There have been several federal and state eviction moratoria since the onset of the COVID-19 pandemic in March. The current binding eviction moratorium is the CDC’s, which was implemented on September 1, 2020 and expires on December 31, 2020. This moratorium was implemented as a public health measure to prevent the spread of COVID-19. Tenants eligible for the moratorium must fill out a declaration stating:
- You make less than $99K ($198K on a joint return) or received a stimulus check.
- You have used “best efforts” to get all available government assistance for rent or housing.
- You’re unable to pay full rent or make a full housing payment because you lost income, you were laid off, or you had out-of-pocket medical expenses.
- You’ve made partial payments wherever possible.
- That if you were to be evicted, you’d likely be homeless, need to move into a homeless shelter, or share a new residence in close quarters with multiple people.
On October 9, 2020 the CDC, HHS, HUD and DOJ issued FAQs on the CDC eviction moratorium clarifying landlords have the ability to start eviction proceedings and issue eviction orders on or after January 1, 2021, and that landlords have no obligation to make tenants aware of the moratorium. In some states, including North Carolina, executive orders have been signed requiring landlords to make tenants aware of the moratorium and provide the CDC Declaration Form to the tenant. The FAQs also clarified that landlords have the right to challenge the truthfulness of a tenant’s declaration in court.
The CDC’s eviction moratorium is a sensible policy that has prevented further community transmission of COVID-19. However, it does not absolve tenants of their obligation to pay past due rent when the moratorium expires at the end of the year. At that point, millions of renters will be unable to afford back rent and risk being evicted while the pandemic is at its most severe stage. Anecdotal evidence suggests that the January docket in landlord-tenant courts around the country is already full.
Precise estimates on the scale of the problem vary. In October, the Federal Reserve Bank of Philadelphia estimated that by December 2020, “1.34 million renter households (4.2 percent of all renter households and 18 percent of those experiencing some unemployment) will owe $7.2 billion in rent, which is around $5,400 each.” According to the Philadelphia Fed, “these 1.34 million households contain 3.9 million individuals: 2.8 million adults and 1.1 million children.” Moody’s Analytics projects that the rent debt could reach close to $70 billion by end of the year and that an estimated 12.8 million Americans would owe an average of $5,400 in back rent. A different report prepared for the National Council of State Housing Agencies estimates the year-end rent shortfall will fall between $25.1 billion and $34.3 billion and that up to 8.4 million renter households, which include 20.1 million individual renters, could experience an eviction filing.
Missed rent payments also impact landlords. According to the 2015 American Housing Survey, 22.7 million out of 48.5 million rental units in the United States are owned by individual investors (mom-and-pops) who are more likely to own single-family and duplex rental homes. An October survey of over 1,300 mom-and-pop landlords revealed that 35.2 percent of them did not receive 100 percent of rent payments for September, with the most commonly cited (77%) reason for non-payment being the tenant did not or could not pay full rent. Non-payment of rent has increased as the fall and winter COVID-19 surge has led to additional layoffs across the country. In their recent survey of 11.5 million professionally managed apartment units across the country, the National Multifamily Housing Council (NMHC) found 75.4 percent of apartment households made a full or partial rent payment by December 6th. This compares to 80.4 percent the month before and 83.2 percent who paid rent through December 6, 2019. Doug Bibby, the NMHC’s President, said: “[I]t is only a matter of time before both renters and housing providers reach the end of their resources.”
Multifamily property owners with government backed loans who stopped receiving rent payments early on in the pandemic were provided a degree of relief in the form of mortgage forbearance as part of the CARES Act. On June 29, 2020 the FHFA extended the multifamily forbearance period three additional months, for a total of half a year. However, this protection covers a small fraction of landlords.
Landlords without government backed loans have been forced to make their mortgage and tax payments even if they are not receiving full rent. These burdens fall heaviest on small property owners, many of whom have gone without rental revenue since April. Municipalities are impacted by landlords’ inability to pay real estate taxes. Without some form of rental assistance that flows to landlords, the ability of local governments to continue to provide basic infrastructure services will diminish.
Through no fault of their own, millions of low- and moderate-income renters have suffered job losses and cannot pay their rent. Without rental income, landlords have been forced to cut back on basic property maintenance, and in some cases skip mortgage and tax payments. Local communities suffer from reduced economic activity and tax revenue, leading to budget cuts and further layoffs. Only the federal government can stop this downward spiral.
Requirements for any Policy Solution
A viable policy solution to the eviction crisis must address the following priorities.
- Prevent evictions while the pandemic is ongoing
Evicting people from their homes in the midst of a pandemic exposes them, and others they may encounter in their search for new housing, to COVID-19. Bottom line, more evictions leads to more infections. With the rollout of COVID-19 vaccines, public health experts believe the U.S. could achieve herd immunity by the end of next summer or fall. Any policy to address the eviction crisis must prioritize preventing evictions until herd immunity is achieved.
- Landlords should not be forced to provide free housing
The various eviction moratoria have effectively forced many landlords to provide free housing while they still pay their mortgage and taxes. Small property owners who lack the financial resources and credit access to sustain periods of nonpayment of rent are most affected. Even if landlords are allowed to evict tenants at the start of the year, they are unlikely to collect the full amount of past due rent.
- Tenants without the financial resources should not be forced to come up with past due rent
According to the Urban Institute, America’s renters have a median income of $41,000 and median wealth of $6,300. For most renters who experienced a pandemic-related job loss, they will not be able to cover past due rent if it comes due on January 1 or any other time. Nonpayment of rent may result in eviction and/or an adverse action on a renter’s credit report. Such actions would make it more difficult for the tenant to obtain housing in the future, access credit, or get a job.
- Utilize existing distribution channels
Rental assistance needs to be distributed as soon as possible to avoid a public health and potential economic crisis. Therefore, assistance should be channeled through established distribution channels as opposed to developing a new program or tasking a new agency to administer the aid.
Potential Policy Solutions
The following describes potential policy solutions at a high level and how well they accomplish the objectives listed above.
- Extend the eviction moratorium
Extending the eviction moratorium is a minimum requirement for any policy solution. However, it must be paired with some form of rental assistance to meet requirements two and three above. Extending the moratorium without providing rental assistance would only kick the financial can down the road.
- Direct payments to tenants
Depending on the amount, direct payments would allow eligible tenants to meet ongoing and past due rent obligations. If a tenant has a more pressing financial need, such as medical bills, direct payments could cover that instead of rent. Payments could be administered on a one-time or ongoing basis by the IRS – similar to the CARES Act stimulus payment – or by the states through block grants (see below). The downside to paying tenants directly is they may use the funds for non-rent expenses, and if the eviction moratorium is still in place, the landlord may not be able to evict tenants for nonpayment of rent. Thus, some landlords may still end up providing free housing without concomitant relief.
- Direct payments to landlords
Direct payments to landlords for back rent owed may be more politically palatable, and efficient, than paying tenants. Congress, or the administering agency, could further tailor eligibility requirements to small property owners, property owners with a mortgage, and/or multifamily property owners with a minimum threshold for rent roll delinquency. Payments could be administered by the IRS, HUD, or the states. Tenants’ rights groups fear that if landlords receive direct payments they may still try to collect on back rent, so any assistance to landlords should be paired with a requirement that recipient landlords notify tenants that they do not have to pay past due rent.
- Block grants to states
The $2.2 trillion CARES Act passed in March provided the Department of Housing and Urban Development (HUD) with an additional $17.4 billion in funding. It included money for rent assistance, housing vouchers, public housing, and housing for the elderly. The three main funding streams for rental assistance in the CARES Act where Community Development Block Grants (CDBG-CV), Emergency Solutions Grants (ESG-CV), and the Coronavirus Relief Fund (CRF). Grantees were not required to use these funds for rental assistance however. According to the National Low Income Housing Coalition, just $2.9 billion of CARES Act funding has been devoted to state and local government rental assistance programs. North Carolina applied for, and received, funding from these CARES Act programs. This included the $53 million Crisis Response and Housing Stability program targeting those experiencing homelessness or immediately on the brink of homelessness; the $117 million N.C. Housing Opportunities and Prevention of Evictions (HOPE) program which targeted those below 80 percent area median income (AMI) in need of rental assistance; and $28 million for local governments to use at their discretion.
Further rental assistance could be provided through block grants. However, the size of these block grants must be significantly higher than what was in the CARES Act. Furthermore, block grants could lead to inconsistent application of the funds across the country because it is largely up to the states to deploy the funds in a manner they see fit. While this provides flexibility for the states, there are no guarantees it will accomplish the primary objectives listed above. The application and funds disbursement process will also take time that many landlords and tenants simply do not have.
The House passed HEROES Act includes a $100 billion emergency rental assistance proposal, known as the “Emergency Rental Assistance Act and Rental Market Stabilization Act,” that would leverage HUD’s ESG program. Under the bill, HUD must allocate 50% of funds to states and communities within 7 days of enactment and 40% of the funds must be used for households with incomes below 30% of Area Median Income (AMI). Not less than 70% of the funds must be used to serve households with incomes below 50% of AMI and the remaining funds can serve households up to 80% of AMI, though the bill provides the HUD Secretary with the authority to waive this spending requirement to allow funds to serve households with higher incomes up to 120% of AMI as long those households with incomes below 80% of AMI are sufficiently served.
- PPP-type loan for property owners with mortgage debt
One idea being floated is modeled off the CARES Act’s Paycheck Protection Program. It would provide a mortgage subsidy to properties directly impacted by the CDC’s moratorium and would be administered by the banks. The mortgage subsidy would come in the form of a short term, low interest, loan extended by the existing property lender. The loan could be backed by a federal payment guarantee, as long as subsidy conditions are met. Borrower repayment would commence once occupancy exceeds a specified threshold and eligibility requirements could be structured to limit the amount of units that recipients can own and the amount of rent that must be delinquent.
This solution would be the least costly for the federal government but it would be limited to only landlords with a mortgage. Many small property owners do not have a mortgage and would therefore be ineligible. The program would also be subject to similar inefficiencies and abuse as the PPP program. Banks may also be unwilling to participate due to balance sheet constraints, which could be alleviated by a concomitant Federal Reserve facility that would purchase or lend against any loans made under the program.
- Tax credits to property owners
Landlords who forgive past-due rent could receive tax credits that they could then sell to other taxpayers. This proposal can be modeled off the Low-Income Housing Tax Credit (LIHTC) which subsidizes the acquisition, construction, and rehabilitation of affordable rental housing for low- and moderate-income tenants. Under the LIHTC, the federal government issues tax credits to the states. State housing agencies then award the credits to private developers of affordable rental housing projects through a competitive process. Just like direct payments to landlords, eligibility requirements could be established by the federal government or in this case, the states. Some landlords may forgo the tax credit and attempt to collect past due rent from tenants; leading to an eviction if it doesn’t come. Therefore, a tax credit may have to be paired with additional assistance for tenants.
Conclusion
At the time of writing, Congress is negotiating a $900 billion pandemic relief bill to be signed by the President before year-end. It is rumored to contain $25 billion for rental assistance to be distributed as block grants to the states. This is needed relief for many landlords and tenants but the amount is far too small to prevent mass evictions before America achieves herd immunity. President-elect Biden has promised to push for additional stimulus once he his sworn in on January 20th. Congress should begin to consider and discuss the merits of the proposals listed above and develop a focused agenda to assist vulnerable renters and landlords.
Lee Reiners is the Executive Director of the Global Financial Markets Center at Duke Law
