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Smith's Research & Gradings
Volume: 
XXVII
Issue: 
15
Author: 
August 31, 2020

Smith's Research & Gradings

Covid 19 Crisis: Millions May Face Evictions

Covid 19 Crisis: Millions May Face Evictions

A Blue Ribbon Committee of Housing Policy leaders released a COVID-19 Crisis report on August 7 that estimates 30 to 40 million Americans may face eviction over the next several months.


The Housing Research Report stated: Many property owners, who lack the credit or financial ability to cover rental payment arrears, will struggle to pay their mortgages and property taxes, and maintain properties. The COVID-19 housing crisis has sharply increased the risk of foreclosure and bankruptcy, especially among small property owners; long-term harm to renter families and individuals; disruption of the affordable housing market; and destabilization of communities across the United States

In contrast, overall housing data showed continued signs of strength, with housing starts surging 22.6% to 1.496mn starts in July while permits jumped 18.8% to 1.495mn starts, against expectations of 1.245mn and 1.326mn starts, respectively. July existing home sales also jumped 24.7% to 5.86mn (starts), exceeding pre-COVID-19 norms and reaching the highest level since 2007. Economists believe that the housing market will continue to be supported by historically low interest rates, and home sales are likely to also reflect pent-up demand for purchases delayed during the peak of the pandemic.

To Have and Have Not
Throughout the COVID-19 pandemic, researchers, academics and advocates have conducted continuous analysis of the effect of the public health crisis and economic depression on renters and the housing market. Multiple studies have quantified the effect of COVID-19-related job loss and economic hardship on renters' ability to pay rent during the pandemic. While methodologies differ, these analyses converge on a dire prediction: If conditions do not change, 29-43% of renter households could be at risk of eviction by the end of the year.

Marian Zucker, head of housing at S&P Global, said, "Thank you for sharing. I'm just finalizing an article that continues our identification of the risk posed by the expiration of enhanced unemployment benefits. Will give this a read."

Florence Zeman, First-Team All-Star Housing Bond Analyst and associate managing director at Moody's Ratings, said, "I had not seen this but have seen or heard of similar studies.  Very sad.  I know that there is some money for rental assistance from some states (using CARES funds) flowing through the HFAs but nothing like the $100 billion they suggest here."

Ferdinand Perrault,vice president and senior credit officer at Moody's added, "Yes—very bleak, particularly as the supplemental unemployment is reduced or wiped out completely. The large component of unsubsidized renters are at a deep risk. Thanks for passing along."  

It should be noted that State HFA single-family mortgage revenue bond programs have underwriting standards that have protected bondholders during periods of stress. However, the competitiveness of the State HFA programs has resulted in their mortgages not qualifying for the  Fannie Mae and Freddie Mac guaranteed programs.  Instead, the State HFAs have shifted to FHA insurance.

COVID Rental Crisis
COVID-19 struck when 20.8 million renter households (47.5% of all renter households) were already rental cost-burdened, according to 2018 numbers. Rental cost burden is defined as households who pay over 30% of their income towards rent. When the pandemic began, 10.9 million renter households (25% of all renter households) were spending over 50% of their income on rent each month. The majority of renter households below the poverty line spent at least half of their income towards rent in 2018, with one in four spending over 70% of their income toward housing costs. Due to chronic underfunding by the federal government, only one in four eligible renters received federal financial assistance.

With the loss of four million affordable housing units over the last decade, and a shortage of 7 million affordable apartments available to the lowest-income renters, many renters entered the pandemic already facing housing instability and vulnerable to eviction.Prior to the pandemic, eviction occurred frequently across the country. The Eviction Lab at Princeton University estimates that between 2000 and 2016, 61 million eviction cases were filed in the U.S., an average of 3.6 million evictions annually. In 2016, seven evictions were filed every minute. On average, eviction judgment amounts are often for failure to pay one or two months' rent and involve less than $600 in rental debt.

An increase in evictions could be detrimental for the 14 million renter households with children. Research from Milwaukee indicates that renter households with children are more likely to receive an eviction judgment. Although tenants with legal counsel are much less likely to be evicted, on average, fewer than 10% of renters have access to legal counsel when defending against an eviction, compared to 90% of landlords.

At the same time, lack of rental income places rental property owners at risk of harm. Individual investors, who often lack access to additional capital, may be particularly vulnerable. Presently, while "mom and pop" landlords own 22.7 million out of 48.5 million rental units in the housing market, more than half (58%) do not have access to any lines of credit that might help them in an emergency. Landlords who evict tenants face court costs, short or long term vacancy, reletting costs, and the loss of 90-95% of rental arrears via sale to a debt collector or other third party. In the short term, lack of rental income may result in unanticipated costs, and an inability to pay mortgages, pay property taxes, and maintain the property. In the long term, it places small property owners at greater risk of foreclosure and bankruptcy.

Source: The Aspen Institute

The Eviction Lab of Princeton is tracking the COVID-Crisis: https://evictionlab.org/eviction-tracking/. Evictions are being tracked in 17 cities since March 15, 2020. Weekly updates are provided.  On August 17, the lab reported 39,000 evictions have taken place in 17 cities. This is during a time when States have issued moratoriums on evictions. Houston and Phoenix both had more than 9,000 evictions each.

The Princeton Lab said, "There is currently no data infrastructure that allows policymakers, legal and advocacy organizations, journalists, academics, and community members to track displacement and evictions in real time. The Eviction Lab has built the Eviction Tracking System (ETS) to fill this critical gap and to help monitor and respond to eviction hotspots as they emerge. The ETS is designed as a multi-site, open-source, and expandable system for tracking eviction filings as they happen."

The Blue Ribbon Housing Committee is comprised of leaders from 9 prominent institutes and organizations:
Emily Benfer, Wake Forest University School of Law
David Bloom Robinson, Massachusetts Institute of Technology
Stacy Butler, Innovation for Justice Program, University of Arizona College of Law
Lavar Edmonds, The Eviction Lab at Princeton University
Sam Gilman, The COVID-19 Eviction Defense Project
Katherine Lucas McKay, The Aspen Institute
Zach Neumann, The Aspen Institute / The COVID-19 Eviction Defense Project
Lisa Owens, City Life/Vida Urbana
Neil Steinkamp, Stout
Diane Yentel, National Low Income Housing Coalition

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