Government needs to act now to prevent a massive wave of evictions

Written by Phillip Kash and Arjun Gupta Sarma

The largest increase in unemployment since the Great Depression has set the stage for an impending housing security crisis. In the absence of additional federal assistance, state and local governments will have to take the lead to mitigate widespread housing insecurity and displacement.

While the economy has begun to show small signs of recovery, millions of Americans remain unemployed, and despite a patchwork of federal, state, and local protections, housing security is the next looming crisis. The households facing the greatest housing risk are America’s 40 million low and middle-income households, nearly 40% of whom are currently unemployed according to recent estimates by the Fed.

These households at risk are heavily skewed towards communities of color — who have faced a long history of being harmed by governmental urban development policy, including Federal Housing Administration loan discrimination (redlining), urban renewal, and highway construction through predominantly Black neighborhoods. Black households have not yet recovered from the subprime mortgage crisis — Black homeownership rates fell from 47 percent in 2007 to 42 percent in 2018. Today, even as the May overall unemployment projections dropped to 13.3%, unemployment grew to 16.8% and 15.0%, respectively for Black and Asian workers.

Currently, a combination of tenant savings and the CARES unemployment supplement of $600 per week have kept tenants in place and rent collections relatively stable. However, the expiration of the CARES $600 weekly supplement (July 31st) and the lifting of state eviction moratoriums (between May and August 15th) will likely result in foreclosures and evictions, with evictions being the more immediately pressing problem because America’s renter households have few protections from eviction in many states and less than half the savings of owner households with the same income.

To address this need before evictions start, city leaders must design and mobilize new housing stabilization strategies that leverage private, federal, and philanthropic funding.

Our ongoing work with the City of New Haven provides lessons for cities across the country to stabilize their housing markets and provide housing security for residents:

• Assess the need. Census microdata data and state and federal reports on unemployment claims suggest which households face the greatest risk of unemployment and eviction. We found that in New Haven, a city of 50,000 households, 5,000 are at risk of housing insecurity over the next six months. After accounting for unemployment payments, there is still a $14M-$20M projected gap over a six-month horizon between what renters can afford to pay and the total rent owed.

• Make resources available to ensure that tenants are able to exercise their rights. Widespread and low-cost legal assistance can shift how landlords weigh the choice between eviction and a mediated workout program. Legal protections for renters vary widely from state to state, from mandatory legal representation for eviction proceedings and extended eviction restrictions in New York, to almost no legal protections and eviction restrictions that have already been lifted post-COVID in Wisconsin. Solutions may include mandatory mediation — in which landlords and tenants must go through a negotiation process with a neutral third party to transition out of the eviction moratorium and avoid extrajudicial evictions. These policies are best expanded at the state level.
• Dedicate public funding to keep families in their homes. As we enter a recession, landlords may face longer vacancies in certain markets. In these cases, they may prefer to avoid evictions in exchange for a guaranteed, but lower, payment, thereby offering longer-term financial assistance than is the norm with legal aid or mediation. A tenant-landlord workout is an effective means of achieving this end. In these structures, the gap in rent is typically addressed through a combination of tenant, landlord, and public and/or philanthropic resources as follows:

Tenant Resources (30% of income): Tenants are required to pay 30% of their gross recurring monthly income (actual wages, enhanced unemployment assistance, and other income sources). For unemployed workers, this is mostly a function of unemployment assistance received.

Adjusted Landlord Baseline: (20–30% of total rent): In order to secure tenancy and receive public support, landlords forgive 20%-30% of rent owed for the shorter of the (1) term of the lease or (2) period in which tenants remain unable to pay the full rent.

Workout Fund (Remainder): The tenant-landlord workout fund pays the remainder of the rent, up to a stated maximum, in New Haven $1,000 per month.

Our analysis indicates that a $9M-$12M New Haven Tenant-Landlord Workout Fund could meet all or virtually all of the projected need — it could provide support to 4,700 to 5,200 households. The authors welcome questions about our methodology and assumptions.

Some state and local governments across the country, from Arizona to Raleigh, are recognizing the need in their communities and leveraging a combination of CARES subsidy (CDBG, ESG, Coronavirus Relief Fund), philanthropic support, and general obligation funds to support renters through this crisis. If federal policies that support a rapid rebound in employment and higher wages are enacted or CARES unemployment insurance payments are extended, this could significantly lower the need at the state and local level. However, continued federal reluctance to extend unemployment insurance or provide additional economic stimulus in the near term will require states and localities to consider the kinds of assistance and at the scale outlined here.