Let’s Talk Evictions
Last Friday, the new Administration announced a number of measures which will help millions during the pandemic. These include the following:
…increasing nutrition assistance, streamlining direct payment delivery, having the VA pause debt collection, allowing those who refuse work because of unsafe COVID-related conditions to maintain unemployment insurance, and moving toward a “high road” contracting order … that requires federal contractors to pay a $15/hour minimum wage.
Another action which had been anticipated was the extension of the federal moratorium (issued by the CDC) on evictions through March 31, 2021. But in its current form (no different from its previous one), the moratorium leaks like a sieve:
Renters have to attest under penalty of perjury to their inability to pay. They continue to accrue unpaid rent and interest. And any evictions for something other than non-payment of rent are still allowable.
In addition to the fact that the order is vague – and thus leaves plenty of loopholes which landlords are busy exploiting (a couple hundred thousand evictions have already occurred, despite the moratorium) – it should have been extended until at least September, along with other measures the Administration has ordered throughout the pandemic.
Why is this important? Well for one thing, because the vultures are already circulating. One example is Progress Residential, which owns 40,000 rental homes and was recently merged with another major SFR [= single family rental] owner, Frontyard Residential, which has 15,000 single-family rental homes. The new entity becomes the second-largest owner of single family rental homes in the U.S., and to make matters worse, both are owned by a private equity firm, Premium Partners.
When we say “vultures,” that’s what we mean:
One of the corporate landlords pursuing evictions despite the moratorium is called Progress Residential, continuing a pattern of high eviction rates. Progress is a single-family rental company with over 40,000 homes in the U.S. Born out of the financial crisis [sc. of 2008-2009], these Wall Street landlords scooped up foreclosed properties and turned them into rental units. Complaints about Progress and other single-family rental companies are common. Rents are jacked up, units are substandard, and it’s impossible to get repairs.
The problems that emerge when private equity swoops down and swallows up tens (hundreds?) of thousands of homes in a financial crisis include future control over markets – if a PE firm owns enough properties in any given market, they can set rental rates independent of that local market, and because they are distant and impersonal, having no connection to the communities where they control housing and no vested interest in those communities apart from garnering profits, their record on upkeep and maintenance is abysmal.
It’s almost (not quite, though) inevitable that millions of people currently behind on their rent (est. 18 million) and mortgages will be evicted or foreclosed upon in the next year or two – and private equity firms are “bulking up” (buttressing their cash reserves) to purchase the available housing stock once it starts to come on the market. You can bet it will be sold at fire-sale prices – and you can bet that private equity will be all over that housing.
Rental Assistance: Too little, too late?
The previous Administration had earmarked $25 billion in pandemic rental assistance (in the relief bill passed in December 2020) and the new one has proposed an additional $25 billion. Given that renters already owe an estimated $70 billion in back rent (+ interest on unpaid balances), housing justice advocates believe the actual need is closer to $100 billion. Around 14 million people are currently behind in their rent
Other problematic aspects of the moratorium and rent relief as currently structured: (1) The CDC’s moratorium is not sufficiently tight to prevent landlords from proceeding to evictions – some 220,000 people have been evicted since the pandemic lock-downs began last March:
Extending the current CDC policy does not actually end evictions, particularly in states with weaker protections like Missouri and Kentucky. Biden’s decision means that courts around the country will continue to hear evictions and force tenants to the streets while the pandemic rages on (Tara Raghuveer, director of the Housing Guarantee Campaign at People’s Action).
[Check here for the champion eviction cities in the U.S. For 2016, these included North Charleston, S.C. [a city whose affordable housing crisis we’ve written about], and Richmond, Hampton, and Newport News, an indication that Virginia has traditionally weak renter protections. However, this changed in 2020; the state recently passed renter protection legislation which is in fact among the country’s most progressive.]
A second problem (2) is related to the moratorium itself: a moratorium is not the same as cancellation, and if someone was having difficulty paying any rent at all in December, it’s hard to imagine how they’ll be able to pay six, eight, or ten months back rent plus interest once the CDC moratorium is allowed to expire.
Given that around 40 million people are currently threatened by eviction, this is no small matter. Last April, Representative Ilhan Omar (D-MN) introduced the “Rent and Mortgage Cancellation Act” in Congress, which would cancel both rent and mortgage payments until the end of the pandemic.
It’s not like landlords/owners (and “private equity”) wouldn’t get paid; they would, but it wouldn’t be by renters and mortgage holders, it would be as part of (another) mega-relief package that would have to be passed by Congress, and it would be taxpayers who’d pay:
Even if rents and mortgages are cancelled, landlords still need to make their own mortgage payments and manage the expenses for their properties. This proposed legislation would create a landlord relief fund and lender relief fund so that the federal government can reimburse landlords and lenders for lost rent and mortgage payments. In exchange for this reimbursement, lenders and landlords would need to abide by fair renting and lending practices for five years.
This is key – even if renters and mortgage holders end up having their rent (and utilities – water, electricity, heat) cancelled for the duration of the pandemic starting in March 2020 (and ending at some as-yet unknown future date), landlords and mortgage lenders would still have to be “made whole” by some mechanism. If they’re not, this (1) would trigger a move by private equity-owned residential rental property owners to acquire another sizable chunk of the U.S. housing stock and (2) could cause a massive collapse in the MBS (mortgage-based securities) market, which in turn could lead to another 2008-style financial crisis in addition to the already-existing financial crisis – a crisis atop a crisis.
What would happen if mass evictions are allowed to take place somewhere down the line? In addition to the consequences noted, there would be a seismic shift in the residential property market, as follows: those with foreclosed mortgages would be forced to vacate and move to the rental market; presumably, they would rent higher-end houses/apartments (depending on their financial circumstances after foreclosure); those evicted from higher-end rentals would be pushed down-market to cheaper properties, and so on down the housing chain to those evicted and without the means to afford rent at all. This group (1 million? 2 million? Who knows? Indications are that 18 million renters are now behind in their rent) would become officially homeless.
Clearly, this is an impossible outcome. The U.S. cannot accommodate its current homeless population of around 500,000; how would it care for – and re-house – twice or three times that number?
The Biden Administration needs to address this before it’s allowed to proceed further. Either (a) renters/mortgage holders must be made whole (so they can pay both current and past-due rent/mortgages) or (b) owners must be made whole (through federal reimbursement for rent in arrears or mortgages in arrears).
The Administration has interesting and forward-looking proposals for making housing more affordable and more equitable in the longer term:
- Ending redlining and other discriminatory and unfair practices in the housing market.
- Providing financial assistance to help hard-working Americans buy or rent safe, quality housing, including down payment assistance through a refundable and advanceable tax credit and fully funding federal rental assistance.
- Increasing the supply, lowering the cost, and improving the quality of housing, including through investments in resilience, energy efficiency, and accessibility of homes.
- Pursuing a comprehensive approach to ending homelessness.
But the rent-and-mortgage-payment crisis will only continue to worsen over the next several months or until the U.S. reaches COVID-19 herd immunity, whichever comes first.
The Administration needs to resolve this now – otherwise, we’ll wake up in 2022 only to discover that private-equity firms have acquired an even bigger share of the U.S. housing stock than they did after the housing market collapse in 2008-2009.