Steve Thomas has operated as a small landlord on the South Side of Chicago for 25 years. Most of his tenants are single mothers living paycheck to paycheck and working low-wage jobs. With employers across the country implementing massive layoffs during the COVID-19 pandemic, most tenants who lose their jobs don’t have enough savings to cover next month’s rent, let alone the next several months’.
“I really don’t know where that leaves us, but I know it leaves us vulnerable,” Thomas said. “It leaves us all vulnerable.”
“If you start getting nothing but institutional owners in these predominantly low-income neighborhoods, it’s going to be problematic.”
Steve Thomas, operations director of 5T Management
Thomas is worried about the future of his 18-person company, 5T Management, as well as the future of his tenants if his business shutters and a new investor unfamiliar with the area takes over his buildings. “If you start getting nothing but institutional owners in these predominantly low-income neighborhoods, it’s going to be problematic,” he said. “People who have money sitting on the sidelines could come in, buy deals, and force out the ma and pa landlords. You’d end up with a lot of fraud and a lot of people living in unsafe, unsanitary environments.”
The pandemic has spotlighted gaps in the housing safety net that left renters at risk long before this crisis and that will worsen as more people lose their jobs and face unexpected costs. But when tenants can’t pay their rents, they aren’t the only ones facing financial instability. Most landlords, especially smaller owners, operate on tight margins and can’t sustain a massive drop-off in rent payments for long. They could risk defaulting on their mortgages, missing insurance payments, or failing to pay city taxes—which, in turn, could destabilize the broader community.
That’s why policy solutions at the federal, state, and local levels need to keep the entire housing ecosystem in mind: when tenants can pay rent, landlords can maintain their rental properties, pay their underlying mortgage, and keep housing opportunities open for current and future renters.
“It’s all interconnected in a circle of life,” said Monique King-Viehland, director of state and local housing policy at the Urban Institute. “To address the crisis from an equitable framework, we need to recognize that interconnectivity and implement policy and practice around that.”
Renters, landlords, and affordable housing are at risk
Renters were already struggling to make ends meet before the pandemic. In 2018, nearly half (20.8 million) of all US renters paid more than 30 percent of their income on housing costs, and a quarter of all renters (11 million) paid more than half their income on housing.
Renters are less financially stable than homeowners, with lower incomes and more income volatility. They’re also less prepared to deal with a sudden emergency or income loss like the one many Americans are facing now; in 2018, one-fifth of renters reported that they didn’t have $400 to cover unexpected costs. And low-income renters are more likely to lose their jobs during the pandemic because many work for service industry businesses that are furloughing workers.
The US Department of Housing and Urban Development offers rental assistance, such as vouchers and public housing, to help ease people’s housing cost burden. But those programs have been chronically underfunded, and as of 2016, only one in five renters who qualified for and needed housing assistance received it.
With a record number of people filing for unemployment amid the pandemic, the number of renters who need help meeting their basic needs is likely to skyrocket. And without financial assistance, these renters face the risk of homelessness or overcrowding in the homes of family or friends—situations that carry severe health risks during a pandemic. These risks are even greater for people of color, as Black and Latinx people are more likely to be renters and to work in the service sector.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by Congress in late March, included funding (which some groups say isn’t enough) to ensure the nearly five million households who already received housing assistance before the pandemic continue to receive that assistance and that the amount the government pays toward their rent increases if they lose their jobs.
But the CARES Act doesn’t offer housing assistance designated specifically for the remaining 18 million low-income renter households who already qualify and need assistance but don’t receive it, nor does it cover the growing number of renters who will suddenly need help as businesses shed jobs. The act’s one-time $1,200 check can help in the short term, but there’s no clear end date for this pandemic. Without additional money coming in, that amount won’t cover a few months’ rent for most people, even for the renters who live in the 50 percent of unsubsidized rental units in the US that cost less than $1,000 a month.
“We’re concerned about our whole portfolio of properties. You never think about that as a possibility. You think about a fire in one building, and you have insurance for that. But not for this.”
Nina Janopaul, president and CEO of the nonprofit Arlington Partnership for Affordable Housing
The CARES Act does include an eviction moratorium for some renters (federal agencies are protecting a much larger share of homeowners from foreclosure), and many cities and states are enacting their own moratoria to fill gaps in eviction protections for renters. But eviction moratoria aren’t enough. Eventually they end, and renters could find themselves on the hook for multiple months’ rent. Given renters’ economic precariousness before the pandemic, many may not have enough savings to pay back all that rent to their landlords.
Because the situation is changing so rapidly and the economic effects of COVID-19 are expanding every day, the share of tenants who won’t be able to pay their rents in the coming months isn’t yet clear. But many property owners trying to communicate with their tenants to find out how the pandemic is affecting them are bracing for massive losses in rent for the foreseeable future.
Not all landlords are large organizations with huge operating reserves. Nearly half of all rental units are owned by individual investors, often known as “mom and pop” landlords. Most building owners, especially landlords who offer affordable units, have narrow profit margins. Thomas said that, after all expenses are taken into account (except capital expenditures), he makes around $100 profit per unit each month.
“There’s a perception that property owners are flush with cash,” said Eiran Feldman, president of First InSite Realty in Chicago. “At the end of the day, there are a lot of small operators, a lot of family businesses, and this is their livelihood. They also do it with a lot of care and passion, and they’re under tremendous stress and tremendous responsibilities. This industry is very fragile.”
Nearly half of all rental units are owned by individual investors, often known as “mom and pop” landlords.
When those smaller landlords with less operating reserves don’t have steady rent payments coming in, they could face the risk of not being able to repair or improve their properties and missing utility payments or property taxes—which could result in their units being taken away from current or future renters.
Before the pandemic, the US was already facing a severe shortage of affordable housing. If the nonprofit and for-profit owners who currently operate affordable housing lose this ongoing revenue source, the country could risk losing some of the few affordable housing options it does have. And there’s no guarantee the investors who buy those properties would keep their units affordable or maintain them at the same quality.
Nina Janopaul, president and CEO of the nonprofit Arlington Partnership for Affordable Housing, said owners, especially affordable housing operators, are facing an unprecedented threat. “We’re concerned about our whole portfolio of properties. You never think about that as a possibility,” she said. “You think about a fire in one building, and you have insurance for that. But not for this.”