COVID-19: What’s the Long-Term Impact of Moratoriums on Apartment Evictions?

On Sunday, the National Multifamily Housing Council endorsed a number of unprecedented measures in response to the COVID-19 crisis. Among them is a 90-day moratorium on most evictions, meaning apartment owners and managers effectively stripped themselves the ability to remove residents delinquent on rent. The move comes after a wave of local and state governments across the country put similar bans in place.

The timing matches an expected increase in delinquency as job losses mount (particularly in the hotel and restaurant sectors) and unemployment claims surge.

The NMHC measure is non-binding, but comes with the backing of big apartment players commendably taking steps to protect renters at great expense to themselves. It’s also a measure of self-defense, as some policymakers and activists are loudly attacking “landlords” they’ve recklessly painted as universally greedy and heartless. The truth is the “Good Guys” far outnumber the “Bad Guys” in this industry. Apartment owners and managers are taking it upon themselves to share responsibility in protecting the most vulnerable households. In addition to the eviction moratorium, NMHC also endorsed other measures, most notably a temporary rent freeze – an equally unprecedented restraint for a business where rent growth offsets operational cost increases.

The goals behind an eviction moratorium are laudable. Evictions require in-person activity such as court proceedings and on-site evictions where the virus could spread. The ban also prevents an increase in homelessness and protects renters who lose their jobs or get sick.

And let’s also be clear on this: Nothing is more important than saving lives and beating COVID-19. Businesses everywhere are sacrificing for the public good, and those struggles can’t compare to those of families watching loved ones fight for their lives. This is comparatively unimportant.

But eviction moratoriums also raise very difficult questions without clear answers, and the potential implications are far-reaching – and could even further damage the economy. Even as we prioritize the public good, each business has a responsibility to consider everyone who depends on them. The U.S. apartment business supports 17.5 million jobs, most of which are middle- and lower-income roles like leasing agents, maintenance workers, accountants and others.

Who ends up taking responsibility for the unpaid rent needed to support all those families?

How are property owners protected against renters fully capable of paying their rent, but who refuse to? Leasing fraud is already a growing and increasingly sophisticated problem, and in this case, no sophistication is required.

What happens after the moratoriums end? As the economy sinks deeper into a recession, many delinquent renters will still be delinquent after COVID-19 tapers off. Policymakers would likely face pressure to extend eviction moratoriums – and the odds of that occurring appear to be rising by the day. The U.S. Department of Housing and Urban Development banned evictions on HUD-owned properties for 60 days, and activists immediately complained the federal government didn’t go far enough. And even more troublesome, some are pushing measures that could suspend rent payments altogether.

Make no mistake: Leniency amidst a backdrop of health and economic concerns is the right thing to do. The NMHC board, its member organizations and its president, Doug Bibby, deserve credit for stepping up. At the same time, all would agree this is a short-term fix for a problem that could persist long term.

The big long-term question: What can property owners do to protect themselves and protect the most vulnerable renters? It’s a massive challenge – balancing the public good with individual good.

Many rental housing owners and managers are small businesses with limited flexibility, particularly in areas with rent controls and thin operating margins. Larger owners and managers may appear more shielded, but many are at the bottom of a large funnel of investors and lenders, and they send revenues up the chain. Some of those investment groups include public pension funds and others comprised of individual investors whose savings or retirement accounts depend on that cashflow.

The potential domino effect could actually increase the number of people potentially unable to pay for their rent or their mortgage. A drop in revenue makes business vulnerable to expense cuts, potentially including layoffs for the some of the 17.5 million workers supported by the apartment industry. And lost cashflow for pension funds could further weaken retirement income for aging public servants banking on that cash.

In other words, it’s complicated. How do we protect vulnerable renters and everyone who depends on their ability to pay the rent?

NMHC is connecting these dots. Even prior to its endorsement of bans on evictions and rent increases, NMHC called upon the federal government to “provide short-term financial assistance to renters facing layoffs or lengthy periods without a paycheck.” NMHC added this clear-minded support from the Brookings Institution: “Short-term financial assistance would help poor families continue paying rent and buying food until the broader economy stabilizes. It would be more effective than a temporary moratorium on evictions (as some jurisdictions have enacted), since landlords also need money to pay their mortgages, property taxes, and utilities.”

Absent a government solution, there’s little property owners can do to recoup lost revenue from renters currently on the rent roll unless they have renter deposits or deposit insurance programs in place. Going forward, though, risk mitigation becomes a huge priority.

Deposit insurance can be a win-win because it allows renters to move in without having to front all the cash needed for the deposit, while still allowing the property owner to recoup lost revenue.

Secondly, property owners will look to improved screening practices going for new leases to ensure renters are not only able to pay their rent, but are actually likely to do so. RealPage invested in an AI-driven screening solution released last year that made headlines in The Wall Street Journal for its ability to do just that. That type of insight into renter behavior becomes extraordinarily valuable if credit scores become less reliable – which is very possible. A number of state legislators are weighing measures to temporarily block unfavorable reporting to credit bureaus, essentially stripping credit bureaus of their role and dramatically reducing the value of a credit score. That puts enormous additional risk on property owners and managers leveraging traditional screening tools.

There are no shortage of unknowns today as we stare down the COVID-19 crisis. Certainly these questions are secondary to managing the current epidemic and avoiding a deep recession. Let’s all hope for a best-case scenario and a quick recovery, while being prepared for the challenges that may await us.