Is There a Looming Eviction Crisis? What Landlords Need to Know

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This article has been updated with new data from October 2020.

In a disastrous year for world economies, the United States has fared no better than most—and significantly worse than some. While the housing market has remained a lone bright spot in the U.S. economy, many fear that the worst is yet to come: An eviction crisis.

With unemployment rates still higher than the peak of the Great Recession and millions of renters out of work, these fears aren’t unfounded. And a second wave of coronavirus infections has surpassed the initial spring outbreak, renewing concerns of weak jobs recovery. But unemployment and GDP figures alone fall short of the whole story.

Do landlords need to lose sleep over rent defaults and a coming eviction tsunami? The answer, as so often happens, is “it depends.”

How Many Tenants Are Behind on Rent?

An October report by the Federal Reserve Bank of Philadelphia estimated that 1.3 million renting households will owe an estimated $7.2 billion in back rents and fees by the end of 2020. Another estimate by Moody’s Analytics puts the total nearly 10 times higher at $70 billion—if Washington releases no additional stimulus support. Moody’s also estimates a tenfold higher number of households with rent debt at 12.8 million. 

If those numbers seem wildly disparate, remember that the data on late rents comes mostly from surveying renters and landlords, not hard facts. And slippery as that data is, it says nothing of rent-related debt that doesn’t even show up in these numbers, as many unemployed tenants started putting rent payments on their credit cards. The Federal Reserve points out that credit-based rent payments skyrocketed 70% in the spring, and have remained 50% higher than 2019 through the fall. 

A worrying 32 percent of tenants entered August behind on prior rent payments, according to Apartment List. In terms of rent debt, here’s how that breaks down:

• 15 percent of renters owe their landlord less than $1,000
• 11 percent owe between $1,000 and 1,999
• Four percent of renters owe between $2,000 and $4,999
• Two percent owe more than $5,000.

After the first week of August, 34 percent of renters had failed to make their full August rent payment—which sounds terrifying.

But new numbers don’t look quite as ominous, although the data from Apartment List is by no means rosy. By the end of the first week of October, 31% of renters had failed to miss their payments—but by the end of the last few months, only 10% of renters had failed to pay their rent in full. Those numbers have gradually improved since the summer, when at their peak 35% of renters failed to pay in the first week and 13% failed to pay by the end of the month. 

Of those renters who are behind, the overwhelming majority owe less than $2,000. But it’s that fraction of a fraction—those who are behind and owe more than $2,000—who prove the greatest threat for an eviction wave in early 2021.

But how does it compare to pre-pandemic levels?

Historic rent tardiness

Despite those concerning numbers, by October 27, 94.6% of renters had made a full or partial rent payment according to the National Multifamily Housing Council. It represents an increase over the following month, when 92.2% of renters had made a full or partial payment by the same date in September. 

Looking at October 2019 however, 95.8% of renters had made a full or partial payment. It reflects a consistent trend over the last few months: yes, fewer tenants have made their rent payments, but only by a difference of one or two percentage points.

It’s worth noting, however, that these figures include partial rent payments. Which is its own story in the era of COVID-19.

Are Tenants and Landlords Negotiating Payment Plans?

Among tenants who are behind on rent, ApartmentList found that 49 percent have either negotiated or are in the midst of negotiating a payment plan with their landlord. In contrast, only 18 percent of renters behind on payments have been turned down for a requested payment plan. The remaining 33 percent of late payers have not contacted their landlord to propose a payment plan.

A few renters who are not behind on rents have also requested payment plans, as noted above by Apartment List. But they make up a small minority.

To date, most tenants have been able to pay most or all of their rent, and most landlords have worked hard to keep them in place. But for unemployed renters, successfully paying the rent largely comes down to financial safety nets—particularly unemployment benefits.

Unemployment Benefits, Past and Future

In normal times, unemployment benefits last an average of 26 weeks. Because unemployment benefits operate on the state level, that number ranges from 12 to 28 weeks. Historically, only W2 workers have qualified for unemployment benefits.

That changed with the $2.2 trillion CARES Act, which extended state unemployment benefits by an additional 13 weeks as part of the Pandemic Emergency Unemployment Compensation (PEUC) program. That includes a guarantee of at least 39 weeks’ coverage, which picks up the slack in states that offer less than 26 weeks standard coverage.

The CARES Act also makes some self-employed workers eligible for unemployment benefits—an important provision, given the number of gig economy workers and struggling small business owners in today’s America.

And, of course, it included the famous $1,200 stimulus paycheck and the controversial extra $600 per week payment, boosting many unemployed people’s incomes above what they were earning before they stopped working.

All of that extra income buoyed unemployed Americans’ ability to pay their rent. But several questions remain unanswered entering autumn 2020, including the possibility of a second one-time stimulus paycheck, the future of that contentious extra $600 per week bonus, and what happens after the extended 39 weeks of unemployment benefits.

Which raises another unknown: the future of eviction restrictions.

Legal Restrictions on Evictions

The CARES Act wasn’t all sunshine and roses for landlords. It also included a moratorium on evictions for Section 8 properties, landlords taking the low-income housing tax credit (LIHTC), and properties secured by federally backed mortgages.

On July 24, the eviction moratorium expired. The Trump Administration followed it up with an executive order about evictions, saying… something:

“The Secretary of Housing and Urban Development shall take action, as appropriate and consistent with applicable law, to promote the ability of renters and homeowners to avoid eviction or foreclosure resulting from financial hardships caused by COVID-19. Such action may include encouraging and providing assistance to public housing authorities, affordable housing owners, landlords, and recipients of Federal grant funds in minimizing evictions and foreclosures.”

What it doesn’t say anything about is whether the federal eviction moratorium would be extended. However, on August 27, the Federal Finance Housing Agency announced that its own eviction and foreclosure moratorium would extend through at least the end of 2020. That applies to all one- to four-unit properties secured with a loan backed by Fannie Mae or Freddie Mac.

A few days later, on September 1, the Centers for Disease Control (CDC) stepped far outside its purview and issued a sweeping nationwide eviction moratorium of its own. Every American who received a stimulus check qualifies for the moratorium, which lasts through the end of 2020. The only other requirement is that they provide documentation that they made an effort to receive government assistance and are unable to pay their rent.

Many states and cities also have their own eviction moratoriums. Some have expired, and others remain in place. 

Sixty-six percent of renters behind on payments told Apartment List they fear an imminent eviction in the next six months. One tenant’s rights group formed in March, the Covid-19 Eviction Defense Project, estimated more than 29 million Americans in 13 million households could face eviction by the end of the year. The cooler heads at global advisory firm Stout put the figure closer to 12 million Americans at risk of eviction over the next four months.

Yet it hasn’t happened.

Evictions in 2020 Lag Historic Levels—By a Lot

It turns out that not only has the dreaded wave of evictions not happened, but evictions in 2020 are nowhere near pre-pandemic levels.

Some of that can be explained by state and local suspensions of evictions, and by some civil courts closing temporarily. But even among states and cities with no eviction bans and open courts, evictions still lag historic levels. Princeton University’s Eviction Lab analyzed 17 cities’ eviction numbers, charted by Bloomberg, and found a large drop in evictions in most cities.

Consider Columbus, Ohio, for example. The district court took over the local convention center to prepare for a sudden spike in eviction filings after moratoriums lifted. That spike never came, as eviction filings in the first week of August 2020 clocked in 66% lower than the historical norm.

The Cost of Evictions & Turnovers

Evictions are expensive for landlords. One BiggerPockets investor estimated a typical eviction cost $7,300 for his $1,150-per-month units in Kansas City. That number includes lost rents, attorney fees, court costs, cleanout, repairs, turnover, and the labor involved in placing a new tenant.

If that sounds high to you, it certainly doesn’t to me. I’ve managed countless evictions for non-paying tenants in Baltimore City. Tenants have drawn out the eviction process to nearly a year.

Eviction-specific costs aside, turnovers are what cost landlords the most time and money. When you visualize rental cash flow, you can see the spikes in expenses coinciding with the loss of rental income. Which says nothing of the labor required to advertise vacancies, show vacant units, screen tenants, sign new leases, and so forth.

It’s why landlords should retain their good tenants. And why so many landlords have worked with their tenants to create a payment plan during the coronavirus pandemic.

Looking into My Crystal Ball: What’s the Likelihood of an Eviction Crisis?

It depends. 

First, it depends on the speed of economic recovery around the country. Hopes for a V-shaped recovery had faded even before autumn’s second wave set new coronavirus case records. By now it seems clear we won’t have a vaccine until 2021, and even after FDA approval, significant questions remain about vaccination rates, efficacy, and distribution speed. The economy can’t even approach a full recovery until we get a grip on the pandemic, which remains as elusive as ever. 

In the absence of a more complete job recovery, many unemployed renters sit dependent on unemployment benefits. Which renders their ability to pay rent just as dependent on them. 

Thus far, governments have shifted the problem of unemployed renters to landlords, by preventing landlords from enforcing their lease contracts. That trend could continue, with eviction moratoriums continuing past January 1. It’s one reason I have changed some of my investing plans due to the coronavirus pandemic. 

Still, I expect government benefits to start gushing again when the election dust settles, regardless of the cost to taxpayers. Agencies at every level of government are all too aware of the consequences—human, economic, and political—of allowing an eviction crisis to actually unfold. We’ll have to pay the piper eventually, but that’s a bill to be paid another day, long after today’s politicians have left office. 

All Real Estate Is Local

America’s most expensive cities have witnessed a plunge in demand and rents. Of the eight most expensive cities in the US, every single one logged lower rents in October year-over-year, per Zumper’s October report. Thirteen of the hundred largest cities in America reported record drops in rent. In San Francisco, rents for a two-bedroom apartment fell a dizzying 21% over the last year. 

Yet many smaller, lower-priced cities have seen rents and demand rise, with most cities outside the top 10 seeing year-over-year rent growth. That suggests there’s plenty of demand for housing, and plenty of qualified tenants happy to sign a lease for vacant units—in most cities.

You’ve heard it before: All real estate is local. After the federal eviction ban expires, some tenant-friendly states and cities will probably extend their own moratoriums. In many cases, these are the same cities seeing enormous drops in rents. If a wave of evictions does strike, landlords in San Francisco may have a harder time finding tenants willing to pay historic rent rates than their counterparts in Boise, based on current demand trends. 

The ideal scenario for landlords involves lifting the eviction moratorium but funneling continued unemployment benefits to tenants so they can keep paying rent until they find work again. But I have no confidence that politicians won’t keep offloading their problem of unemployed renters onto landlords, in the form of extended moratoriums, forced rent forgiveness, or some other politically expedient way to avoid solving the real problem of unemployed Americans.  

Do you currently see strong demand for rental housing in your market? What are your predictions for where rental housing is headed?

Tell us below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.