Small landlords facing big challenges during the pandemic - Affordable Housing Online

Small landlords facing big challenges during the pandemic

By on December 4th, 2020

Tagged As: Editorials

Small landlords have been hit especially hard by the economic crisis caused by the pandemic. Photo by Andrew Neal on pexels.com

The coronavirus pandemic has certainly hurt low-income renters, who struggle even in the best of times. Lost wages and jobs, the fear of eviction, and the ongoing threat of COVID-19 exposure have made life even harder for renters. But with many tenants not able to pay the rent, landlords are suffering too, and small landlords are facing the greatest challenges.

Small landlords have been hit especially hard by the economic crisis caused by the pandemic. Federal action on emergency rental assistance would not only benefit low-income renters, but also help millions of Mom and Pop landlords hold onto their properties.

When talking about small landlords, we are generally talking about individual owners with one-to-four properties, or typically fewer than 20 units. Many individual owners depend on their properties for most of their income, and many are retirees. Individuals owned about 48% of the nation’s 47.5 million rental units in 2015.

Large corporate property owners have not been hurt as much by the economic crisis. This is because they own thousands of units and have access to huge amounts of capital. If two tenants fail to pay rent to a small landlord, that may be half the landlord’s income. Landlords with thousands of units and investors behind them can lose rent from hundreds of units without batting an eye.

The challenges faced by small landlords during the pandemic should be a real concern for low-income renters. Not only do small landlords own almost half the nation’s rental units, but these apartments typically cost less according to Harvard’s Joint Center on Housing Studies (JCHS). This means that they make up a large part of the affordable housing stock where low-income renters live.

When tenants cannot pay the rent on time, it certainly hurts small owners. Landlords have many expenses that must be covered by rents. The biggest costs are the mortgage, property taxes and insurance. Landlords need to make these payments every month, and they make up more than half of property expenses.

Landlords also have other expenses that affect the quality of life for their renters. Rent payments support maintenance, property management and utilities. When landlords lose rent, one of the first things they do to save money is put off regular maintenance. Rents also pay for the property manager. During the pandemic, landlords also have increased expenses for cleaning and disinfecting common areas, and buying Personal Protective Equipment (PPE).

When tenants cannot pay the rent on time, it certainly hurts small owners. Photo by goodfreephotos.com

Rents also pay for heat, electricity, water, sewer and garbage collection. If landlords cannot provide these services, it directly affects the living conditions for tenants. It also means their properties will not meet building health and safety codes in most places. Owners also must make regular payments to capital reserves, which are used for large repairs like new roofs or boilers.

Small landlords are not keen on eviction. It costs them legal fees for cleaning, painting and advertising. It also costs them lost rent for every month a unit is vacant. And it will be hard to find new tenants in places with coronavirus stay-at-home orders. Most landlords, then, would rather negotiate partial rent or repayment plans.

Landlords complain that they are being asked to bear the burden of the economic crisis, and that is not far from the truth. Individuals received help from enhanced unemployment benefits and $1,200 stimulus checks. Corporations and small businesses received low-interest and forgivable loans to keep people working. But landlords have only received limited help to make up for all their lost rent.

Some landlords have benefitted from mortgage forbearance by their lenders. Some state and local governments have provided some assistance to landlords so that they can stay current on their mortgages. But landlords have a lot more expenses than the mortgage, and small landlords around the country are finding themselves in a deeper financial hole.

So what happens when landlords cannot pay their bills? Deferred maintenance means that apartment buildings will start to wear, and safety issues may arise. If they do not contribute to their capital reserves, they will not have the money to replace a broken boiler or roof. If property taxes cannot be paid, the local government can put a lien on the property or even seize it. If landlords cannot pay the mortgage, they can lose the properties in foreclosure.

In many cases, small landlords who find themselves in financial trouble will choose to sell their properties. Often, large corporate real estate companies will buy up these properties and rents will go up. Even if small landlords buy the properties, they will need to make repairs and improvements, and rent will go up.

Corporate owners are also more likely to pursue evictions when tenants cannot pay the rent. Corporate eviction filings have continued even under eviction moratoriums around the country. According to Harvard’s JCHS, there were only 10 million affordable units on the private rental market in 2018, but 18 million very low-income households that needed them. Corporate consolidation of affordable housing will only make housing instability worse for low-income renters.

A lot of attention has been paid to the plight of the millions of low-income renters at risk for eviction. When the CDC national eviction moratorium expires, millions could lose their homes at the start of the new year. If Congress passes emergency rental assistance, much of this pain can be avoided.

Landlords, though, have been shouldering the burden of keeping people sheltered and safe during this crisis. Without federal action, millions of apartments now owned by Mom and Pop landlords will likely end up in corporate real estate portfolios. They will be a lot less affordable. This will have a huge impact on the affordable housing landscape.

The same solution that helps low-income renters will help keep small landlords afloat through this pandemic. If Congress approves emergency rental assistance, much pain can be avoided.

Published by

Chris Holden

Chris Holden, Affordable Housing Online's Senior Housing Analyst, has been in the affordable housing field for 25 years. Originally from Keene, New Hampshire, he has worked as a researcher, policy analyst, lender, trainer and real estate developer. He also taught political science at Keene State College. He is focused on making housing policies more accessible for low-income renters.