Mya Frazier has a blockbuster of a piece out in the NYT Magazine covering the people who live in long-term hotels, a group one of her sources refers to as the “precariously housed”. It’s a very well-balanced read, taking the proprietor of one chain, Extended Stay America, to task for outsized room fees and brutish eviction practices while also lambasting high growth regions like Columbus and Atlanta for blocking the building of new housing. Taken as a whole, this piece (including the asides about revolting check-cashing fees) presents a crystal-clear accounting of the “high costs of being poor”.
I wrote on Twitter that I see the key culprit here as being lack of new housing, which I am wont to do. The piece also highlights the decline in single-room occupancy hotels, which were once a robust part of the lowest-income housing market but were regulated away to death. But for her part, Frazier focuses more on the role of credit scores in denying many poor Americans access to the rental market.
The criticisms are all spot-on here, including a nice piece of grapeshot fired at the chancy figure of Richard Cordray, who in 2012 became the first boss of the Consumer Financial Protection Bureau after Elizabeth Warren decided to forgo leading the agency she’d molded and remain in the Senate. Cordray left the agency to go lose state-wide for the second time to Mike DeWine in the 2018 Ohio gubernatorial race but apparently landed on his feet in Biden’s Dept of Education, running student loan claims.
In her piece, Frazier describes how the former director helped the credit-report triumvir of Experian, TransUnion, and Equifax pivot their businesses after the housing crash to peer deeper into the lives of poor people. They began to include “‘alternative data,’ such as rent and utility payments, into credit reporting…Cordray saw the push as good public policy — a form of ‘financial empowerment.'”
Credit reports have a shallow history – they were only used for the first time in 1989 – but as everyone knows, they control more than just prices for credit, the interest rate borrowers face; for people with bad credit scores, their score can lock them out of credit entirely or be used as a proxy rationale for institutions to enter into non-credit transactions with them.
Case in point: the usage by landlords of credit scores for offering apartments. There is no prima facie reason why a landlord should be able to deny you an apartment in February because they worry about your payments in October – if October comes and you can’t pay, you leave and it’s on the landlord to find a new tenant.
It’s kookier still to believe that that February rent should depend on credit mishaps from years prior. But that’s how the industry has developed – landlords have been able to impose on renters everywhere the 12-month lease as a technology of brutal repression, making a simple payment for services into a loan-like contract.
(One line of counterargument might emphasize that there are benefits to renters for this long-term contract, but I’m skeptical: when times are good, you can probably get a raise, so you could afford higher rent; but when times are bad, you lose everything, so you can’t afford the prior level of rent anyway. Paradoxically, longer maturities benefit the creditor here.)
This point leads to two further and alternate observations. The first is that we should abolish credit scoring. This is seductive, but wrong-headed, because as the Frazier piece points out, credit scores were a technology that facilitated broader access to borrowing: “Credit scores…stratified credit markets. If you had a low score, you paid higher interest rates; once the process was automated, decisions that used to take days or weeks were made within hours.” That improvement in lending decision speed was useful, and shouldn’t be thrown away.
The second observation is on sounder footing: if we must be stuck with a minority precariat, long-term leases, and predatory credit reporters, then credit scores must be reformed to move faster. If you get a new steady job, the weight of your prior credit should fall sharply. Entries in your credit history should stick around for a couple of years at most. Landlords should be steeply disincentivized against declining because of credit score, and instead should be biased towards green-lighting applicants unless something is incredibly wrong.
Siegel Suites, the business operating the hotels where the piece is set, has carved a middle way through this dilemma by ignoring credit histories and offering short-term rentals. This is a good thing: for lack of Siegel, the women profiled in Frazier’s piece would be flat-out homeless, as indeed her first subject was until she and her father learned about Siegel’s offering.
However, by being the only game in town willing to take on these higher risk renters, Siegel is able to charge exorbitant premiums above market rates. Of her second subject’s budget, Frazier writes, “For about five months, Green and her partner managed to cover the initial daily room rate of $44.99, which would add up to more than $1,300 a month — almost twice the fair-market rent of $717 for an efficiency apartment in Columbus, as calculated by HUD.” Renters at Siegel Suites, started by a one-time NoHo body-shop owner, and the better-known Extended Stay America, deserve more competition in this space, which would drive down these painful premiums to rational levels. These landlords deserve some extra profit from the risks they’re taking, but not very much.
(As an aside, I’ve been curious about the model for the landlord decision to evict, prompted first by the closure of the Cinerama theater. When is it more advantageous to evict and reenter the tenant search market, rather than restructuring payments in arrears [even at 100% haircuts] and allow the current tenant to return to normal payment schedule? The fact that it took a CDC order to prevent evictions during the pandemic suggests landlords are quick to evict, a tendency too strong to be fully rational.)
I criticized a recent story from a trio of NPR reporters which tried to account for the large racial homeownership gap by means of credit score discrimination, because I really don’t believe that it’s responsible for driving much of the variation in the purchasing process. But I am much more inclined to believe Frazier’s account, that recourse to the three-digit number in rental markets has gone too far.
At the end of the day, you need a house over your head at whatever price you can afford, and it boggles the mind that the market for housing is insufficiently thick to provide that. More public investment is likely the answer.