The Coming Eviction Crisis Will Be Merciless (Yet Mostly Ignored)

Renters will be financially destroyed under the relentless pressure to make up their backlogged payments.

There have been plenty of articles about the rising cost of housing (I’ve written a few here, here, and here) with a focus on home buyers, but we seem to have forgotten about the renters of the nation.

Now, they are back in the spotlight as the CDC eviction moratorium is due to expire on June 30.

***Update on 6/24/21: The CDC extended the eviction moratorium for one month, stating “this is intended to be the final extension of the moratorium.” The moratorium will now expire on July 31, 2021.

The focus of the news is that millions of renters owe billions in back payments, and most of them don’t have the income to cover it. Hence the eviction problem.

The bigger story is that affordable housing in America has become a complete joke, growing from a touchy subject you don’t talk about at dinner parties to an outright national embarrassment, especially since the Great Recession.

The Current Eviction Crisis

When everything shut down in March 2020, it seemed like the world might end right then and there.

For some, it did.

The Poor Are Decimated…

The people who woke up in April 2020 without a job were financially devastated, as “80% of job losses were among the lowest quarter of wage earners.” The hardest hit group of workers was the same group who is least able to afford an emergency.

We’ve all seen the headlines about how few Americans can pay for a $1,000 emergency in cash. The latest average is 39%, which is dismal enough. That rate plummets to just 21% for households earning less than $30,000/year.

So how the hell are these poor bastards (no pun intended) supposed to pay rent without a job and little-to-no savings?

The answer is: they’re not.

When you are poor and just lost your job (or quit to watch your children) you aren’t worrying about rent, because that’s been usurped by food and water as your most important and urgent need.

The unemployed are trying to figure out where their next meal is going to come from, not how are they going to pay rent in a few weeks.

…then Rescued by the CDC

As the pandemic dragged on through the spring and summer, the geniuses at the CDC realized that the prolonged shutdown was going to have some unplanned economic side effects, especially for those who money supply was, at best, dwindling.

So in September 2020, the CDC instituted a moratorium on all evictions, regardless of who owned, financed, or occupied the building.

The process was a little onerous, but overall it was lauded as allowing people unable to meet full rent to stay in their homes, both preventing the spread of COVID and avoiding the disastrous economic and psychological effects of being evicted.

An extension of the moratorium is scheduled to sunset on July 30, 2021.

The Dual Rental Problems

While the eviction moratorium might sound like a home run of a policy, it didn’t quite work out that way.

• Tenants didn’t get free rent during the pandemic. Rather, their payments were just postponed.

A similar policy was enacted for homeowners, where they could just moved their payments to the end of their 30-year mortgage.

That’s a win, as a few months is nothing compared to three decades.

The issue with renters is that they are most often on a one year lease, so any payments moved to the end are mere months away.

For others, the rent payments aren’t even moved to the end of the lease. Instead, all back payments are due the first day of the end of the moratorium.

• Landlords were stuck paying the mortgages on their rental units without any income.

The moratorium was a huge win for renters but has decimated some landlords.

A large portion of rentals in the United States are single family homes. During normal times of operation, the landlord has a mortgage on that rental house but uses the rental income to pay it off.

If that rental income suddenly disappears, the landlord still has to pay that mortgage. He’s just paying it out of his own pocket now.

This situation put many a landlord in dire financial straights, with many of them going broke or closing up shop. Even the ones still in business are being forced to sell off some of their properties.

Unlike the large, mostly consolidated industries of banking and car manufacturing, the disparate, mom-and-pop landlords did not get a federal bailout. About the most they got was a reprieve from Fannie and Freddie if those agencies just happened to hold the mortgage.

The combination of unpaid, unaffordable back rent owed by the (largely still unemployed) renters and the desperate need for rental income to stave off bankruptcy by the landlords has created a perfect storm for a wave of evictions.

The Past (and Present) Affordable Housing Crisis

The eviction problem would not be as big of an issue is there was ample affordable housing for lower-earning households to occupy. However, there has been a dearth of this type of housing, especially since 2008/2009.

The Shift in New Homes

While the Great Recession was mostly caused by overzealous use of shady financial products (e.g. credit default swaps), it started with the collapse of the housing market, especially for subprime loans.

Subprime borrowers weren’t buying McMansions…they were buying 3/2 ranches with a backyard and garage. Home builders went crazy for these types of homes and overproduced.

After getting burnt by the subprime crisis, home builders cut back on the lower cost, lower margin “starter” homes and focused on high-end custom homes that started at $500,000.

In short, the past 13 years have seen relatively close zero construction in the affordable, or only slightly unaffordable, range of homes.

The Latest Data

Here is the introduction to the most recent housing study done for the National Association of Realtors.

Following decades of underbuilding and underinvestment, the state of America’s housing stock, which is among the most critical pieces of our national infrastructure, is dire, with a chronic shortage of affordable and available homes to house the nation’s population.

The housing stock around the nation has been widely neglected, with a severe lack of new construction and prolonged underinvestment leading to an acute shortage of available housing, an ever-worsening affordability crisis and an existing housing stock that is aging and increasingly in need of repair — all to the detriment of the health of the public and the economy.

The scale of underbuilding and the existing demand-supply gap is enormous and will require a major national commitment to build more housing of all types by expanding resources, addressing barriers to new development and making new housing construction an integral part of a national infrastructure strategy.

Those are the words used for an emergency of national proportions, written by a group of people not known for their emotion. It would be hard to overstate the immensity of this problem, and there are plenty of stats to throw around.

The most visible number is 550,000, which is the number of extra homes that will need to be built every year, on top of the 1.5 million homes that need to be built just to keep up with demand.

This lack of housing creates a second bigger problem, in that anyone who is evicted this summer once the CDC moratorium expires might have no place else to go.

Evictions are hard on everyone (yes, even the landlord). A recent study done by the University of Notre Dame states that, for renters, “[e]victions can cause large and persistent increases in risk of homelessness, elevate long-term residential instability, and increase emergency room use.”

The Hidden Crisis

The tragic part of the coming evictions is how little it will be reported.

The renters who will be kicked out will be poor, unemployed minorities with no means to defend themselves, financially or legally. And just as described in the last scene of The Big Short, those poor, unemployed minorities will likely be blamed for their own evictions.

The evictions will only exacerbate income, wealth, and a host of other inequalities, not only for the current generation for the next one, too.

Children who go through an eviction, already at a disadvantage due to their lower income level, will also have to face the damaging psychological impact of losing their home.

This is on top of the already devastating effects that the pandemic has had on children, with an estimated 3 million kids nationwide missing an entire school year of education.

And, oh yeah, student loan payments are due to start again in September.

But nobody seems to notice. Nobody seems to care.

The Takeaway

For the renters out there facing back payments or even eviction, my heart goes out to you. I emerged from the pandemic relatively unscathed, at least financially, so I cannot begin to understand the weight of the issues you are facing.

If eviction a possibility, please reach out to as many people, agencies, non-profits, and pro bono assistance you can find. A home is more than just a roof over your head, and I sincerely hope you get to keep yours.

For the landlords out there facing the unending months of no income, footing the bill for your properties yourself, I also feel for you.

I’ve spoken with several landlords, and they have told me some horror stories about their own experience with evictions. It’s a drain on everyone.

For those of you (which also includes myself) who are thinking about becoming a landlord, I only offer the same advice I would give myself, and that is to research like hell.

It’s easy when you’re just dealing with widget production in a factory, but being a landlord means being responsible for someone else’s place of residence. Their home.

It’s a level of trust that I’m not sure I’m ready for yet.

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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.