Op-Ed: The Housing Boom Amid a Housing Crisis
August 26, 2021

The goal of this op-ed is to highlight some of the struggles that the mom-and-pop landlords are facing while trying to carry the financial burden related to the eviction moratorium.

Written by Essex Director Derek Kaptanoglu.

In recent weeks, the current administration and the CDC have pushed to extend the nationwide eviction moratorium amid the large uptick in COVID-19 cases and increased spread of the Delta variant. While the decision to extend the moratorium may ultimately be struck down in court, it will undoubtedly delay the courts from moving forward with evictions that are already backlogged from well over a year ago. During this period landlords have still been responsible for their property taxes, mortgage payments, utilities, trash service, in addition to paying for the maintenance, repair, and management of their properties.

So, who is this eviction moratorium going to hurt the most? The people hit hardest by this are the mom-and-pop landlords who have invested most, if not all, of their savings into real estate, not REITs or large real estate companies. Many of the property owners we work with are family operators who at most, own a handful of multifamily properties. They typically use this income as their retirement income or as a full-time source of income. Without steady rental income, they could find themselves in a position where they are forced to sell before they planned to.

When Congress passed a $46 Billion-dollar rental assistance program aimed directly toward assisting landlords with delinquent tenants, the CDC used this as a reason for extending the moratorium by claiming the states need more time to disperse this money. Even though that bill passed the first week of March, according to the Treasury Department as of May 31st less than 4% of those funds had been distributed. If we assume that by the end of August approximately 10-15% of the total $46 Billion-dollar assistance program has been disbursed, the Federal government and CDC would then expect the remaining 85-90% of funds to somehow be disbursed during this 60-day eviction extension. Given the time it has taken for the money to reach these landlords, that timeline seems very unrealistic.

It is important to note that Section 4023 of the CARES Act provides multifamily owners with federally backed mortgage loans the ability to request an up to 90-day mortgage forbearance (requested in 30-day increments), but with strings attached. First, only those with federally backed multifamily mortgage loans are covered. Second, during this forbearance period, the multifamily borrower cannot evict a tenant for nonpayment of rent nor charge late fees, penalties, or other charges. What many people may fail to realize, is that forbearance doesn’t mean you can skip your mortgage payment altogether, it means you are allowed to pay the amount owed at a later date. Landlords will still be required to pay back the missed mortgage payments, in addition to paying legal fees related to evictions, while potentially never receiving the rent they were originally owed.

I understand American lives may be at risk and the neediest of people may be the ones to be evicted first. Furthermore, I understand evictions can cause an increase in homelessness which may lead to increases in the spread of COVID. Many studies have shown the possible negative effects of evictions - people may lose their possessions, their community, or even their jobs. They may be forced to relocate to a new city or could end up living on the street. This is a significant issue for our economy and our society as a whole. However, why have we been able to open restaurants, bars, airports, and public event spaces, implement thoughtful travel restrictions and mask mandates and more, and yet we keep the eviction courts shutdown? The economy has been steadily opening back up and there are millions of jobs becoming available again. Our economy is run by the working class, essential Americans that need to be in-person for their jobs at hospitals, grocery stores, factories, farms, industrial centers, etc.

The impacts of placing huge financial burdens on landlords, especially those with one property, are quite vast and detrimental to the real estate market long-term. When a landlord is unable to pay their expenses on a property they are only left with a few options; sell (possibly at a discount), or they start to defer maintenance, repairs, etc. to the building which leads to a lower quality of housing stock.

This is a very sensitive subject and one I have been battling with since the start of the moratorium. On one hand, it is difficult to allow someone to be evicted during a global pandemic. On the other hand, it is also difficult to put the entire financial burden of a delinquent tenant solely on the landlord who must continue to pay all their expenses while at the same time provide housing for people who are unable to compensate them in return. It defeats the purpose of investing in real estate and defeats the purpose of providing any kind of quality housing for anyone.

What would make the most sense is to open the courts and have them consider evictions on a case-by-case basis. While many landlords are willing to help their tenants in a time of need, it is important to remember, some tenants are taking advantage of the system to avoid paying rent even though their employment has not changed. What’s worse is there are tenants who had evictions filed against them for non-payment prior to the court shutdowns and those tenants are still in their apartments not paying rent 17 months later. At the end of the day, I believe landlords deserve to have their cases evaluated immediately and the eviction courts should be opened safely just like we have managed to do with many other industries over the last year and a half.

Resources:

https://brownrudnick.com/alert/the-cares-act-key-provisions-for-commercial-real-estate-industry/

https://www.economist.com/united-states/2021/07/24/as-moratoriums-lift-will-america-face-a-wave-of-foreclosures-and-evictions

https://www.wsj.com/articles/eviction-moratoriums-renewal-squeezes-small-landlords-11628247601

Tagged in this post: Derek Kaptanoglu