Will Rental Aid Catch Up to the Eviction Crisis in Time?

Landlords can access $50 billon in aid to help fill over $70 billion in unapid back rent

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The bad news: Americans likely owed more than $70 billion in back rent at the end of 2020, according to Moody’s.

“That’s a very big number, and creates a lot of risk for operators and tenants,” said Zach Neumann, a housing lawyer and founder of the COVID-19 Eviction Defense Project in Denver, Colo. “It’s very clearly the result of so many Americans losing work last year.”

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And there’s more bad news: Over 20 percent of American renters were behind on their rent in February, and 25 percent are concerned they might not be able to pay next month’s rent, according to data from the U.S. Census Bureau.

In other words, more than 10 million families are facing risk of eviction, according to Moody’s, more than all of the evictions during the Great Recession combined, which totaled seven million. That’s 30 to 40 million people at risk of eviction, according to an analysis by The Aspen Institute.

The good news: There is roughly $50 billion in federal aid directed at filling that hole that landlords can access directly. That’s on top of any state and local government rental assistance programs that may have different access and eligibility rules.

The mixed news: It could take a while for the aid to arrive, while renters and landlords are already facing a stack of problems that have piled up over the course of the year behind temporary bans that prevented evictions, but did not necessarily pay the rent.

In addition, the moratoriums have not been consistent or uniform across the country, which has allowed landlords to start the process of evictions in many cases, nonetheless, even if they won’t be processed by judges until normal court procedures return. In New York City, where there were two local moratoriums over the course of the pandemic, landlords have filed close to 43,000 eviction notices since March 2020, according to data from The Eviction Lab, far below the average for a normal year, but not an insignificant amount.

“If we can keep the eviction moratorium in place longer, and get the rental assistance out the door, the [eviction risk] would be eliminated through the assistance,” said Neumann, as people get back to work and can begin paying rent again, even if they can’t afford to pay back-rent.

“You can see a world where you don’t see mass disruption in housing,” he said. “With a little bit more protection and time, and the ability of the rental assistance to get to people in need, hopefully some of this risk gets ameliorated.”

The federal eviction moratorium, which the Centers for Disease Control and Prevention implemented in early September 2020, had an original sunset date of Jan. 31. The Biden administration extended the ban by executive order until March 31, and many have urged the administration to extend it further.

The moratoriums are designed first and foremost to stop the spread of COVID-19, and research shows that they are a remarkably effective tool, likely saving tens of thousands of lives.

A uniform eviction moratorium imposed at the start of the pandemic could have decreased the death rate by up to 40 percent, according to a working paper from researchers at Duke University. Another paper, which analyzed the effect of actual policies across the United States, showed that, in states where local moratoriums were lifted, the fatality rate was 1.6 times higher than in those with moratoriums, which translates to an excess of 10,700 deaths. The study controlled for mask mandates and other interventions.

“Moratoriums are public health mitigation policies, they’re not designed to help the eviction crisis,” said Emily Benfer, a health and housing law expert, and one of the author’s of the second study.

That’s why the question of whether the moratoriums are necessary is separate from their economic consequences, Benfer said. “The moratorium itself is not the barrier to income,” she said. “[The problem] is the federal failure to infuse the rental market with financial support at the same time that the pandemic mitigation policies were issued to prevent the spread.”

It’s the same as the shutdowns and business closures, which led to massive economic loss, unemployment and lost income. They were implemented because of the extraordinary health crisis the country was facing, despite the financial hardship they caused, and are, to a greater or lesser degree, addressed by the federal stimulus packages.

And landlords were one of the groups that were affected the most, said Shimon Shkury, founder and president of brokerage Ariel Property Advisors, in an interview about the latest stimulus bill. “They were placed between a rock and a hard place,” he said.

The combined effects of the broader economic crisis and the eviction moratoriums are indeed taking their toll on landlords, particularly on smaller landlords, a third of whom are low-income households, according to an analysis by the Brookings Institute. Half of all single-family rental owners, the vast majority of which are mom-and-pop landlords, were at above-average risk of defaulting on their mortgages, according to a February report from RealtyTrac. And mom-and-pop landlords in Manhattan had the second-highest risk of defaulting, out of all counties in the United States.

In addition, a study by the Urban Institute found that Black and Hispanic landlords are hurting more than white landlords. Black and Hispanic landlords were more likely to have a mortgage to begin with, the study found, and were more likely to have a mortgage in forbearance. The same study found that Black and Hispanic landlords were more likely to work with their tenants and offer them payment plans.

The effect on larger landlords is less clear, both because they’re better capitalized and might have a higher ratio of paying to non-paying tenants, whereas a single, non-paying tenant can impact a smaller landlord.

In February, 93.5 percent of households in professionally managed apartments paid rent, compared with 95.1 percent in February of last year, a difference of less than 2 percent, according to the National Multifamily Housing Council, which tracks more than 11 million professionally managed units. At the lowest rate, in April 2020, rent collections were down 3.2 percent from the previous year, according to the NMHC tracker.

In addition, multifamily REIT performance has rebounded nearly across the board since the start of the pandemic, and where it hasn’t, it appears to be due to weakness in the rental market, which has taken a greater hit in urban areas. The stock price for Mid-America Apartment Communities, which is concentrated in the Sun Belt, is just shy of its pre-pandemic peak of $147 per share, whereas the two largest multifamily REITs, Equity Residential and AvalonBay Communities, are both selling at steep discounts to their pre-pandemic peaks, but have seen steady growth in 2021.

Both Equity and AvalonBay are focused on higher-end apartments in coastal urban areas, which have underperformed their suburban counterparts, likely due to the flight from those urban areas during the shutdowns.

In fact, some owners are warehousing units, rather than renting them at a lower price, The Wall Street Journal reported. In Manhattan, some landlords prefer to delist their units and ride out the dip, rather than see prices fall further.

There are federal and local measures in place to protect smaller landlords, through bills to offset the consequence of the eviction bans, or through aid programs. In New York, the state’s eviction and foreclosure moratorium protected landlords with fewer than 10 units from mortgage or tax foreclosure if they declared hardship. On a federal level, property owners with a federally backed mortgage may be eligible for forbearance and protection from foreclosure.

In addition, back to the good news: With the passing of the latest federal stimulus bill, there is now a pool of roughly $50 billion to fill in the rent arrears owed landlords. The December stimulus bill included $25 billion for rental assistance that has already been distributed to states to administer, while the latest stimulus bill included $22 billion in direct rental assistance, plus $5 billion for emergency housing vouchers and $5 billion for people experiencing homelessness.

In addition, the stimulus checks and increased unemployment are likely to filter through to landlords, as people use the additional funds to pay their bills, said Shkury, based on what he saw during the expanded unemployment benefits from the first stimulus package in early 2020.

“The stimulus checks to individuals, and the extension of federal unemployment assistance — from what we’ve seen between April and July — these checks helped pay rent for many people, so I think that’s going to positively affect landlords,” he said. In fact, over a third of households said they used stimulus money toward paying their rent as of March 1, according to the census data.

In terms of the rental assistance, landlords are eligible to request the aid directly, and that could expedite the process, because landlords might have better records and add to the pool of people seeking aid, Neumann said.

To access the aid, landlords need the signatures of their tenants, which means they may have to make a choice between evicting a tenant who hasn’t paid rent, thus losing contact with them, or continuing to work with the tenant to access the financial assistance.

“The biggest shortcoming on all of this — and the one thing landlords and tenants can agree on — is it needs to get faster,” Neumann said.