The latest round of stimulus provided much-needed relief for struggling families and businesses across the United States, especially for renters facing ballooning balances and costly monthly burdens. The package bought renters time, but for how long?
Unemployed renters face a huge burden
Since the beginning of the COVID-19 pandemic, renters have faced tremendous financial strife, due mostly to the excessive number of job losses in high-contact industries that renters often work in. Data from Zillow estimates that three million renters employed prior to the pandemic have remained jobless through November of 2020, almost one-third of them from the food services industry.
The saving grace for many has been unemployment insurance, which, with the $300 weekly boost mandated by the current stimulus package, has reduced the monthly rent burden for millions. On average, an unemployed renter without the $300 boost will spend roughly 81.2% of their unemployment insurance income on rent. With the boost, the monthly burden plummets to 43%. Go back to the CARES Act passed when the first lockdowns began, and you will find that monthly burdens fell to 29.5% with the $600 weekly boost.
“This analysis shows how much even relatively modest amounts of financial assistance can mean to struggling renters,” said Chris Glynn, senior economist at Zillow. “Even though supplemental assistance has resumed, there are financial wounds to heal from the three-month period when some renters were sending more than 80% of their unemployment benefits out the door on the first of the month. Temporary eviction moratoriums and unemployment insurance alone may not be enough to keep some renters who have steadily accumulated debts in their homes long term. Housing vulnerability for renters will be a top issue for the incoming [Biden] administration.”
The weekly boost is a welcome and significant improvement in the quality of life for many renters, but it’s still well above the 30% industry standard for declaring someone rent-burdened. It’s a troubling indicator, especially when the eviction moratorium ends, as previous research from the University of Pennsylvania and Boston University found that homelessness rates climb when rent burdens start to surpass the 30% benchmark.
On the other hand, employed renters have remained afloat, spending roughly 29.6% of their income on rent. However, with rent price growth showing signs of a comeback, employed renters may find themselves falling behind, and unemployed renters searching for more ways out of a growing hole.
Many renters have built up debt
Eviction moratoriums put in place at the beginning of the pandemic provided strong relief to a blindsided rental and job market. However, as those restrictions soon lift, the status of some renters is worse than others. It’s estimated that 12 million renters owed an average of $6,000 in rent and utilities by the end of 2020.
Despite this, we’ve seen many renters stay current, such as renters in affordable or public housing. Most are looking to avoid a massive balloon payment at the conclusion of the moratorium and to remain in good standing with creditors and landlords.
“But as the December data shows, tenants in affordable and public housing made great efforts to stay current, despite the early-month uncertainties about a stimulus package,” says Brian Zrimsek, Industry Principal at MRI Software. “More and more people don’t want to risk eventual eviction, a bad credit rating, or a huge payment in deferred rent. Therefore, tenants have actively changed their circumstances with some downsizing, some consolidating households, and some looking to ‘downshift’ to affordable or public housing.”
The trend of downshifting to public and affordable housing has ushered in a 2% lease pricing decrease in market-rate housing year over year (YOY). Public housing applications grew by 56% YOY and affordable housing applications grew by 14% YOY.
“We anticipated some of these results because of our involvement in the NMHC’s Rent Payment Tracker,” says Zrimsek. “The Tracker’s data, which aligns with our own, reveals a slow erosion of collections in market-rate housing over the course of the pandemic. Financial pressures are a likely cause, and they may be prompting tenants to seek out less costly alternatives in affordable or public housing, thus increasing demand in these asset classes and decreasing demand for market-rate units. The decreased demand, in turn, has likely led to lower rents and more concessions from landlords.”
The top five markets where rent burdens remain sky-high even with the extra boost each week are San Jose, California (85.8%); San Francisco, California (74.9%); San Diego, California (69.4%); Miami-Fort Lauderdale, Florida (65.5%); and Washington, DC (64.6%).