5 billion to accumulate a portfolio of some 40,000 homes, most of which had been foreclosed on during the Great Recession and its aftermath.

Might another real estate bonanza be in the offing for Wall Street now, if the eviction moratoria are defeated or abandoned before the economy has had a chance to fully right itself?

In turn, Blackstone funneled these and other purchases into a subsidiary real estate investment trust, Invitation Homes, which with 80,000 properties is today the largest owner of single-family rental homes in the country. Impressive on its own—but the primary objective behind the financial behemoth’s move into the rental sector has always been the secondary markets. In November 2013, Blackstone issued the first-ever rent-backed structured securities; by the end of 2015, the firm had issued more than $5 billion in securities backed by Invitation Homes–owned rental properties. Blackstone’s financial innovation transformed the industry: Wall Street’s collective investment in single-family rental properties had ballooned to $60 billion by the beginning of the Covid-19 pandemic—more than double what it was at the end of the Great Recession—while the market for rent-backed bond issuances has grown apace. As Blackstone CEO Stephen Schwarzman rather gleefully acknowledged this past December at the Goldman Sachs Financial Services Conference, “Blackstone was a huge winner coming out of the global financial crisis.” By far, the biggest of those wins came thanks to the firm’s opportunistic maneuvering to take advantage of one of the worst eviction crises since the Great Depression.

Might another real estate bonanza be in the offing for Wall Street now, if the eviction moratoria are defeated or abandoned before the economy has had a chance to fully right itself? It is hard to say. By the end of January, distressed renters owed an estimated $53 billion in delinquent rent payments, utility bills, and late fees—one reason why some landlords and housing industry groups which oppose the eviction moratoria have also been among the most vocal supporters of increased federal rental assistance during the pandemic and have even formed a provisional alliance to that end with tenants-rights groups in certain cities. Not so the largest corporate landlords, which according to one report received at least $320 million in federal Covid-19 subsidies last year and yet still filed thousands of eviction orders against delinquent tenants. Invitation Homes was among the worst offenders, even as its earnings rose by more than 50 percent over the first half of 2020 and its stock price soared by more than 80 percent. “You always have winners and losers,” Blackstone’s Schwarzman mused when queried about the fallout from the pandemic-induced recession at the same Goldman Sachs conference last winter. Needless to say, he did not take the opportunity to offer his own calls for increased assistance to cash-strapped renters.

If nothing else, Schwarzman’s callousness provides a useful reminder. For all the posturing about sticking-up-for-the-little guy that Koch’s libertarian front groups have been deploying in their anti-moratorium legal campaign, the only winners in the event of another mass eviction crisis are likely to be those with much deeper pockets.