Eviction moratorium could leave landlords, tenants in the lurch with growing rental debt

Landlords and tenants could be left in the lurch with growing rental debt after the Biden administration and the Centers for Disease Control and Prevention announced a new, targeted eviction moratorium covering areas with "high or substantial rates of COVID-19 transmission levels" through Oct. 3.

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New research released Wednesday by the Mortgage Banker Association's Research Institute for Housing America finds that, since the onset of the COVID-19 pandemic in the second quarter of 2020, missed rental payments have now accumulated to a total of $41.7 billion. 

The MBA estimates rental property owners have lost an aggregate of $7.1 billion in second-quarter revenue from missed rent payments, down from $7.48 billion in the first quarter of 2021. In June alone, approximately 8.6% of renters, or 2.86 million households, missed, delayed or made a reduced payment. In the second quarter of 2021, an average of 9.7% of renters received permission from their landlord to delay or reduce their monthly payment.

Despite $47 billion being allocated in rental assistance by the federal government during the COVID-19 pandemic, only 6.6% of the funds have been distributed. The National Apartment Association, which represents over 82,600 members that collectively manage more than 9.7 million rental homes throughout the United States, estimates apartment owners and operators could be left to shoulder approximately $26.6 billion in rent debt not covered by federal assistance. 

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As a result, the NAA recently filed a complaint against the CDC's order, claiming property owners' constitutional rights have been violated by not being able to enforce leases and contracts. It also argues the order "contains no provision for compensating property owners for the losses they have sustained and continue to sustain as a result of their inability to evict delinquent and non-rent paying tenants." The suit is seeking compensation for economic losses incurred as a result of the order. 

NAA senior vice president of government affairs Greg Brown told FOX Business that the ultimate goal of the suit is to ensure both landlords and tenants are "made whole." 

A 2016 survey conducted by the Brookings Institute found that about 30% of landlord households are considered low to moderate income, earning less than $90,000 a year, and that property income for landlord households earning less than $50,000 accounted for nearly 20% of their total household income.

"When you start having this pile up of unpaid rent and the unpaid rent debt, what you have is small operators that are hanging on, frankly, by their fingernails to stay solvent throughout this, in spite of the fact that they're not getting paid rent. And so the extension of the moratorium is going to add to that outstanding rent debt," Brown said. "It's clear there's not enough federal resources that have been allocated towards this problem to cover what is outstanding. Therefore, a lot of housing providers are going to be and the residents are going to be left out."

Prior to an eviction, Brown says that rental owners have the ability to offer everything from a repayment plan and waivers on late payment fees to connecting residents with social service organizations to help them pay rent as well as their own internal rental assistance programs.

"The worst outcome as an eviction," he explained. "It's the last resort for any provider. It costs them money. It's bad for the community. It's a pain for the resident and for the owner who would like to do everything we can except evict." 

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The NAA has partnered with the White House to promote the Emergency Rental Assistance Program and is encouraging its members and their tenants to utilize the Consumer Protection Financial Bureau's online tool to find rental assistance programs in their local community. However, Brown emphasized that there has been lower participation in the program due to residents who either are struggling to join the process or who choose to not engage in it all together. 

"The rental assistance can't flow unless the resident participates," he said.

In addition, Brown notes the additional requirements of some of the rental assistance programs have made it increasingly difficult for NAA members.

"Some of those programs have layered on some additional requirements that are really unrelated to the pandemic or to making people whole the rent that they owe, but are about other policy objectives, like saying you can't increase rents for the next year, saying you can't evict anyone for the for the coming three to six months, even if they don't pay any rent," he said. 

Going forward, Brown recommends that NAA members continue trying to access rental assistance programs and keep open communication with their tenants. He also encourages reaching out to their elected officials to push for distribution of the rental assistance funding.  

"Everyone has a slightly different options depending on where they are and so we're just encouraging them to to take advantage of whatever they can to keep themselves whole, keep their residents whole and keep the property stabilized," Brown said. "The last thing we want is to lose a bunch of housing, especially naturally occurring, affordable housing, small properties, etcetera that is so important. The last thing we want to do is see a bunch of that lost."