After the CARES Act, What’s Next for Housing?
As we discussed in last week’s insights post, the CARES Act contains several provisions that either directly or indirectly address housing. The $2.2-trillion legislation directs money to housing programs for low-income Americans, while providing expanded Unemployment Insurance (UI) benefits to the millions of Americans now out of work. For many of these beneficiaries, housing was already a significant portion of their monthly expenses, and UI payments should surely go towards keeping a roof above their heads during a time in which it’s never been more necessary.
However, with the ink barely dry on President Trump’s signature and the funds appropriated in the CARES Act yet to reach the hands of the people and businesses in the most need, we were hit with the grim news that 6.6-million people filed for UI the very same week the legislation was signed. These new claims are on top of the over 3 million who filed the week before. Even the grimmest predictions pegged the most recent number at just under 4 million. In just two weeks, the job gains of the last four years were completely wiped away. And even in a booming economy, nearly half of American renter households were rent-burdened, spending over 30% of their incomes on rent.
“Even before this pandemic, more than 11 million households – the majority of whom have extremely low incomes – were already struggling to pay rent and make ends meet,” stated Sarah Saadian, vice president of public policy at the National Low Income Housing Coalition. “It’s never been more clear that housing is healthcare, and at a time when our collective health depends on everyone’s ability to remain stably housed, we must ensure that renters with the greatest needs can keep roofs over their heads. Congress must provide increased resources in the next coronavirus response package to address the urgent needs of people experiencing homelessness and low-income renters.”
The latest unemployment news heightens the need for additional economic stimulus, and early indication in that there is growing desire on Capitol Hill and within the Trump Administration for a so-called fourth COVID-19-related stimulus package. President Trump and Democratic leadership appear to be in the same ballpark for a massive infrastructure bill as the centerpiece of the next major legislative push, but with Congress working remotely and currently not set to return until at least the end of April, a final deal is far from imminent.
In recent weeks we’ve had many conversations with staffers on Capitol Hill, both Republicans and Democrats and in the House and Senate, about short and long-term solutions to the housing needs of the millions of Americans feeling the impacts of COVID-19. It’s clear there’s significant interest in addressing housing in the next round of stimulus - an interest that will likely grow given the nightmarish economic numbers that will almost certainly be the norm in the coming months.
Up for Growth Action supported expanded UI benefits as the best – and most efficient – method for ensuring that people can still make rent and mortgage payments. But these benefits are not indefinite and may take several weeks to get into the hands of the people who need it most, and do not account for the severe affordability crisis already gripping millions of American renter households. This reality means that millions of Americans will need additional support to pay their rent.
One of the proposals for which Up for Growth Action is advocating is The Emergency Rental Assistance Act of 2020, sponsored by Representative Denny Heck (D-WA). The Emergency Rental Assistance Act, or H.R. 6314, would allocate $100 billion to the Emergency Solutions Grant (ESG) program for states to administer rental assistance to people making up to 80% of area median income – a significant increase above current levels. Similar to utilizing UI benefits to get money into the hands of American people, The Emergency Rental Assistance Act relies on existing programs and infrastructure to serve an immediate need.
“Our most vulnerable Americans are now facing historic levels unemployment and are being forced to choose between paying rent and affording life’s basic necessities,” Rafael E. Cestero, President & CEO of affordable housing lender The Community Preservation Corporation, told us. “The Emergency Rental Assistance Act will get critical rental assistance into the hands of these families, keeping people off the streets and allowing them the peace of mind that comes from knowing their living situation will remain stable. This rental income will also ensure that owners of affordable housing and small rental buildings, which already operate on thin margins, will be able to keep their properties safe and up to code.”
Making it possible for Americans to continue paying rent is vital not only for the families who need the assistance the most, but for the health of the financial system writ large. While state, local, and federal suspensions of evictions and mortgage forbearance are logical steps to address the immediate crisis, eventually rent is due for everyone – tenants, landlords, investors, pension funds, and anyone with a 401k or otherwise invested in the market.
In the multifamily space, most landlords own fewer than 20 total units. Without access to vast financial reserves, any suspension of payments will soon put them – and their lenders - in dire financial straits. On a macro level, uncertainty about the monthly payments that undergird mortgage-backed security markets should send shudders down the spine of anyone who lived through the 2008 financial meltdown and subsequent great recession. While our financial system is currently healthy and there’s no reason for immediate panic, a prolonged recession where millions of Americans can’t pay rent would have disastrous consequences throughout the financial system and global economy. A long-term suspension of rent payments would also freeze the liquidity needed to build the affordable and market rate housing desperately needed across the country.
“Our nation’s affordability problem has not gone away because of a public health crisis,” Bob Pinnegar President and CEO of the National Apartment Association told us. “In fact, it has been exacerbated and will only get worse if the government doesn’t step in to provide temporary, direct relief for residents and property owners alike. Rent pays for property taxes, mortgages, maintenance costs, payroll and utilities. If they are unable to pay their bills, it puts even more rental housing stock in jeopardy. Banks would foreclose and properties would begin to decline as maintenance is deferred. We need more housing and can’t afford to lose any of our current stock if we want to solve the affordability crisis.”
One of the primary criticisms of the 2008 Troubled Asset Relief Program was that despite its ultimate success in preventing a deep economic depression, more could have been done for Main Street. In 2020, Congress can prevent another financial meltdown by getting in front of the problem before it materializes. And this time, it can help both Wall Street and Main Street by ensuring that rent continues to get paid while the country shelters in place.
Enacting direct rental assistance in the next COVID-19 stimulus can prevent the immediate public health crisis from morphing into another financial disaster.