NYC Rental Market Pushed to Breaking Point by Tenant Debts
(Bloomberg Businessweek) -- Covid-19 is pushing New York City’s affordable housing crisis to a breaking point.
Look at 25-year-old Jessica Lee and her husband, who needed four roommates to afford their $4,000-a-month four-bedroom apartment in Brooklyn’s hip Bedford-Stuyvesant neighborhood, a relative bargain in the Big Apple. Now her husband and everyone else in the house have all lost their restaurant jobs and she’s the only one still working—at a company making hand sanitizer. The landlord is threatening legal action to collect the $20,000 in back rent. “Nobody is hiring in the food industry,” she says. “I’m on the hook, because I am the only employed person on the lease.”
Two-thirds of New Yorkers rent their homes, making it America’s biggest rental market, and it’s always had its own crazy kind of housing math. But with unemployment soaring and the typical rent about twice the national average, the numbers no longer add up. A quarter of the city’s apartment renters haven’t paid since March, according to the Community Housing Improvement Program (CHIP), a group that represents mostly landlords of rent-stabilized buildings.
Some landlords, with their own bills to pay, are running out of savings, so the city is bracing for hundreds of millions of dollars in delinquent property tax payments. A new state law prohibits evictions of tenants who face financial hardships while any social-distancing rules are in effect. That could be a while—maybe until there’s a vaccine. For now, tenants who want to stay put but can no longer afford their rent are trying to negotiate payment plans, or, like Lee, simply waiting out the crisis, hoping for a miracle.
It would take something on the order of divine intervention to keep the situation from worsening. The temporary $600 weekly boost to unemployment benefits is set to expire at the end of July, unless Congress intervenes to extend it. That means many tenants who’ve managed to stay current on their rent payments will no longer be able to. “It’s going to be a mess,” says Jonas Shaende, chief economist at the Fiscal Policy Institute, an independent think tank in New York City. “There doesn’t seem to be any plan and the looming problem is so large.”
The federal government rushed in to protect the mortgage market after lockdowns and other measures to contain to spread of the virus pushed unemployment to Great Depression-era levels starting in March. But despite some proposals from Democrats in Congress, there’s still no rescue plan for renters.
In New York and other densely packed cities, people who can work remotely—predominantly office workers—are moving to the suburbs if they can afford it. But many renters can’t. They include the poorest and most vulnerable people, particularly minorities and immigrants, documented and undocumented. Among them are also millennials with multiple roommates.
These are the people who keep places like New York running every day, sometimes at great risk to themselves. They also have the highest unemployment rates. A majority of renter households are stretched, paying at least a third of their income on rent. More than 700,000 of them lost income as a result of the pandemic, according to New York University’s Furman Center.
With no federal relief in sight, New York state enacted the Tenant Safe Harbor Act last month to stop evictions. It supersedes a previous eviction ban that would have lifted on Aug. 20. In the meantime, landlords can seek money judgments against tenants for missed rent. So while the economic victims of Covid-19 can’t be forced out of their homes, their indebtedness will grow month by month, potentially damaging their credit rating and their ability to find another landlord willing to take a chance on them.
It’s a short-term fix that will have long-term consequences for the poor, says Neil Steinkamp, a managing director at financial advisory firm Stout Risius Ross, LLC, who has worked with New York City and other governments on eviction and housing research. “Maybe you reduce the number of people arriving at homeless shelters, but you’re likely exacerbating generational poverty as a consequence,” he says.
For landlords, the problem isn’t just nonpaying tenants. It’s harder to find replacements for the ones that are leaving, says Dondre Roberts, an agent with brokerage Nestseekers International. A landlord he represents near New York University in Manhattan now has a 17% vacancy rate because college students are waiting out the pandemic at their parents’ homes instead of returning to school and their apartments, he says.
“Typically a studio would go for $2,600, but now it’s $2,300,” Roberts says. “A lot of landlords are offering one month free rent, and they’re paying the broker fee. It’s a tenant’s market.” Of course, tenants with jobs are getting harder to find.
Unless rent revenue rebounds, Sharon Redhead, a second-generation property owner in Brooklyn’s East Flatbush neighborhood, may be forced to sell. The only buyers with enough money to wait for New York’s economy to recover are private equity firms, she says. About 40% of the tenants in her family’s 50-plus units didn’t pay in June. “We’re rent-check-to-rent-check like our tenants,” says Redhead. “We have small cushions.”
Meanwhile, Lee says her landlord isn’t letting up. But she’s prioritizing food and medicine, because her husband, who lost his job as a restaurant manager, has been stuck for months in bureaucratic hell, unable to collect unemployment. The roommates are staying put, except for the 21-year-old go-go dancer who moved back in with her mother in West Virginia. “The landlord—and the system—demand the impossible of me,” Lee says. “And there’s no end in sight.”
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