The Rental Housing Industry Is On The Edge Of Disaster. Tenants And Landlords Await A Bailout.

It’s the start of May and the second time rent is due since the coronavirus shut down the economy. And it’s a problem for an increasingly large number of Americans — including a disproportionate number who were lower-income workers and people of color — who have lost their jobs due to the pandemic.

One in four Americans were unable to pay their April rent in full or on time, according to survey data from Apartment List, and May could prove worse. With the unemployment rate expected to average around 14% in the coming months and remain above 10% through 2021, it has become clear to the housing industry that tenants and landlords alike will need more relief from the government — and soon. But more so, the economic fallout from the pandemic highlights the need for a more lasting solution to the housing affordability crisis.

“People are in a panic,” said New York state Sen. Michael Gianaris.

Since the Great Recession, financial stability has been regained disproportionately by homeowners and higher-income earners, and “the overall trends in affordability post-crisis seem to be similar across the country, with middle-income renters increasingly burdened,” according to a report by a Federal Reserve analyst. More than 40% of renters were paying 35% or more of their household income to rent, according to 2018 Census Bureau data, with the median monthly rent in the US just exceeding $1,000. While the last recession was a crisis for homeowners, this one may be better defined as a struggle for the country’s renters.

“It’s the housing crisis of the last few years, the same conversation, just put on steroids now: how we need more affordable units, how we have housing insecurity like crazy in some of the largest job markets in the country, and now it’s just even worse,” said Skylar Olsen, senior principal economist at Zillow.

In 2018, 4 in 10 American adults said they would have difficulty covering an unexpected $400 expense in a Federal Reserve survey. “If layoffs numbers continue in the fashion they have been, and there is a resurgence [of COVID] that takes a second chomp out of the economy, no one has a huge fund they’re sitting on that they can deplete,” said Igor Popov, chief economist at the listing site Apartment List. “A lot of families will face this Catch-22 of the need to move being very high and the cost of moving being untenable,” he said, which is a huge concern in markets where the economy relies on industries like tourism that have nose-dived.

The coronavirus will exacerbate the pressure on lower-wage workers who need lower-cost housing, but are unable to move to more affordable markets because their jobs are not mobile. “It almost sounds too obvious to say, but the ability to work from home was the greatest predictor of whether you were able to pay your rent in April,” Popov said.

While there will likely be some decline in rent prices and more households may consolidate for financial viability — for example, moving in with roommates or family during the pandemic — renters will remain burdened until the economy can safely restart.

Legislators are trying to buy tenants more time. “There is going to be significant economic loss as a result of this. Right now it is entirely being borne by the people who can least bear it, people at the bottom of the economic ladder,” said Gianaris, who proposed suspending and forgiving rent for 90 days. “I am trying to set up some ground rules, in the absence of a massive infusion of aid, to spread that loss up the ladder as far as we can take it … to push the burden up the chain to the banks and the big real estate companies and insurance companies who can handle it and are the entities who benefit most from federal assistance — either because they’re better at manipulating the system or the choices our federal government makes is geared towards helping those who need it the least.”

The CARES Act paused evictions in certain properties for 120 days for nonpayment (local governments enacted their own moratoriums), but those rental bills will eventually come due. Advocates are calling for tenant rent strikes around the country. “We’re setting ourselves up for a housing catastrophe which will lead to homelessness, evictions, foreclosures, and I am trying to put some structure around it and set some ground rules so that doesn’t happen so the recovery will be smoother,” said Gianaris. “There’s a significant effort to push the federal government in its next stimulus to provide a very significant amount of housing assistance.”

Anticipating the need for further relief, the apartment industry is asking Congress to pass a $100 billion emergency rental assistance fund. Yet even this fund, which would be doled out in two 60-day chunks as proposed now, would rapidly be exhausted. Millions of people are likely to remain unemployed for much longer.

Rep. Ilhan Omar has proposed a nationwide cancellation of rents and home mortgage payments “through the duration of the coronavirus pandemic” that would also establish a relief fund for landlords who agree to “fair renting terms” (such as a rent freeze) for five years.

The government won’t fund landlords forever. “At some point, there will be a reckoning. It’s just a matter of when,” said Jim Lapides, a spokesperson for the National Multifamily Housing Council, an apartment industry group that advocates for developing more housing and funding programs like Section 8 and the Low-Income Housing Tax Credit. “Perhaps all of this extra focus on people’s housing needs might create a renewed energy among policymakers to address [affordability] in a constructive way coming out of this,” Lapides said.

Households with a high rent burden (who spend more than 30% of income on rent) often have little in savings — one study showed many had less than $10 in savings in 2015.

“The long-term solution is allowing our communities to grow more dense over time, which is such a weird conversation to have now because ‘density’ is giving people the heebie-jeebies, but I am hoping it is short-lived,” said Zillow’s Olsen. “It truly is the way to have more affordable housing over a long period of time.”

“Housing costs in our big cities have been at a crisis point for years, but it’s been a struggle to get the attention of policymakers in the way that it should,” Gianaris said. “Now, so many are hurting it is exposing the holes in our existing housing policy. It would be a mistake to not learn lessons from this.”

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