By Peter Muoio, Ph.D., Senior Director, SitusAMC Insights
On March 29, an eviction moratorium authorized by the Centers for Disease Control and Prevention (CDC) was extended through June, just two days before it was set to expire. The extension will ostensibly help tenants who are still behind on payment, while federal relief should placate landlords who have been unable to evict tenants for non-payment. Ongoing legal challenges to the CDC’s authority to prohibit evictions for nonpayment in Texas, Ohio and Tennessee may complicate the effectiveness of the extension. Nonetheless, most renters have kept current on their payments.
Some 83.4 percent of renters nationwide were current on their payments, according to the U.S. Household Pulse Survey (HPS) for March 3-15. The National Multifamily Housing Council’s (NMHC) Rent Tracker, which samples more institutionally owned apartments, reported 93.5 percent of tenants had made payments by the end of February, compared to 95.1 percent at the end of February 2020. So while many renters appear unaffected by the cessation of the federal moratoriums, millions of renters are at risk of immediate eviction once protections are lifted.
Moody’s Analytics estimated that, without additional fiscal assistance, $36.3 billion of back rent and late fees would be due by April, with 6.6 million renters delinquent on payments. Those estimates do not include the recent American Rescue Plan, which will provide $20 billion in rental assistance, along with direct payments of up to $1,400 for individuals and continued unemployment benefits.
There’s no doubt that the rental assistance will provide much-needed relief to the multifamily market, both for tenants and landlords, and even direct stimulus checks will help. After direct payments of up to $600 were approved in December, HPS data suggests that 28 million renters who received that money by the latter half of February at least partially used it toward rent, according to our analysis. Still, many renters may still face evictions once the new moratorium ends if the new funds are not sufficient to close back-rent gaps or the money is inefficiently distributed. (A good portion of the $25 billion allocated in the December 2020 relief bill has yet to be disbursed.)
Commercial real estate investors will need to keep an eye on local trends when the federal moratorium is lifted, leaving a multifamily market with disparate protections for tenants. Policy differences across states and localities have resulted in widely differing eviction patterns during the pandemic. Certain cities have eviction filings near pre-pandemic averages, while others have tamped down on evictions filings through state and local moratoriums. Central counties in Houston and Phoenix, for example, have some of the highest eviction filing totals nationwide, while Austin and Minneapolis have had very few over the past year, according to Eviction Lab data. The number of those filings that turn into removals is unclear but could indicate pent-up evictions coming for certain markets.
Other markets have state and county restrictions that will continue tenant protections in their current, or even stricter, form beyond the CDC’s moratorium. In New York City, eviction filings were high in the latter half of 2020, only to drop by 96 percent in two weeks upon the state government enacting its own moratorium. New York’s moratorium, which extends until May 1, offers another example of how state and local actions can complicate the multifamily landscape. New York, alongside states such as California, New Jersey and Maryland all have their own state moratoria beyond the previous CDC moratorium end date. Even Travis county in Texas enacted its own moratorium in its courts.
Absent local moratoriums, the actions of landlords will depend on local economic conditions and market fundamentals. Landlords will be able to lease vacated space more easily in metros with existing favorable supply/demand characteristics and relatively stronger economies and population growth. Take for instance, Fort Worth, TX. Eviction Lab data find over 14,000 eviction filings have taken place in the past year, fourth highest among available metros.
Reis data suggest the apartment market remains attractive for investors and landlords. Vacancy rates are low compared to the national average and were steady during 2020, while net absorption increased by about 12 percent YoY in December 2020. The local economy is also relatively strong, with the unemployment rate on par with the national average. The confluence of these indicators points to landlords having more incentive to evict tenants because there are likely to be many prospective tenants with good credit and the ability to pay full rent. In Fort Worth and other metros like it, landlord and investor calculations may favor proceeding with eviction cases over taking government relief, whereas in cities with more tepid demand, or a weaker economy, the cost of evictions and finding new tenants may point to fewer evictions and more concessions.
Even now that the national moratorium is extended, pressures on small landlords and tenants will continue. The discrepancy between states and cities on how to enforce moratoriums will necessitate a return to an adage of real estate: it is all local. Requisite relief from the government may be the silver bullet to help both distressed landlords and tenants, but until the market stabilizes, and especially with the federal moratorium extended only a few months, local characteristics matter more than ever.
Peter Muoio is head of SitusAMC Insights, providing research, tools, data and perspectives on real estate markets. For more information on SitusAMC Insights, click here.