Will The Latest Stimulus Proposal Stop A Potential Housing Crisis In 2021?

Real Estate

This week’s $1.5 billion bipartisan stimulus proposal from the bipartisan House Problem Solvers Caucus offers another round of $1,200 stimulus checks and other cash assistance for those in need as the Covid-19 recession wears on.

But it’s unlikely the proposal would stop a potential wave of evictions and foreclosures next year if the economy doesn’t rapidly improve.

Straight cash for people who are behind on their mortgage or on rent is obviously a welcome help. But it’s a short-term fix unless jobs recover. So is the idea of extending just by one month the CDC’s current eviction moratorium. This all buys time.

Here’s what’s building up in the meantime.

Tenants nationwide already owe some $25 billion in back rent and will owe nearly $70 billion by the end of the year, according to an estimate last month by Moody’s Analytics. That rent backlog has occurred with some pretty robust, direct stimulus payments to American families via the $1,200 payment this spring, and the weekly, $600 federal boost to unemployment insurance checks that expired in July.

So, even though the framework proposes an supplement of about $450 a week to unemployment benefits through January — pus another one-time stimulus check — it’s unlikely to stop the growing backlog of rent payments. By the end of the year, an estimated 12.8 million renter households will owe an average back rent of $5,400, according to Moody’s.

The framework for the yet-to-be-written bill does includes $25 billion in “rental assistance for the most needy.” But the definition of the “most needy” is TBD, so there are a lot of unknowns here. Meanwhile, the proposed funding would only cover about one-third of what is expected to be the rent shortage in a few months, if the Moody’s Analytics data holds.

As it stands now, President Trump’s $300 weekly extension of the federal unemployment benefit boost is also expiring and new housing data is already showing that those lower unemployment benefits aren’t enough to stave off housing insecurity. In September, one in three tenants failed to make their rent payment on time, according to the latest Apartment List survey. And a little more than 25% said they had slight or no confidence in their ability to pay their rent this month, according to Census data published last week.

Can’t those landlords fend for themselves? Well, no, actually. More than 22 million rental units (a little over half the rental housing in the country) are in single-family buildings with between one and four units, according to data compiled by the Urban Institute. If even just one renter can’t make rent in any given month, that could be a 25% or higher loss in monthly income for these landlords.

Smaller landlords spend at least half of their rental income on mortgage payments, property taxes, and insurance for their properties, according to the Center on Budget and Policy Priorities. “Significant decreases in rental income could lead to declines in property upkeep and foreclosures, which in turn can lead to more evictions and loss of affordable rental housing,” the center says.

Already, many of the mom-and-pop landlords who own these units are dealing with a dramatic drop in income and facing the prospect of either trying to sell their property or going into debt, reports Politico. If enough landlords can no longer make their own housing payments, “it would threaten everything from the school budgets funded by property taxes to the stability of the $11 trillion U.S. mortgage market itself,” warns the story.

Speaking of the mortgage market, I haven’t mentioned homeowners yet. That’s because, as it was released this week, neither does the proposed bipartisan framework. Although the caucus back in April released an extensive recovery checklist that included mortgage assistance, the latest proposal includes no mention of direct aid for homeowners.

While some some protections are already in place for homeowners behind on their mortgage payments, they are similar to the renter protections. They delay, but don’t stop the process.

Homeowners can’t officially be foreclosed upon until Dec. 31. Those who have federally-backed mortgages can negotiate a forbearance, which is when your mortgage servicer or lender allows you to temporarily suspend or reduce your mortgage payments while you regain your financial footing. Depending on the terms, homeowner forbearance terms could start expiring now, with most expiring over the next year, as determined under the CARES Act.

This is all setting up a situation in which protections and assistance could all expire during the first half of 2021 and create a wave of evictions and foreclosures. Housing Rights Initiative founder and executive director Aaron Carr has even warned of a coming housing “apocalypse.”

The House Emergency Housing Protections and Relief Act of 2020, sponsored by Rep. Maxine Waters (D-Calif.), allocates $100 billion to emergency rental assistance programs, creates a $75 billion relief fund for homeowners. But like other House relief proposals thus far, it stands little chance of moving.

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