Corona Relief: Payment Suspension

A simple remedy that could alleviate the income insecurity created by COVID-19

My brother is a musician living in Boston.

In fact, he’s a very gifted musician. He earned an MA from the New England Conservatory, he performs his own compositions, he teaches on the side, and he makes a living as an artist. While I’m mentioning him, you may as well check him out on Spotify! 😉

My brother is one of the millions of artists around the country (and around the world) who have been affected by the recent Coronavirus outbreak. I pass by a local pottery shop on my way to the grocery store in my neighborhood, and they’ve boarded up their windows. I’ve heard reports from dance instructors, event photographers, comic book store owners, yoga teachers, and so many more freelancers or self-employed entrepreneurs who are now out of work.

It’d be one story if this pandemic were just a pause for a month or two, but it seems as if we’ll be stuck in this limbo for the foreseeable future, and that can have devastating consequences for many freelancers like my brother who need to support themselves.

The psychological effects alone can be hugely damaging, and we know that our abilities to think reasonably become clouded when faced with the stresses of income insecurity. People are also more susceptible to depression and other harmful mental health effects when their livelihoods are threatened. Additionally, many individuals have lost their jobs in the wake of the recent market crash, only adding to the pool of anxious, unemployed US adults. We know that the deleterious effects of unemployment can be mitigated over time, but prolonged and seemingly endless bouts of income insecurity can lead to increases in theft, domestic abuse, and other crimes born of desperation.

I predict that we haven’t yet experienced this rise in depression and desperation since we’ve only been quarantining for a few weeks, and many freelancers and entrepreneurs are fortunate enough to have savings that will cushion the impacts of COVID-19. However, if weeks turn into months, the more than 40% of Americans who freelance as their main source of income will be out of work and out of money, which at the very lest doesn’t sound like a recipe for lowering suicide and crime rates.

Fortunately, the harmful effects of income insecurity can be allayed and ameliorated with one simple fix:

Suspend rent and mortgage collection.

Excluding rent, the fixed monthly costs in many American households are quite low. The combined costs of food, water, and electricity for an individual are dwarfed by the monthly rent check, and even if you include monthly medical bills, the sum hardly comes close to what we pay for housing (with younger people spending on average an even greater percentage of their incomes on rent).

This is the primary source of anxiety for many freelancers like my brother: they’re asking “How will I afford next month’s rent?”

The strange thing about rent is that it doesn’t “provide” anything. Stop buying groceries and you won’t have food to eat, but housing doesn’t work like that: your roof doesn’t disappear if you don’t pay rent. Rent is a payment to a landlord who can evict you if you fail to pay up, even though the home itself isn’t going anywhere.

We may be tempted, then, to see these landlords as the root of our conundrum. The thinking goes that if we can just convince landlords to put a pause on rent collection during the Corona crisis, then we can all be safe and live without the fear of homelessness looming over us.

This doesn’t sound like a good proposal to most landlords, though. After all, landlords and homeowners generally have mortgages with monthly payments, and they’re expected to pay back the banks that gave them the loans to buy the homes in the first place.

So the solution could be to temporarily halt all mortgage payments. By pausing the collection of these payments, banks would be bearing the brunt of the financial burden, and it would have no significant material consequences for them, since the mortgage payments would resume eventually. For example, a 30-year fixed-rate mortgage could be extended to become a 31-year mortgage, with interest accrual being suspended as well.

This doesn’t sound quite as terrible. Banks are institutions that are meant to help people weather the storms of economic uncertainty, and a storm is certainly here. The fabric of regulations surrounding financial institutions also makes it much easier to enact a policy (or executive order) that would suspend these payments rather than relying on the good will of individual landlords. If banks are forced to suspend mortgage collection, the landlords who own those properties can suspend rent payments for their tenants, and freelancers like my brother could live without the plaguing anxiety that accompanies income insecurity.

If we hope to avoid the severe consequences of income insecurity during the COVID-19 pandemic, we need to act quickly to alleviate the stresses facing the millions of Americans who are self-employed. If we fail to provide for their basic needs, the data suggest that we risk a considerable increase in crime, mental anguish, and resentment towards a government that isn’t able to guarantee a roof over the heads of its citizens.