By Beshoy Shokralla
The COVID-19 pandemic has exacerbated preexisting vulnerabilities in the rental housing market and created a dire economic situation for both renters and small landlords. Prior to the pandemic, the poorest 20% of households were spending more than half of their income on housing costs with little to no savings.[1] Many renters who faced evictions often owed less than $600.[2] Now, due to the severe job losses brought by the pandemic, an estimated 30-40 million renters could be at risk of eviction.[3] The Federal Reserve Bank of Philadelphia separately estimates that of 7.5 million renter households with at least one worker who has experienced some unemployment, 1.34 million renters will owe $7.2 billion in rent by December 2020.[4] That’s approximately $5,400 in rent-related debt for each household. This burden does not only affect renters, as many small landlords have also reported feeling the pressure. One survey conducted by Avail[5], an app that helps small landlords manage their property, and the Urban Institute found that about 30% of respondent-landlords have felt increased pressure to sell their properties due to the strain that the pandemic has caused.
In order to better understand the effects of the pandemic still being felt, it is important to first take inventory of the ways the government responded to the initial impact of COVID-19. For the purposes of this blog post, government responses to COVID can be divided into two primary categories: 1) financial support through direct cash payments to citizens, and 2) temporary relief from financial obligations. Financial support through direct cash payments came in the form of the $1,200 per adult and $500 per child under seventeen years old. The federal government also provided an extra $600 a week in extra unemployment benefits, as well as $300 a week in supplemental benefits after the $600 benefits expired. Relief from obligation applied to multiple layers in the market. First, many state and local governments — and the federal government through the Centers for Disease Control and Prevention (CDC) — have issued eviction moratoria, stopping landlords from being able to evict residents for failure to pay rent.[6] Second, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), established consumer rights to be granted forbearances for federally backed mortgages.[7] Together, these programs help give tenants who cannot afford to pay rent time to come up with the money, while protecting qualifying landlords from possible repercussions if they cannot afford to pay their mortgage without full rent from their tenants.
These two categories of aid have had a significant effect in cushioning the financial impact of the pandemic. Focusing on the first category, direct monetary support helped many renters make on-time rent payments, helped keep the economy running during the pandemic, and gave unemployed citizens the opportunity to create a savings-buffer.[8] A study by the JPMorgan Chase & Co Institute found that spending among unemployed Americans increased by 22% upon receipt of the $600-supplemented unemployment benefits before dropping to pre-pandemic numbers after the benefits expired. The study concludes that without further government or significant job recovery, “jobless workers may exhaust their accumulated savings buffer, leaving them with a choice to further cut spending or fall behind on debt or rent payments.” For now, it appears that things are trending in line with this prediction. According to the survey by Avail and the Urban Institute, low-income renters are finding it increasingly difficult to pay rent.[9] The number of renters who were unable to pay full rent went up from August (31%) to September (35%), with 44% of renters expecting to have trouble paying rent in October.
It is important to note that the answer to the question “How many households cannot pay rent next month?” is not easy to answer.[10] Unlike with national unemployment numbers, federal statistical agencies do not publish data on rent payment issues. In response to this need for data, the Census Bureau launched the Household Pulse Survey, which contained two important housing-related questions. The first question asked whether the renter paid rent for the month; the second question asked whether the renter was confident they would be able to pay rent next month. Other sources for household rent vulnerabilities include the National Multifamily Housing Council’s Rent Payment Tracker[11] and Princeton University’s Eviction Lab.[12] While these sources are helpful, they are ultimately not a substitute for federal statistical agencies; they lack data from a representative sample of households, landlords, and communities. So, while survey data from different sources can be pieced together to provide a rough picture, policymakers will still lack a complete picture into how different communities are weathering the pandemic.
With most federal cash support programs ending, the primary category of aid still in effect is relief from financial obligation. The federal eviction moratorium is set to expire at the end of the year, while mortgage forbearances are only for twelve months. These two programs have been widely used and have helped homeowners and renters remain at home in the face of financial uncertainty.[13] In the case of renters, many have leveraged eviction moratoria to work with their landlord and pay partial rent.[14] This cooperation allows landlords to collect some rent in order to help pay meet their mortgage payment while reducing the outstanding obligations that the renter will have to pay at the end of the moratorium. For homeowners, mortgage forbearance has been utilized to ease homeowners who are unsure if they will be able to meet their mortgage payments. According to the Mortgage Bankers Association’s Forbearance and Volume Call Survey, the percentage of mortgage loans in forbearance increased from 0.25% to 2.66% between March 2nd and April 1st, 2020, reached about 8.55% in June, before steadily dropping since.[15] According to their latest survey, the percentage of loans in forbearance is 5.47%.[16] This has helped reduce the delinquency rate which, for delinquencies 30-days and 60-days past due, has returned to pre-pandemic levels.[17] Delinquencies 90-days past due remain a problem, however, with more than 2.3 million homeowners — five times pre-pandemic numbers — remaining 90-days past due, but not yet in foreclosure. There were also many homeowners who, for a yet-unknown reason, either chose not to or did not know they could apply for forbearance and are now delinquent.[18]
While federal cash support has had nothing but a net positive on the situation, eviction moratoria and forbearance, when unaccompanied by means for those in forbearance to pay for the accumulating obligation, create the risk of long-term problems. Unlike direct financial support, which allows households to supplement reduced or lost income due to the pandemic, temporary relief does little to address the underlying problem. Temporary relief can only help those who will have access to the necessary capital to eventually pay off all of their obligation. For many lower-income households, this is simply not realistic. In fact, they create a long-term issue that will need to be resolved at some point down the line: who will bear these expected losses? Rent moratoria without financial support have the effect of creating a build of financial obligation. With an unemployment rate of 6.9%, up from 3.5% in February, it will take time before many lower-income households can begin to pay full rent every month, never mind the overdue balance acquired up to that point.[19] When the many eviction moratoria expire and that bill becomes due, who is expected to bear the losses generated by households that cannot afford to pay either the balance or increased rent?
This problem of overdue obligations is the subject of much discussion in academic and policy circles. It is the subject of a section in a forthcoming article by Harvard Law School Professor Howell Jackson, ‘89, called “Three Buckets and a Hose.” In the “Money, Finance, and Consumers” colloquium, professor Jackson discussed possible ways that the losses brought about by the pandemic could be addressed, either by individuals through the bankruptcy system, or whether “they should be picked up the federal government and in some sense, put off to taxpayers in the future.” With COVID cases spiking across the country at rates higher than when initial stay-at-home orders were issued, the future remains uncertain. Placing the losses within the current system now risks displacing millions of American households through eviction proceedings, which would disproportionately hurt lower-income households and people of color.[20] Countless studies and policy briefs have found that the most effective measure during the pandemic so far has been direct support to households to help them pay rent and continue to participate in the economy. Some comprehensive policy proposals call for $100 billion in rent assistance to help lower-income households with their rent debt. These policies can help eliminate the compounded burden caused by the pandemic while encouraging spending to help the economy recover faster.
It is unclear when the pandemic will exactly end. While vaccines seem to be nearing the end stages of testing, COVID-19 cases continue to spike to record highs in the meantime. Despite this continued extension of the pandemic, federal government aid has been steadily declining, and many of the programs meant to help stabilize housing the United States have expired. This burden exacerbated by the pandemic calls for continued government aid to ensure that the safety and welfare of all Americans.
[1] https://www.brookings.edu/blog/the-avenue/2020/03/25/halting-evictions-during-the-coronavirus-crisis-isnt-as-good-as-it-sounds/
[2] https://www.nytimes.com/2019/12/12/upshot/eviction-prevention-solutions-government.html
[3] https://www.aspeninstitute.org/blog-posts/the-covid-19-eviction-crisis-an-estimated-30-40-million-people-in-america-are-at-risk/
[4] https://www.philadelphiafed.org/-/media/frbp/assets/community-development/reports/household-rental-debt-during-covid-19.pdf
[5] https://www.urban.org/urban-wire/low-income-renters-and-renters-their-prime-working-years-urgently-need-more-federal-assistance
[6] Although this does not mean the same thing everywhere. See https://www.nytimes.com/2020/09/16/business/a-simple-eviction-moratorium-sows-confusion-around-the-country.html. Furthermore, as Princeton University’s Eviction Lab notes, the federal eviction moratorium “does not preclude landlords from charging late fees, penalties, or interest that results from non-payment or partial payment of rent as specified in the lease.”
[7] Many financial institutions followed suit and voluntarily offered loan forbearances and other financial relief. See https://crsreports.congress.gov/product/pdf/R/R46578 at 7.
[8] https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/institute/pdf/Institute-UI-Benefits-Boost-Policy-Brief_ADA.pdf
[9] Urban Institute, supra note 5.
[10] https://www.brookings.edu/research/how-many-households-cant-pay-next-months-rent-thats-a-tricky-question/
[11] https://www.nmhc.org/research-insight/nmhc-rent-payment-tracker/
[13] However, it is important to note that these programs do not stop payments all together, but rather they remove the ability for landlords and mortgage companies removing people from their homes. Moratoria on evictions are also supposed to stop landlords from charging late fees on rent, however this is not the case everywhere and many families are still being charged late fees. See https://www.nytimes.com/2020/09/16/business/eviction-moratorium-renters-landlords.html
[14] https://www.freep.com/story/money/business/2020/05/18/landlords-worry-what-happens-after-eviction-ban-lifted/5193211002/.
[15] https://crsreports.congress.gov/product/pdf/R/R46578 at 7.
[16] https://www.mba.org/2020-press-releases/november/share-of-mortgage-loans-in-forbearance-decreases-to-547-percent.
[17] https://cdn.blackknightinc.com/wp-content/uploads/2020/10/BKI_MM_Sept2020_Report.pdf. Delinquency is when there is missed payments on a mortage. After a number of missed payments in delinquency status, the lone will become in default. It is unknown why people are going into delinquency instead of exercising their right to go into forbearance, but some speculate that it is due to insufficient public awareness of the right to forbearance that Congress created in the CARES Act.
[18] https://www.urban.org/urban-wire/broader-outreach-strategy-would-help-400000-needlessly-delinquent-mortgage-borrowers
[19] https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
[20] See https://www.urban.org/urban-wire/low-income-renters-and-renters-their-prime-working-years-urgently-need-more-federal-assistance; https://www.urban.org/urban-wire/mounting-pressures-mom-and-pop-landlords-could-spell-trouble-affordable-rental-market; https://www.aspeninstitute.org/blog-posts/the-covid-19-eviction-crisis-an-estimated-30-40-million-people-in-america-are-at-risk/.
This article was originally published on the COVID-19 an the Law blog.
Beshoy Shokralla graduated from Harvard Law School in May 2022.
