My eldest daughter and her husband consolidated households after marriage. Each owns his/her own company and provides high-end professional services, mostly from home. They live in his four-bedroom colonial, and used her high-rise condo in downtown Nashville for meetings. They no longer have a use for the condo and talked to me about the implications of selling versus buying. This one’s a no-brainer.
According to the Department of Housing and Urban Development, the U.S. has about 50 million residential rental units. Slightly less than half are owned by individuals, defined as a single person, a couple, or the estate of a deceased person. Individuals typically own single-family homes and duplexes. Slightly more than half of all residential rental units are owned by businesses. Most of these are multi-family housing buildings, also known as apartments or flats.
Owners, whether individuals or businesses, make mortgage payments, pay property taxes, maintain the units and pay for insurance. There has been a change in whether renters or non-renting occupants (think squatters) must pay the landlords rent, because the enforcement mechanism – eviction – has been paused by order of the CDC. In some states, landlords have collected no rent since March 2020. Government has been very kind to renters, but there is no free lunch. Government’s kindness is paid for by landlords.
Methodology to answer the question “How much back rent is owed nationwide?” My numbers are precisely wrong, but approximately right. Oregon has $378M in overdue rent since eviction moratorium began on March 22, 2020. That is the net amount after at least $200M in state and local rental assistance has been subtracted. The University of Portland determined that evicting everyone who had failed to pay rent would entail about $3.3 billion in extra homeless assistance.
Oregon’s population is 4.2M, USA is 331M. Simply divide USA by Oregon and multiply by $378M and we have about $29B in overdue rent. That cannot be paid off all at once, and much of it will never be paid off. The moratorium on evictions is still in effect, and $29B should swell to at least $35B by July. Even paying it off all at once at that point does no good, as two-thirds of renters have been making rent payments, so the one-third that is not is likely among those without jobs. Our jobs future looks bright in colorful PowerPoint slides based on zero empirical data. Reality is that as we hurdle headlong into the Green New Deal, jobs will not make a quick comeback and further printing of fiat currency will be needed.
Back to housing. During the S&L crisis of the late 1980s, the tipping point was Congress passing a tax law change intended to extract an extra $5B a year from commercial landlords. The primary consequence was that the way depreciation and deductions were treated meant that commercial building owners would have to endure 25-30 years of losing money each year before they could make a profit. The owners were not stupid, and they walked away from their loans.
This caused a glut on the market for existing office space. When other owners tried to refinance their loans, the reduced value of their buildings made that impossible. Commercial real estate rapidly circled the drain, and massive loan defaults ensued. Most of the loans had been made by S&Ls. Hence, the S&L crisis, costing the federal government more than $100B.
The same dynamics will play out with rental properties, and government intervention cannot fix it. One-third of rental units have not been making rental payments, about 16.5M. Reduce that to 8M just because. Half are multi-family residential buildings, i.e., apartments. Four million units added to the market, prices drop. Assume half can miraculously find money to pay rent, only two million units go on the market. Assume family size of two. Landlords cannot afford to make repairs, maintain the units, buildings and grounds; nationwide there are about four million new homeless. Half are single-family homes and duplexes. Four million homes flood the market, property values (and property taxes) plummet. Mom-and-Pop landlords are wiped out.
Homelessness jumps by another four million who previously lived in single-family homes or duplexes. What in January 2019 was a total of about 600,000 homeless becomes almost nine million. Home values are decimated, apartment buildings become hovels for squatters, and affordable housing ceases to exist. We enter a second Great Depression, and the U.S. cannot fix it by printing more money.
We will have to deal with this issue eventually. The simplest solution is the most dangerous: government confiscates real property and decides which voting blocs get preferential treatment for rates and occupancy permits, which voting blocs get priority for maintenance and repair. Then, houseapocalypse has become reality. We can then no longer pretend that eventually everything will return to “normal.” That will be the new “normal.”
After my husband died I moved and rented our house one year and it was definitely not worth it...it seemed a fine house but the upgrades required to rent it (things we lived with for years were not acceptable for renting)...the upkeep (never had a plumber call in 25 years and then 8 in one year of renting) and renter demands exceeded rental income and I could see it was not worth it, plus the worry. Also, the many things my husband did that kept it going I had to hire someone as renters don't pick up storm branches, etc. Sold it last February and realized the renters would not have paid during pandemic. I really can't see how anyone rents unless a big company with many units.
I've thought about this a lot and assume as you point out that the normal upkeep can't go on if people aren't paying rent so the houses degrade.Surely you can't call a landlord when you aren't paying rent. Came here from Taibbi. Interesting substack. I haven't seen anyone address these issues. Most of what I read is the plight of people who can't pay and no empathy for the "landlord" who, if like me, are not even breaking even.