Threat of coronavirus-driven mass evictions weighs on economy, budgets

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A threatened wave of evictions poses a growing threat to multifamily housing bonds and an increased strain on urban budgets, experts say.

About 30 million Americans risk being evicted in coming months because they can’t pay rent, according to a review of Census data by the Aspen Institute Financial Security Program, the COVID-19 Eviction Defense Project, the National Low Income Housing Coalition and a coalition of researchers.

Anti-eviction protesters demonstrate in Kansas City, Missouri, in July. The threat of mass evictions amid the pandemic hangs over the American economy.

At the time of the survey in June, the researchers estimated that 19 to 23 million, or one in five of the 110 million Americans who live in renter households, were at risk of eviction by Sept. 30.

The consulting firm Stout Risius Ross considers nearly 43% of U.S. renter households at risk for eviction, representing a $21.6 billion shortfall in rent.

A federal extension of a moratorium on evictions through the end of the year applies only to homes and apartments financed through Fannie Mae, Freddie Mac or other federal guarantees. A patchwork of state and local moratoriums protect others, with varying expiration dates.

To prevent widespread evictions, housing experts are calling for federal rent subsidies estimated at $9.9 billion per month.

"Renters impacted by the COVID-19 pandemic already owe an estimated $25 billion in back rent and could owe up to $70 billion by the end of the year," according to an Aug. 21 letter from a coalition of housing industry lobbyists to congressional leaders.

"Without federal rental assistance, these debts will be unsustainable and financially ruinous for renter households across the nation," the letter added. "Failure to act will put tens of millions of renters at risk of being evicted, undermine the stability of our rental housing system, and needlessly prolong our nation’s ability to fully recover from the economic damage that has been wrought by this pandemic."

Senate Republicans have taken no action on a House-passed plan to provide $100 billion in rental assistance and ban evictions. The eviction threat was elevated when 25 million Americans stopped receiving $600 in additional weekly federal unemployment benefits on July 31 after that CARES Act coronavirus relief provision expired.

The federal government's direct relief to households in the form of $1,200 payments eased some of the pressure on rents, but Congress has failed to provide a second round of payments.

"Without the enhanced benefits, risk increases to households' ability to make their rent or mortgage payments and, ultimately, could diminish the capacity for housing issuers to make debt service payments," S&P analyst Marian Zucker wrote in a report Thursday. "S&P Global Ratings expects the effect will vary among housing entities based on their financial position entering the recession and the resources they have to withstand near- and medium-term financial volatility, as well as the current uneven paths to health and economic recovery across the country.

State and local authorities have sought to leverage the previously approved federal funds for renters facing financial crises.

On Aug. 5 the city of Houston approved a $20 million fund for rent relief that includes $15 million of federal funds and $5 million of private donations. In May, applicants for the relief claimed the entire fund in less than two hours.

"I want to stress that there is no perfect formula, and we know there are Houstonians with a lot of needs as a result of the pandemic," said Houston Mayor Sylvester Turner. "If you are at the lowest level, and you are not able to pay rent, pretty much the only place left is on the street. So we want to make sure people don't find themselves forced out of their homes and on the street."

In July, Houston and Harris County teamed up on a $65 million plan to house 5,000 homeless people over the next two years to limit the spread of COVID-19.

The Austin City Council, which won approval of a $250 million bond to build more affordable housing, took a novel approach by buying a mobile home park after tenants complained about rising rents and loss of services. The purchase from a private owner was designed to keep people in their homes.

More than 90% of private activity bonds are issued for housing, with 30% in 2018 going to homebuyers and 61% for multi-family rental housing, according to the Council of Development Finance Agencies.

While the overall demand for rent relief appears daunting on a national level, at a household level, the amounts that can lead to eviction can be small, according to Princeton University's Eviction Lab.

In Maricopa County, Arizona, which includes Phoenix, the median family facing eviction owed $1,706 in back rent, and one in six in Maricopa County were facing eviction for $500 or less, according to the Eviction Lab. One family faced eviction for less than $100, according to the study. In Arizona, evictions are delayed until Oct. 31.

In Colorado, Gov. Jared Polis on Wednesday announced a 10-member Eviction Prevention Task Force that will work with the state Division of Local Affairs, with a first report due in 30 days.

"The need to look at the relationships between landlord and tenants as well as the possible increases in eviction filings due to the pandemic is what the task force plans to do over the next 45 days," said Rick Garcia, executive director of the Department of Local Affairs.

In Utah, the state Department of Workforce Services announced grants of up to $2,000 for rent and utilities for renters in the state hit financially by the coronavirus and the loss of $600 supplements to unemployment insurance. Gov. Gary Herbert allowed a moratorium on evictions to expire in June.

In New Mexico, the state Supreme Court issued a moratorium on evictions on March 24, as a health measure.

“New Mexicans are struggling financially as workplaces close because of the public health emergency,” Chief Justice Judith K. Nakamura said in a statement accompanying the order. “The Court’s order will provide temporary relief for families and individuals facing the possibility of losing their housing at a time when the governor and public health officials have ordered New Mexicans to remain at home to prevent the spread of COVID-19.”

In Oklahoma, Gov. Kevin Stitt vetoed a bill in May that would have cut funding for affordable housing in half. The bill was part of the legislature's effort to cut spending amid the state's budget crisis.

Kansas Gov. Laura Kelly imposed a two-week moratorium on evictions and foreclosures on Aug. 17 after Congress failed to act on continued relief funding.

“All eyes are on Congress to see what it'll do with the next stimulus package,” Kelly said. “I can’t sit back and do nothing while the Senate has gone on vacation without addressing the issue.”

In Arkansas, where 30% of the residents are renters, Gov. Asa Hutchinson has not announced any state effort to halt evictions.

Though not a common site of evictions, senior housing bears the most risk in terms of default on bond payments.

A record 23 retirement communities have reported first-time payment defaults on municipal bonds in 2020, according to Municipal Market Analytics.

Since 2009, the retirement sector has never before posted more than 22 defaults in a given calendar year, according to MMA. The previous high of 22 came in 2016.

In addition to having the most first-time payment defaults, the sector also has had the most emergency draws (13) on contingent security provisions such as reserve funds and bond insurance to avoid default.

According to The National Investment Center for Seniors Housing & Care, average occupancy fell by 2.8% in second-quarter 2020 compared to the same period last year. At the same time, unbudgeted operating costs related to coronavirus mitigation, quarantine efforts, and the purchase of personal protective equipment rose by necessity.

"Predictably, waning net cash flows and even monthly operating losses have followed," S&P's Zucker said. "Since April, we have taken negative actions on 36 ratings on 10 age-restricted projects, with eight rating actions attributed to COVID-19, either directly or indirectly, including three property defaults."

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