There are news reports predicting a dramatic spike in residential evictions in 2021, specifically when the Centers for Disease Control and Prevention (CDC) moratorium on evictions ends. Reports earlier this year suggested the pandemic might lead to 30-40 million evictions. It is true that there are millions of tenants behind on their rent but there are also factors likely to mitigate such a tidal wave of evictions. These include the declining unemployment figures in the country, the recent stimulus measures passed by Congress, and the fact that many households came into this recession better prepared than in the last recession. We will also see the Biden administration continue government assistance to tenants and landlords while extending the eviction moratorium until vaccines are widely distributed.
Residential Eviction Moratorium Extended to January 31, 2021
The COVID-19 pandemic brought unique challenges to real estate investors including a series of moratoriums on evictions from cities and states. As this confusing patchwork of state and local restrictions lapsed over the summer, the federal government decided to step in. To reduce the spread of COVID-19 cases, the CDC initiated a moratorium on residential evictions for non payment of rent starting September 4, 2020. This provided a national standard for tenants seeking assistance from evictions due to financial hardship. The CDC moratorium was set to expire on December 31, 2020, but the most recent stimulus bill, signed into law by President Trump on December 28, extended the moratorium to January 31, 2021.
The CDC moratorium is not a blanket waiver for tenants to avoid paying rent. Tenants must have experienced a significant loss of income and made their best effort to find rental assistance to pay their rent. Tenants must also sign and submit a declaration to their landlord that they are formally seeking this assistance. The CDC has sought to protect landlords from tenants misusing the moratorium by including a provision that makes it a crime (perjury) if tenants knowingly make false claims in their declaration.
Rent is Still Owed and Many Tenants are Making Partial Payments
The CDC moratorium also does not absolve tenants of the rent owed. Tenants using the moratorium are required to pay overdue rent, fees, penalties, or interest in accordance with local landlord-tenant laws. Failure to make these payments would hurt a renter’s credit score making it harder to find quality housing in the future. Accordingly, many tenants are working with their landlords to pay past due rent. Similarly, landlords are incentivized to work with tenants by accepting partial payments which they might not do under normal circumstances. The data indicates that although renters are behind on their payments, the situation is not as dire as predicted earlier this year.
Researchers at the Federal Reserve Bank of Philadelphia found that by year end nearly 1.34 million renter households will be behind on rent due to pandemic-related job losses. This is equal to about 4.2% of all renting households. This is the total number of renters behind on payments, not those facing evictions, which is much smaller percentage. Data also shows nearly half of tenants behind on rent have arranged a payment plan with their landlords to pay what is owed. (For strategies to avoid unpaid rent see Seven Ways to Prevent Unpaid Rent).
Evictions are Still Continuing
Another reason we may not see a major wave of evictions in 2021 is that evictions have continued during the pandemic. Princeton’s Eviction Lab tracks 27 cities as a sample for the country and their data, as of December 12, shows landlords filed for 162,563 evictions during the pandemic. The CDC moratorium restricts evictions for the nonpayment of rent, but it does not prohibit evicting tenants who violate other terms of the their lease. Tenants who break the rules are still being evicted. As landlords stabilize their properties with paying tenants who follow the terms of the lease it will reduce the level of future evictions.
In addition, some evictions are still occurring even though they fall within the guidelines of the CDC moratorium. This is happening for a few reasons. Some tenants and not aware of the CDC's protections and in some jurisdictions the local courts are supporting the landlords and approving evictions despite the CDC's measures. Even though this is out of step with the CDC's goals, it is allowing evictions to occur that might have been pent up in 2021 when the moratorium is lifted.
On this topic, I would also expect to see court cases in 2021 challenging the legality of the CDC moratorium as a violation of constitutional property rights. A definitive ruling by the Supreme Court would provide clarity on the limits of the CDC’s moratorium, but would not likely lead to a massive wave of evictions.
Government Financial Assistance Will Continue in 2021
The Biden administration is expected to continue offering government assistance to both tenants and landlords facing financial pressure due to COVID-19. Congress just passed a $900 billion stimulus bill that includes $600 in payments to individuals and $25 billion in emergency rental assistance. It would not be a surprise if the CDC moratorium is extended again as the government tries to reduce community transmission cases until it can distribute vaccinations across the country. The government is also not likely to take its foot off the stimulus pedal until economic conditions improve in 2021. The continuation of these stimulus measures should help many tenants catch up on overdue rent payments which will further reduce future evictions.
Many Households Were Better Prepared for This Recession
Two other reasons why evictions should not be expected to spike in 2021 is the government acted quickly in this recession and many households were better prepared to weather an economic downturn. The COVID-19 recession saw the government respond within months with a $2 trillion stimulus package which helped many households navigate the crisis. Households were also more likely to use stimulus checks and unemployment benefits to pay down consumer debt, providing them access to credit to make rent payments when needed. The Federal Reserve Bank of Philadelphia reported a 70% percent increase from last year in people paying rent on a credit card. Having this credit space available has allowed tenants stay to manage their rent payments.
This recession was also different than the 2008-09 global financial crisis (GFC) which saw a dramatic decline in both home values and stock portfolios. In 2020, despite a brief sell off, equities have had a great year and housing is climbing to record highs in many markets across the country. This has provided many households with assets that could be used to help cover expenses during the recession. In addition, according to The Economist, the savings rate rose from 3% in 2005 prior to the GFC to 8% in 2010-12. This savings trend continued for the rest of the decade leading up to the 2020 pandemic.
There are still many households who are suffering, and we have seen hundreds of thousands of small businesses fail this year, including nearly 110,000 restaurants. But, those who with assets, savings, or low consumer debt levels entered this recession in a far better situation. This includes many small scale landlords who had the savings required to continue paying their mortgages even when they were not receiving full rent from their tenants. This ability for landlords to retain properties and not lose them to foreclosure has had a follow on effect of reducing the number of tenants who are evicted due to banks repossessing properties.
We may see an increase in evictions in 2021 but it is not likely to be the massive wave that was predicted early on in the pandemic. For ways to protect yourself from recessions as a real estate investor see Unpaid Rent: Worrying Signs from the COVID-19 Recession and How to Protect Yourself.