With the upcoming expiration of key provisions in the federal CARES Act, some policymakers and activists are warning of a grim outlook: a massive wave of evictions.
The possibility of millions of families sent into homelessness amidst a weak economy and a pandemic is unquestionably an absolutely horrific scenario. Reporters and policymakers have latched onto the story as the next great American crisis, often repeating phrases like “evictions tsunamic” or “wave of evictions” as foregone conclusions.
It’s a dire forecast and an outcome no one wants. But is it accurate?
To be clear: Evictions will occur once allowed – and evictions are good for no one. A bad economy creates real housing challenges for many Americans. And extension of federal unemployment benefits combined with rent subsidies for distressed renters is a major need.
But the idea that America is facing a “tsunami” or “tidal wave” of evictions at unprecedented levels is highly unlikely. There’s a strong case to be made that actual eviction totals in the second half of 2020 could very well come in below levels seen in prior years.
Financial distress is very real, and we in no way want to downplay the struggles of millions of Americans. But unchecked claims of mass evictions could have troubling consequences that steer policymakers’ attention from the much larger and foundational rental housing crisis in America: the severe shortage of designated affordable housing, and the lack of local and federal support to add more supply and more rent subsidy programs to ensure more Americans have a safe place to live. Unfunded blanket eviction bans don’t solve the root problem, add distress to the economy and lead to deterioration of housing supply.
Here are 10 reasons why a tidal wave of evictions are unlikely.
Eviction “Tsunami” Forecasters Rely on Questionable Math
One report from the Amherst investment research group was frequently cited as concluding 28 million renters were “at risk of eviction.” That number was taken out of context from the actual report (found here), which merely noted that 28 million renters live in housing not backed by government financing and therefore could experience additional risk because protections in the CARES Act don’t apply.
Another widely cited study by the Aspen Institute concluded that “19 to 23 million, or one in five of the 110 million Americans who live in renter households, are at risk of eviction by September 30, 2020.” It’s an alarming number. Digging deeper, Aspen’s conclusion was based on an assumed renter unemployment rate between 25% to 30%. The actual U.S. unemployment rate as of June was 11.1%, and it’s trending downward. Additionally, the study appears to assume that a jobless worker means a zero-income household, ignoring dual-income households and ancillary sources of income or support.
Of course, higher unemployment will certainly cause more housing challenges. No one debates that point. The Wall Street Journal quoted a federal study of the 2007-09 financial crisis that concluded, “each percentage-point increase in the unemployment rate forces about 21,500 people nationwide into homelessness.” That’s a much more believable model, and with unemployment roughly three times higher in June than it was in February, that adds up to nearly 165,000 people – still too many, but not the tens of millions cited by others.
Apartment Renters are Paying Rent at Near-Normal Levels
The fear of an eviction wave is grounded in the theory that renters aren’t able to pay rent. There are of course renters struggling to pay rent. But how widespread is the problem? All available indicators suggest renters are paying rent at near-normal levels. We’ve examined rent collections every way we can, and the data speaks for itself. In June, 95.9% of market-rate apartment residents paid rent by the end of the month – off only 0.1 point year-over-year, according to the National Multifamily Housing Council’s tracker based on more than 11 million actual leases. July is off to a bit slower (though still manageable) start, down 2.5 percentage points from the same time last year. Skeptics point to what they perceive as holes in the NMHC methodology and suggest renters are only making partial payments or relying heavily on debt to may payments. But there’s scant evidence for that theory. We examined rent paid versus rent due, and the results didn’t change the story. And the increased use of credit cards was traced back to new online payment options provided by operators rather than a need among renters to rely on credit to cover the rent. We also looked at professionally managed affordable apartments, and while those collections rates tend to be lower even in normal times, the decline isn’t significant. (Of course, continued success depends on continued federal support. More on that later.)
Most examples of renter distress cited in media reports trace to smaller, mom-and-pop rental buildings concentrated in big gateway cities or in single-family rentals. Not coincidentally, Freddie Mac’s most recent multifamily forbearance report identified smaller rentals as most challenged, as well. According to the report, only 2.6% of the unpaid balance of loans were in forbearance. And among properties that had requested forbearance, 75% were small balance loans. As Freddie noted: “Since these properties have fewer units, each tenant experiencing stress has a larger impact on small property operators.” This niche is clearly a real challenge, and should be viewed independently of the market-rate, professionally managed apartment sector to help develop focused solutions protecting both renters and owners.
The CARES Act Isn’t a Catch-All
The CARES Act is the massive stimulus packaged Congress passed on March 27. It included a 120-day eviction moratorium at certain rental properties. The CARES Act is sometimes portrayed as the singular protectant of renters. In reality, it protects only those living in properties leveraging federally backed mortgages or participating in a federal funding program. That still impacts a very large number of people, but there is a wide range of broader protections at the state and local levels that aren’t tied to the CARES Act at all. Secondly, while the 120-day window expires on July 25, property owners cannot begin evicting delinquent renters for at least another month. That’s because the CARES Act only allows property owners to issue notices to vacate at least 30 days in advance of an eviction. And we’re likely to see further renter protections put in place before that expiration date at the local – and possibly federal – level to prevent a potential evictions wave.
Courts are Unlikely to Move Quickly on Evictions
Properties tied to the CARES Act can theoretically begin evicting delinquent renters as early as August 25, but most renters unable or unwilling to find another place to live can extend the process much further. Many local courts that process eviction cases are not yet operating at normal levels and some are delaying evictions cases due to COVID-19. Additionally, many local law enforcement agencies that assist in evictions have shown reluctance to participate due to the pandemic.
State and Local Moratoriums are Much Broader Than CARES Act
The biggest reason an evictions wave is unlikely traces not to the federal government, but to widespread restrictions at the state and local levels. A large number of states and cities passed their own eviction moratoriums that apply to a much broader set of rental properties than does the CARES Act. Many have also extended these moratoriums multiple times. California and Oregon, as examples, extended their moratoriums until September and could go longer. New York went even further in passing a bill that bans any evictions for unpaid rent accrued since March 6 for renters experiencing financial hardship until the state lifts all COVID-related restrictions on gatherings and businesses.
Fannie Mae and Freddie Mac are Providing Additional Protections
Fannie Mae and Freddie Mac are the two biggest providers of multifamily mortgages. Their mortgages were subject to CARES Act protections, but both have gone even further than the law required. Both recently announced forbearance options for distressed borrowers – the property owner – that allow them to defer mortgage payments. Taking that option requires property owners extend eviction bans as long as the properties remain in forbearance. That action by Fannie and Freddie shows an unusually workable solution protecting both distressed property owners and distressed renters, a balancing act that local and federal policymakers have struggled to find.
Property Managers are Providing Unprecedented Payment Flexibility
When COVID-19 hit in March, the National Multifamily Housing Council quickly advised property owners and managers to hold off on evictions and to allow flexible payment plans for renters struggling to pay rent. Few market-rate property managers had ever offered payment plans before, and they’re now commonplace (though adoption among renters remains surprisingly sparse). Property managers I’ve spoken with have said they will work with distressed renters to find solutions to keep them in place. One of the largest property owners, Camden Property Trust, even provided a more than $10 million renter assistance program for their residents.
Most Property Owners are Not Eager to Evict
The data tells us that property owners are rarely evicting renters right now, even where it’s legally possible. Princeton University’s Eviction Lab is tracking evictions in close to real time for select cities. In the seven cities tracked that don’t have active bans, evictions are still trending downward in six of them.
As I’ve spoken to larger property management companies, I’ve been struck how sensitive they are about evictions. None want to evict people. It’s a lose-lose situation, and most are doing everything they can to work with renters struggling to pay rent. One large property owner, WinnCompanies, banned evictions at their properties for all of 2020. That said, property managers are concerned about blanket eviction moratoriums that allow a small number of renters who are able to pay rent avoid doing so without penalty – particularly in big coastal markets – which makes it harder to protect those who truly need the protections. Additionally, industry groups are pushing for solutions that protect property owners negatively impacted by unpaid rent, so they can still meet payroll and other financial obligations.
Americans are Economically Better Off Than Media Reports Suggest
Financial distress is very real, and our intent is not to minimize the real struggles some households are facing right now. But there is some good news. Federal stimulus checks, unemployment pay and COVID-19-era lifestyle changes have improved the financial picture for many Americans – at least temporarily. The Bureau of Economic Analysis reported that personal income jumped 10.5% between March and April, while consumer spending dropped 13.6%. Bank of America, the nation’s second-largest bank, reported a huge spike in checking account balances, which was particularly notable in smaller accounts with balances below $5,000. In that group, Bank of America noted balance increases of 30% to 40%. And a recent study by the University of Chicago concluded that 68% of jobless workers receive more money from unemployment benefits than they did in their job.
These gains aren’t sustainable without additional federal stimulus, but based on rent collections trends, they’ve certainly helped mitigate further housing challenges.
Congress Should Eventually Figure It Out
The #1 risk to this entire situation – and more importantly, to renter households across the country – is that Congress fails to extend federal unemployment benefits that have helped prop up the economy since late March. We are hopeful they eventually do, though it may occur at the last minute. Both parties agree on the need for additional support, but differ on approach and on cost. Congress figured it out before, and looming deadlines tend to encourage deal-making. The price for not doing so is too great.
Should Congress fail to act, we’ll likely see a patchwork of eviction bans across the country and other rental assistance programs that prevent an eviction crisis. But that could only lead to further economic and housing challenges as cash-strapped rental operators struggle to maintain properties, pay staff and stay current on utilities and taxes.
A Lasting Solution
Housing challenges are very real, but blanket eviction bans don’t provide lasting solutions. Like a doctor focused on precisely treating the needs of a sick patient, policymakers must focus on the root challenges – not just symptoms. It’s critical to narrow our focus to where problems exist, starting with a severe shortage of affordable housing in America.
Passing the buck entirely to housing owners adds stress to the economy and leads to deterioration of housing supply. Protecting distressed renters is critical. Focused efforts to fund temporary rent subsidies to help distressed renters is important. But the most lasting solution is to create enough affordable housing to ensure every American has a safe place to live.