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The Coming Crisis in Affordable Rentals: Don’t Let a Crisis Go To Waste!

With the federal eviction moratorium under attack from landlords, now is the time to consider how we can rebuild a more sustainable affordable housing system.

| Matt Perrenod |

As I write this, the Washington Post reports that the federally- imposed eviction moratoriums are fraying under legal assault from landlords. The article notes that as the pandemic has continued, and the moratorium extended, that pressures have increased on smaller landlords who lack the financial capacity to go month after month without revenue. What the article does not say is that even if evictions go forward, there is a likelihood that many of these smaller owners will fail financially. Eviction is an expensive process, and finding replacement tenants who can pay is not easy when large numbers
of potential takers are themselves facing hardship.

In emphasizing the impact on property owners, I am not attempting to downplay the destructive impacts of eviction on renters. The wave of evictions will take its greatest immediate toll on those families and individuals. This situation was created by a failure of the federal government to meaningfully fund relief for the millions who lost jobs and income as a result of the pandemic. The rent moratorium was at best a short-term fix, unsustainable over any extended period of time, and no substitute for the material relief Congress and the Trump Administration failed to provide. The $40B in rent assistance finally passed by Congress in March as part of the larger American Recovery Plan is likely too little, and very much too late for many.

What happens with the real estate, however, will likely have a larger long-term impact on the prospects for housing affordability for most tenants. And a lot of that real estate is likely to change hands over the
next couple of years, as small-scale landlords, under financial stress, sell or are foreclosed upon.

I’d like to refer readers to this article by David Abromowitz and Andrew Jakabovics, published last October in Shelterforce, a progressive housing journal. It lays out a persuasive case for the importance of rental housing stock owned by smaller, non-corporate landlords, who own about 7 million apartments in communities of fewer than 50 units, many of them in small 2 – 4 unit buildings. These are often the most affordable rental housing available, except for the small slice of the market that is already publicly owned or publicly-assisted. Roughly 1 in 6 of these small private landlords are in serious financial distress. Abromowitz and Jakabovics argue for a dedicated fund to assist mission-oriented owners to purchase these buildings, either from their current owners, or from foreclosing banks.

This echoes the situation during the last financial crisis, when millions of U.S. homeowners lost their homes through foreclosure. The federal government, which ended up as temporary owner of these properties through its control of FHA, Fannie Mae and Freddie Mac allowed them to be sold off to the richest bidders. The immediate pain for the foreclosed families and individuals was bad enough, but in the aftermath huge private equity firms swooped in to buy these houses at fire sale prices, most of which remain high-priced rentals. We should not allow this dismal result to be repeated, with corporate owners jacking up rents on affordable units as the market recovers. But that’s exactly what will happen if the federal government once again takes the approach of “let the markets work.”

Fortunately, as I noted in a previous Voices article, we have on hand a nonprofit lending system, Community Development Financial Institutions, which are ready to channel public capital to recover this
important housing resource. And we have a class of nonprofit owners of affordable rentals who can take on the long-term ownership of these buildings as high-quality affordable housing. All it takes is the
money.

Matt Perrenod is a consultant to nonprofit community development and finance organizations working throughout the United States.

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