What happens to naturally occurring affordable housing without mom-and-pop landlords?
As the economic fallout from COVID took hold in the Spring and worsened into the Summer, the initial response from Federal, State, and Local governments (at least as far as housing was concerned) was focused on preventing renters from becoming homeless and homeowners from losing their properties through foreclosure. Moratoria on evictions and mandatory forbearance were put in place to assist those whose incomes were adversely impacted by the pandemic. To be sure, these steps were much-needed, but not wholly sufficient to ensure long- or even medium-term housing security. We’ve already written about the potential foreclosure threat to homeowners. And with respect to renters, just because the CDC has instituted a moratorium on evictions through the end of the year does not mean that back rent will not accrue, leaving many facing the impossible challenge of paying months of back rent when the moratorium expires. According to the National Association of Realtors, “The moratorium prohibits housing providers from evicting, but does not forgive the rent that is due. In fact, for tenants who have attested and received the eviction moratorium, a property owner or agent may charge penalties, late fees and interest, per the lease.”
But we want to focus today’s post on another group that will likely feel the pinch without considerable relief: small-scale landlords, sometimes referred to as ‘mom and pop’ landlords. According to the Urban Institute, nearly 50% of all the nation’s 47 million rental units are in either single-family (17 million units) or 2-4 family buildings (6 million units). For single-family rentals, nearly 60% are owned by small-scale landlords who own one to two buildings. For 2-4 family, 77% are owned by small-scale landlords. Jung Hyun Choi and Caitlin Young from Urban have noted that owners of 2-4 family rental properties are “particularly vulnerable during the pandemic” when compared to other rental property owners because (among other reasons):
- Their tenants have lower median household income, on average
- Their tenants tend to work in the most vulnerable industries hard-hit by COVID
- Their average rent and operating income tend to be lower, which means they have less of a cushion to absorb a lapse in rent payments
At the same time, many of the policies put in place to support small business owners are not available to or easily accessible for mom and pop landlords. The Paycheck Protection Plan provides a forgivable loan that can be applied toward payroll and (commercial) rent. But the landlord of a single 4-family unit typically has no staff and their base of operations is usually their home. About a third of small-scale landlords are retired, and therefore ineligible to benefit from the $600/week bump in unemployment insurance that many of their tenants have receive. It’s no wonder, then, that according to the August 2020 National Survey of Avail Landlords, 35% had pulled from savings or emergency funds to cover operating costs, while an additional 14% used credit cards, 7% borrowed cash from friends & family, and another 7% took out a personal loan. That’s compared with only 16% that were able to access government aid or assistance.
A number of landlord surveys have indicated that stopgap measures like the increase in unemployment insurance and the one-time stimulus check managed to buffer the rental market. But we all know that these have expired without any indication when or if more relief is coming. Many of the communities where we work have funneled CDBG-CARES dollars toward emergency rent assistance, but there is nowhere near enough funding available to cover the rental housing gap absent additional direct support to renters and/or landlords.
Why is this particularly troubling for communities? Not only do these landlords face potential insolvency, but they also play a critical role in supplying naturally occurring affordable housing. Before our country was embroiled in a public health crisis that evolved into an economic one, we were facing an affordable housing crisis. That hasn’t gone away because of COVID, and the structural issues that have driven housing costs to unsustainable levels for low- and moderate-income families persist.
Without support for mom-and-pop landlords, there is a real risk that many will no longer stay in operation. On the heels of the 2008 Foreclosure crisis, with homeowners underwater and home values depressed, Wall Street-backed institutional landlords stepped in to buy $60 billion worth of single-family homes, fundamentally transforming the housing market in many communities. What happens if our small-scale landlords reach their breaking point and can no longer afford to stay in business? And what are the implications for the low-income renters who rely on the dwindling supply of naturally-occurring affordable units if their demise is accelerated by another massive redistribution of housing stock?