Housing crisis hurts landlords, too;  Experts say consumers will bear cost

Posted 9/16/20

In the wake of the ongoing COVID-19 public health crisis, advocates have welcomed efforts to protect those vulnerable to homelessness — but some experts are calling for more sustainable solutions.

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Housing crisis hurts landlords, too;  Experts say consumers will bear cost

Posted

In the wake of the ongoing COVID-19 public health crisis, advocates have welcomed efforts to protect those vulnerable to homelessness — but some experts are calling for more sustainable solutions.

Even though job numbers have improved since May — when the unemployment rate in the U.S. rose above 14% — figures released earlier this month reveal the ongoing challenge of income insecurity faced by those who lost work following the outbreak.

[READ MORE:  Arizona expert warns of ‘catastrophe’ as 17 million households face eviction]

According to a Sept. 4 report from the Bureau of Labor Statistics, unemployment now stands at 8.4%, more than double the rate one year ago, with an estimated 13.6 million Americans still jobless as of August.

An estimated 17 million Americans — about 43% of rental households — are on the verge of eviction, according to a recent report.

While temporary eviction protections issued by the Centers for Disease Control and Prevention Sept. 2 provide a reprieve for some, housing advocates have called on Congress to protect the landlords as well.

In a press release issued last week, Faith Schwartz, president of the Washington-based Housing Finance Strategies, and Lee Raagas, CEO of Skid Row Housing Trust in Los Angeles, said CDC’s actions won’t solve the problem.

“While we applaud the Centers for Disease Control action last month to halt evictions through year-end, we see this step as a half-measure. Yes, it postpones near-term evictions, but it provides no funding mechanism to support multifamily property owners or owners of rental properties — only the Congress can authorize such payment. This demographic and ‘housing’ group represents a significant amount of our citizens and more importantly, represents those that are struggling due to COVID-19 financial, economic and health impacts,” the statement claims.

Ms. Schwartz and Mr. Raagas called on congressional leaders to take further action.

“As housing professionals — one from the public policy side, and one from the development side — we implore the Congress to prioritize what we see a looming eviction risk driven by COVID-19 job loss,” they stated.

Mark Stapp, a 30-year industry expert and Arizona State University professor at the W. P. Carey School of Business who runs the school’s Master’s of Real Estate Development program, agrees that more must be done.

Though federal stimulus and renter protections have worked to calm the storm, eviction moratoriums won’t solve the long-term problem and could make matters worse, he said.

“Eviction and foreclosure prohibitions are not good,” Mr. Stapp said. “They’re not good for the marketplace. They’re good immediately for the people who are in trouble, but they’re not good for the marketplace. They cause other problems. And they cause other costs to rise because somehow, some way you’ve got to make this up.”

He likened eviction moratoriums to rent control measures, suggesting costs incurred by property owners will inevitably be passed on to the greater economy.

“Just like rent control, these become a de facto tax and what you’re doing is taxing the investors, your taxing the owners,” Mr. Stapp said. “You’re taxing them in such a way that the only way they can compensate for that additional tax is to raise rents on everybody else. You create this vicious cycle, which isn’t necessarily healthy, especially if you don’t have wages rising across the marketplace. It really begins to hurt those on the lower levels.”

Part of the problem for Phoenix-area vulnerable households has been a housing market that presented challenges long before the novel coronavirus outbreak. Nation-leading population growth has driven demand higher across the Valley, with rent increases following suit. Stagnant wages have made it harder for some full-time workers to afford a place of their own.

Of Maricopa County’s estimated 4.4 million residents, half were earning a gross income below $30,186 annually in 2018, according to a U.S. Census Bureau data released last year. That’s about $2,500 monthly before taxes, or roughly equivalent to full-time employment at $14.50 an hour.

With a median mortgage payment of nearly $1,500 and apartments going for a median gross monthly of $1,033, affordable housing remained beyond reach for many.

The bureau’s American Community Survey described what officials referred to as “burdened” households, which are those spending 35% or more of their monthly budget on housing costs. Phoenix metro renters were among the nation’s most burdened, according to the survey.

Despite the trend, the bulk of new multifamily developments have been targeted at the high-end market, according to Roland Murphy, an independent commercial real estate market analyst and consultant based in Phoenix.

The pains being felt now by low-wage workers and the jobless may spread to investors and owners should the economy worsen, he suggested.

“While none of us could have imagined the staggering impacts of COVID-19 as a ‘black swan’ event, it was a certainty that holding $1,650 minimum rents in high-dynamic districts wasn’t sustainable,” Mr. Murphy said. “Now investors and property managers are looking at massive downturns with no sustained or sustainable sections of market to prop up their positions.”

With more than 80% of new multifamily developments in recent years built for the Class A market, those seeking affordable housing may be out of luck. But the same goes for investors, who may have difficulty finding enough renters able to afford their properties.

“They were warned. They were warned. They were warned again. There is no satisfaction in being able to say, ‘I told you so,’” Mr. Murphy said. “Those of us who followed and actually cared about the multifamily market in the last several years repeatedly warned investors and developers to diversify their property portfolios to not rely so heavily upon Class A. I, for one, advised against no more than 60% holdings in that space.”

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