Nobody’s bailing out Connecticut landlord Maribeth Shields.
More than half of the tenants in the 27 low-income apartments she owns in the city of West Haven and its vicinity aren’t paying and there’s nothing she can do about it. The state banned evictions until July and allowed tenants hurt by the pandemic to defer with no penalty.
But Shields can’t pay, either. Her profit last year came to only $24,000, and now she’s behind on $1.2 million in mortgages. Like millions of other U.S. landlords, who owe lenders more than $1 trillion combined, her fate is tied to renters now urgently focused on their own self-preservation.
“My tenants think I’m rich,” Shields says. “They have better cars than me, better nails, and better tax refunds.”
The next housing crisis is here, and this time, it’s about rentals. Across the U.S., landlords and tenants are wrangling over next month’s rent while an approaching avalanche of evictions threatens to bury them both.
To avert a damaging wave of foreclosures like the one that swept the country more than a decade ago, Congress included a provision in the $2.2 trillion rescue package it approved in March that allows homeowners with government-backed mortgages to defer payments for up to a year. But Washington stopped short of offering renters comparable relief on the assumption that those in distress would likely qualify for the $1,200 checks the Treasury began mailing out in April, as well as beefed-up unemployment benefits.
In an Urban Institute survey of renters carried out from March 25 to April 10, almost half said they had experienced material hardship in the previous month.
Many U.S. states have imposed moratoriums on evictions. But without a national rental-market bailout, the economic pain is likely to spread as efficiently as the virus that caused it, flowing upward to landlords, their lenders, and cities losing property tax revenue.
About half of the 43 million rental units in the country are owned by small businesses such as Shields’s one-woman enterprise. Unless help comes soon, “both renters and property owners will slide down the socioeconomic scale together,” says Emily Benfer, a visiting law professor at Columbia University. “It will have a ripple effect. Rent doesn’t just go to property owners, it pays for property taxes, mortgages, and salaries for the people who maintain buildings.”
States with large populations of renters, including California, Texas, New York, and Florida, have instituted temporary bans on evictions. But 23 others—among them Wyoming, North Dakota, Arkansas, Ohio, and Georgia—have adopted few, if any, protections for renters, says Benfer, who collaborated with researchers at Princeton University to create a state-by-state housing policy scorecard for the pandemic.
Trade associations that represent landlords are lobbying Congress for $100 billion to cover some of the rent shortfall, with direct payments to property owners, but they have yet to unite behind any of the various proposals floating in Congress.
Lenders could be collateral damage, particularly regional banks that often finance local property investors. At the end of 2019, there was $1.6 trillion of outstanding mortgage debt on multifamily properties in the U.S., according to Paula Munger, vice president of research at the National Apartment Association (NAA), citing a Fed study. Defaults in the last recession reached 5% and could climb to as high as 10% during this much deeper downturn, she says.
Many landlords operate on thin margins, typically 9 cents for every $1, according to the NAA, and have nowhere to turn for help if their rental income dries up. Most don’t qualify for federal mortgage forbearance, because only about a third have mortgages backed by Fannie Mae, Freddie Mac, or another federal agency. The Small Business Administration is bolstering companies that keep workers employed, but many property owners don’t have a payroll. Shields, who tours the property with a lawn mower crammed into the back of her Toyota Prius, handles most everything herself and hires contractors for the rest.
Rich Uncle Pennybags, the Monopoly game character who tips his top hat with one hand and holds tight to a sack of cash in the other, may be the most famous landlord in America. But the stereotype is wrong. Many landlords aren’t any better off than their tenants and certainly aren’t rich enough to credibly pull off a bow tie, says Jan Lee, who manages two buildings in New York’s Chinatown that his family has owned for nearly a century.
“That caricature of the white landlord in the suit who has suitcases of money—in our case, every one of us has a day job,” says Jan Lee, who works as a general contractor and whose family, over the years, has run a laundromat and a home furnishings store from its ground-floor retail space.
Source:Bloomberg