From a small northwestern observatory…

It is axiomatic that landlords do NOT want vacant space, and coupled with eviction moratoriums there is a growing backlog of unpaid rent, particularly by small businesses and residential tenants. Anecdotally, the problem is widespread and growing, but just how big is it? Experts differ, but generally agree it is huge and portends a huge humanitarian problem in 2021.

One of the most quoted experts on the topic is Mark Zandi, chief economist at Moody’s. He estimates that 11.4 million renters owe an average of $6,000 in back rent. Add to that late fees on utilities and such, and we’re probably looking at a $70 Billion problem, more or less. Most of this has accrued since the CARES Act expired last summer.

Even back in September, the overdue rent bill had already reached an estimated $34 Billion, according to a study commissioned by the National Council of State Housing Agencies. Note that this problem is not just limited to renters — Since August, the FHA mortgage delinquencies have been setting new records, at 15.6% on September 30th, the highest rate since 1979. Note that the peak during the Great Recession was between 14% and 15%. The Mortgage Bankers Association is tracking forbearances among lenders, and estimated that 5.5% of mortgages, or 2.7 million, were in some sort of forbearance in November. The delinquency rate in September was 7.6%, and while this is down from 8% in April, it is dangerously close to the 10% peak seen in 2009/10. The Credit Union Trends report released in late November forecasted delinquencies to “broadly rise in the fourth quarter and charge-offs to rise in the first quarter” of 2021.

The economy is definitely bifurcated right now. The upper tier has seen the value of their stock portfolios grow by well over $1 Trillion this year, but as Zandi notes, the renter population is at the bottom tier of the economy. They’ve already borrowed as much as they can. Over the weekend, the President signed the COVID relief package, but while the eviction moratorium continues, back rents continue to accrue. One recent study suggested that at present, as many as 14 million rental households are in arrears, and this number will clearly get worse over the winter. Another, issued by the National Low Income Housing Coalition, put this number at 6.7 million. The Census Bureau’s latest Housing Pulse Survey (from November) indicated that 11.6 million people would not be able to pay their rent or mortgage payment in December. Whatever the final number, at some point, the piper will need to be paid.

Notably, the bill signed yesterday includes $25 Billion in emergency rental assistance. Exactly how this will be distributed, and how much of the rental backlog this will actually assuage, will be seen in the coming days. Notably, when the CARES Act included such assistance, it took some state housing finance agencies months to actually enable rental aid programs.

Again, anecdotally, landlords have shown very real forbearance in this area. I would note that the rental market, ranging from single family housing to large apartments, are generally ultimately owned by individual investors. At the lower end of the spectrum (rental houses, for example), individual investors usually directly own and manage these properties. At the upper end, REITs or Trusts may own the properties, but the rental income flows to investors or their retirement accounts. Further, rental income employs property managers, maintenance people, and a host of other service providers. In short, this is a problem that reverberates across many sectors of the economy.