31% Can’t Pay the Rent: ‘It’s Only Going to Get Worse’
As the economic shutdown pares tenants’ incomes, April payments have been reduced, deferred or withheld. Some landlords see their property at risk.
First it was the waitress whose restaurant closed. Then the waiter, the bartender, the substitute teacher, the hairdresser, the tattoo artist and the Walgreens manager.
One after the other, the tenants called and emailed their landlord, Bruce Brunner, to say they were out of work and the rent was going to be late. A week after the bill was due, some two dozen of Mr. Brunner’s 130 tenants had lost their jobs or had their hours reduced. He’s working out payment plans and using security deposits as a stopgap while directing tenants to the emerging patchwork of local, state and federal assistance programs.
“Six weeks ago, you could name your price and you’d have multiple people applying,” said Mr. Brunner, who lives in Minneapolis, where he owns and manages 20 duplexes and triplexes across the city. “Now you’re deferring and working out payment plans, and it’s only going to get worse.”
One week after the first of the month, tenants nationwide are already struggling with rents. In interviews with two dozen landlords — including companies with tens of thousands of units, nonprofit developers who house the working poor, and mom-and-pop operators living next door to their tenants — property owners say their collections have plunged as much of the economy has shut down to prevent the spread of the deadly coronavirus.
Daryl Carter, chief executive of Avanath Capital, a Southern California company with 10,000 units across the country, said his buildings reduced April rents by 10 percent. Deidre Schmidt, chief executive of CommonBond Communities, a nonprofit affordable-housing provider with about 6,000 apartments in the Midwest, expects as many as 40 percent of her tenants, most of them hourly workers with low incomes, to fall behind on their monthly bills. Joseph Razavian, a part-time landlord in Atlanta who works at a software company but owns a duplex and a triplex as investments, is bolstering his reserve fund by putting off nonessential maintenance like fresh paint and new rain gutters.
“The whole market just changed,” said Gustavo Lopez, a property manager in the San Francisco Bay Area.
Nearly 10 million people have filed unemployment claims over the past two weeks. It’s too early to gauge how broadly these numbers will translate to the loss of rent: Many tenants are within the grace period before their rent is declared late. Some can stitch things together for a while by getting deferrals, applying their security deposits or paying with credit cards.
Still, early findings suggest that April is looking bad and lend credence to Mr. Brunner’s opinion that May will be much worse. The National Multifamily Housing Council, a trade group for big apartment owners and developers, compiled data tracking rent payments across some 13.4 million units nationwide. It showed that through the first five days of April, 31 percent of tenants had so far failed to pay their rent, compared with 18 percent in the same period a year ago.
That lined up with surveys released by Apartment List, a rental listing service; Mynd Property Management; and Avail, a platform that helps small landlords manage rentals. All showed the share of partial or unpaid rent surging to as much as a quarter of billings, compared with March or last April.
Some tenants are simply moving out. College students are breaking leases to move home. Laid-off workers are showing up at rental offices to exchange their keys for their deposits, saying they are moving in with family members.
And there is Terra Thomas, a florist in Oakland, Calif., who could pay her April rent with savings if she wanted but has decided to withhold the $833 she pays for her studio. With her usually busy wedding season shaping up to be grim, she’d rather conserve her money than pay bills now.
“This could last a long time and be really, really serious, so I don’t want to be asking myself in a few months, ‘Why did I give away my last few paychecks to rent?’” she said. “I need to know that I can eat and pay for health care.”
The $2 trillion CARES Act, signed by President Trump on March 27, should in theory help laid-off tenants keep up with the rent through a combination of expanded unemployment insurance and one-time stimulus payments. The act also included aid to public-housing providers and grants to state governments that could be used for rental assistance.
But only a sliver of the money deals with housing directly. About $12 billion in grants will mostly be given to cities, homeless shelters, affordable-housing providers and states to support people who are homeless and sustain or increase housing assistance. There are big gaps in assistance for tenants as well as landlords, because almost all of it is directed to renters and owners already attached to some sort of government program.
For instance, much of the aid to tenants is earmarked for those living in subsidized and public housing, and much of the mortgage forbearance will benefit landlords whose loans are backed by the government through Fannie Mae and Freddie Mac or the Department of Housing and Urban Development. This is little help to most moderate- and low-income tenants who live in market-rate developments, or small landlords whose loans are often held by private lenders and not backed by the federal government.
Cities and states have tried to address housing troubles by passing eviction moratoriums, which should prevent an immediate rise in homelessness but doesn’t resolve what happens in three or four months when tenants who have had little or no income are billed for months of back rent.
“Eventually the moratoriums will be lifted, and we don’t want to create an environment where low-income renters fall off a financial cliff and we have a rash of evictions,” said Diane Yentel, chief executive of the National Low Income Housing Coalition, an advocacy group in Washington.
After lobbying for grants to homeless providers in the CARES Act, her group is pushing for $100 billion in direct subsidies to tenants. The National Multifamily Housing Council has called for similar aid. Ms. Yentel, in an interview, cited two objectives: to relieve tenants of rent burden, but also to support small landlords at risk of foreclosure.
For several decades, the nation’s affordable-housing stock has fallen sharply, particularly “naturally occurring affordable housing” — run-down buildings that offer low rents without government subsidy. Since much of this housing is operated by smaller landlords, Ms. Yentel fears that without any aid to landlords, the buildings could go into default and be picked up by investors who will renovate them for higher-paying tenants after the crisis subsides.
“One way or the other, we have to get aid to smaller landlords so that the precious affordable-housing stock we have still exists on the other end of this crisis,” she said.
According to the Joint Center for Housing Studies at Harvard University, a quarter of the nation’s 44 million renter households paid more than half their income in rent in 2018. Separate research from the Federal Reserve showed four in 10 Americans would have difficulty covering a sudden $400 expense, suggesting that tens of millions of tenants are just a week of missed work away from falling behind on their housing bills.
For the past four years, rent increases have helped stir a nationwide tenant uprising that led to the biggest expansion of tenants’ rights in decades. Rent control laws were enacted in New York, Oregon and California, and tenants organized mass actions, like a group of mothers in Oakland who occupied an empty house for two months to protest house flipping.
Now, after years of coordination, organizers see the coronavirus pandemic as a galvanizing force. Last week, the Right to the City Alliance, a national coalition of tenant and racial-justice organizations, held a digital #CancelRent rally to call for rents to be eliminated as long as people can’t work. Homes Guarantee, a national tenants’ campaign, has been holding weekly strategy calls. On Wednesday, a caravan outside US Bank Plaza in Minneapolis honked horns and waved signs to demand rent and mortgage relief.
“This is a moment of clarity about a broken system in which 11 million people were already paying over 50 percent of their income on rent,” said Tara Raghuveer, a tenant organizer in Kansas City and director of Homes Guarantee.
Ms. Thomas, the renter refusing to pay in Oakland, is a member of the Alliance of Californians for Community Empowerment, an activist group associated with the house-occupying mothers. For weeks she has been trying to organize her building in a rent strike, and has gotten tenants in three other units to join her.
One is her upstairs neighbor Andrew Yen, a data scientist at an agriculture company who still has a job and isn’t worried about making his $2,500 monthly rent. He and Ms. Thomas had been discussing some sort of coordinated action, but after weeks of job losses, and walking around his neighborhood seeing “rent strike” posted on telephone poles or spray-painted on utility boxes, he decided the time was now, so he is striking in solidarity.
“I feel like rent striking is the least somebody like me can do,” he said. “I’m the tenant the landlord wants to keep, so the worst-case scenario is eviction, but I probably have a lot more wiggle room than that.”