Real estate investor, Founder/CEO of TurboTenant: free landlord software – rental marketing, tenant screening and rental applications.
On September 4, an eviction moratorium put in place by the Centers for Disease Control (CDC) took effect, with the goal of protecting public health. However, an eviction moratorium in any form does not address mounting renter debt or landlord expenses, and in isolation, it can place undue pressure on the landlord and tenant relationship, which is historically seen as contentious. What is needed, and what has been proposed by many advocates for renters and landlords, is a comprehensive plan that includes rent relief with eviction and foreclosure moratoriums.
An eviction ban without rent relief puts the responsibility of covering missed rent payments solely on the landlord or property manager. There is no doubt renters have been disproportionately impacted by unemployment and financial hardship, and an eviction ban does nothing to address these root causes.
According to Maslow’s Hierarchy of Needs, basic human needs such as food and shelter are essential building blocks for a healthy, happy individual. The eviction ban, on its surface, attempts to address the shelter portion of this basic human need. I do not argue with that, but to further illustrate the ban’s inadequacy, let’s take the other basic human need for food and apply the same rules and regulations. According to the CDC, tenants must make “best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses.”
Let’s say the CDC applied the same rules to grocery stores. Shoppers would be able to go to the store and get as many groceries as they needed. They would only be obligated to pay what they were able to pay, and not the full amount owed. They could opt to pay nothing, should their financial situation warrant that. But, they would have to pay the debt back in a couple of months. Now, the grocery store would still have to pay every supplier and manufacturer across its supply chain. Those bills would not stop coming in, but what would stop would be revenue from customers. Grocery stores operate on very tight margins as it is.
It’s a volume game for them, so large chain grocery stores may be able to weather the financial loss and cover their costs without dollars from sales until patrons had to pay them back in a few months. Smaller mom and pop grocery stores might not have the reserves or resources to do so. They may have to shut down to avoid accruing debt or overextending themselves to cover the cost of their inventory and other operational expenses.
Keeping this in mind, let’s turn it back to landlords and tenants. According to a National Apartment Association analysis, once a landlord has paid all expenses associated with the property, they average around 9 cents on the dollar of profit. That too is a very slim margin. Large apartment complexes or multiunit landlords without mortgages may have access to credit or assets that will help them cover overhead until payment is received at a later date. However, over half the U.S. rental units are reportedly owned by individual investors who rely on rent payments to cover all their expenses. According to a survey by UC Berkeley’s Terner Center for Housing Innovation conducted in early July, 1 in 4 landlords reported having to borrow funds to cover their operating costs due to missed rent payments.
When it comes to the renter side of things, this ban appears to help, when in reality, it pushes off a massive debt load, with interest and fees, to a later date. According to a Moody’s report published in August of 2020, tenants already owe nearly $25 billion in back rent, and they will owe close to $70 billion by the end of 2020. The financial stress both parties are experiencing is unparalleled.
In September, we surveyed over 22,000 landlords on our platform to glean insights into how they are handling the ban, specifically asking about rent payments, evictions and communication. Two percent have worked with tenants to create payment plans, while some have canceled rent, and nearly 10% have accepted partial payments.
The key takeaway is that communication lines between landlords and tenants need to open like never before. Landlords should take proactive measures such as reaching out to their tenants before rent is due, discussing payment plans and partial payment options to help facilitate productive conversations, and constructing better go-forward strategies for all involved. The lack of appropriate relief isn’t a matter of landlords versus tenants because both parties are in need of assistance. In the absence of more comprehensive government action, understanding and effective communication with tenants is the landlord’s current best solution.