Real Estate Industry News

For millions of America’s renting families, threats to housing security are a persistent fact of life, even at the best of times for the broader economy. A significant unplanned expense or a temporary interruption to employment can mean the difference between a rent payment made and a payment missed. The relative health of the labor market proves crucial in maintaining a measure of housing stability in the United States.

The historic increase in joblessness brought on by the pandemic has pushed us to the brink of a new rental crisis, forestalled in the short term by a combination of payroll protections, enhanced unemployment benefits, rent subsidies, and a national patchwork of eviction moratoria. The most far-reaching of these programs, a moratorium on evictions at properties with federally backed mortgages and the $600 per week unemployment benefits supplement, have now expired. Communities of color are particularly at risk without these reinforcements, impacted disproportionately by the pandemic and job losses and with more limited savings.

As government support fades, the country faces the prospect of a significant housing dislocation that will exact its heaviest toll on income-constrained renters and the small investor-operators who support the workforce and affordable housing markets. Already by mid-July, the Census Bureau Household Pulse Survey showed just over 20% of renters had missed or deferred last month’s rent. For Black households, that statistic is over 30%.

Not every payment delinquency will result in an eviction, a losing strategy for both tenants and landlords in an environment of weakened apartment demand. In fact, eviction may be the exceptional outcome. Lease renegotiations, slow-moving court eviction proceedings, deeper cuts in household spending on food, education, and health, and relocations to lower quality housing stock further removed from economic opportunity are all set to rise in the coming months.

Job Losses and Missed Rent

Overall measures of rental housing affordability and security improved only slightly during the pre-pandemic economic expansion. In 2018, even as the national unemployment rate was slipping to generational lows, nearly 21 million renters were classed as cost burdened, spending more than 30% of income on rent and utilities, according to the Joint Center for Housing Studies’ annual apartment market update. More than half of those households were severely burdened, spending in excess of 50% of their income on housing costs.

The pandemic’s historic job losses have hit these cost burdened renters especially hard. For households with less than $35,000 in income, 58% reported in early July that at least one person had experienced a loss of employment income since the onset of the pandemic. The same report shows that 60% of renter households experienced a loss of income.

While American households in crisis may prioritize rent over other obligations, their savings cushion is remarkably thin. The Federal Reserve reports that 37% of households had insufficient cash on hand in 2019 to cover a $400 emergency expense. That share is almost certainly higher for cost burdened renters, for whom a regular paycheck is essential to making rent. Across all households reporting a loss in employment income since mid-March, more than one in four missed the prior month’s rent or had it deferred. Even if spread over 18 months, catching up on deferred rent payments will require a Herculean effort for many families.

Reliance on CARES Act Support

In meeting rent obligations thus far, low- and moderate-income households have relied heavily on the Economic Impact Payments (EIP) provided by the CARES Act. Absent substantial savings, nearly two-thirds of renter households with incomes below $25,000 have used at least part of their EIP to make rent. The recently unemployed have also relied on Federal Pandemic Unemployment Compensation (FPUC). The enhanced unemployment benefit expiring this weekend has come under partisan criticism for its potential return-to-work disincentives. It is uncertain if the benefit will be renewed at a lower level in a second federal relief bill currently under debate in Washington.

The expiring provisions of the CARES Act have been a substantial stabilizer. Laurie Goodman and her colleagues at the Urban Institute estimate the unemployment supplement restored 78 percent of the income support needed to return households to pre-pandemic rent-to-income ratios.

With the timing and extent of additional federal support uncertain, households’ expectations for next month’s rent obligations betray clear anxieties about the future. Earlier this month, only 26% of households earning less than $25,000 had a high degree of confidence they will cover rent in August. Approximately 21% have no confidence or have already deferred rent payments.

Confidence is also sharply lower amongst renter households with children, reflecting an important socio-economic dynamic in housing tenure in the United States. One population of renters is relatively young, affluent, and childless. Another has children, is less affluent, and might remain in rental housing even after starting a family because of income and wealth constraints.

The Role of Eviction Moratoria

To protect renters during the crisis, a patchwork of eviction moratoria were introduced in its initial weeks, both at the federal and local level. The moratorium covering more than 12 million units at properties with federally backed mortgages has expired, but it will be another month before eviction papers make their way to court. In some states and cities, the freeze on evictions has been extended outright as the severity of the labor market downturn has become clearer.

There have been calls for expanded measures to protect all renters, but such proposals have little chance in the Senate. The strategy carries costs that are poorly understood in the political discourse, particularly for operators and owners of small multifamily properties who have a limited capacity to carry assets and make mortgage and tax payments when operating income is impaired. In the interests of stability in the broader housing ecosystem, extended national moratoria or rent forgiveness must be accompanied by support for the non-institutional landlords who account for the majority of rental housing in this country.

The Rental Market’s Two Narratives

The chorus of warnings of a rent crisis has been dominated by policy analysts and, more recently, by the press. Their message stands in contrast with data from institutional apartment investors and lenders, who are generally more sanguine in their outlook for the sector. The differing assessments suggest widening disparities between the institutional market and the rental market for income-constrained families.

Measures of institutional investor and lender sentiment, ranging from year-to-date returns on apartment real estate investment trusts (REITs) to trends in underwriting standards, are closer to cautious optimism than forewarnings of a crisis. Trepp, a real estate research firm, reports that less than 2% of multifamily loans in commercial mortgaged-backed securities were in special servicing in June, compared with more than 14% for retail mortgages and more than 20% in the lodging sector.

Renters in institutional-quality properties have found ways to stay current. The National Multifamily Housing Council (NMHC)’s invaluable and widely cited rent payment survey, which covers more than 11 million units, shows remarkable resilience in tenants’ meeting their rent obligations thus far in the downturn. As of July 20, 91.3% of apartment households had made a full or partial rent payment, down only slightly from 93.4% the same week one year ago.

NMHC is careful to point out that its findings are not based on a full census of America’s rental housing. Rather, they reflect the performance of professionally-managed apartment buildings using property management software from one of five specific firms. Smaller properties, which account for a majority of all rental units, and properties serving income-constrained populations, are underrepresented in the pool. Renter-occupied single-family homes and subsidized affordable units are excluded from the survey.

RealPage, one of the contributors to the NMCH survey, disaggregates its tally by asset class and market, offering us a view into the extent of variation in the professionally managed segment of the market. Lower quality properties designated as class C, reported a rent payment rate of 86.6 percent as of July 20, compared with 92.0 percent for class A properties. By geography, the New York City region reported the lowest payment rate in the country.

With research assistance by Peter Mattingly (@pjmatting), Adjunct Instructor of Real Estate at the NYU Schack Institute of Real Estate. Tabulations of Census Bureau Household Pulse Survey microdata by Chandan and Mattingly.