Not having to pay rent for a while would relieve renters who are struggling to make ends meet, but the consequences on the economy could be disastrous.
The pandemic has plunged the United States into a deep recession. More than 40 million Americans have lost their job, and U.S. GDP contracted by 5% in the first quarter.
The economy isn’t experiencing a V-shaped recovery—except for one sector. The housing market has been incredibly resilient despite the crisis.
Initially, mortgage applications plunged due to lockdown measures. But mortgage rates kept declining, prompting Americans to buy houses. Mortgage applications have been increasing for six consecutive weeks. As we can see in the chart below, the recovery is V-shaped.
The pandemic has hit tenants particularly hard. They typically have lower incomes and less job stability than homeowners, so it’s harder for them to face a crisis.
More than 50% of renters have lost a job because of the outbreak, making it harder to pay their rent, which is the largest monthly expense for most Americans.
Much of the government’s housing relief has focused on homeowners, giving them options such as the ability to defer mortgage payments. But no similar assistance was given to renters.
According to the National Multifamily Housing Council (NMHC), 31% of renters did not pay their rent in the first week of April, an increase of about 11% from a typical month.
The most recent Household Pulse Survey shows that more than one-third of renters have no or only slight confidence in their ability to make next month’s rent.
Housing rights groups are calling for rent cancelation for those unable to pay during the pandemic.
During a recent appearance on the Snapchat show “Good Luck America,” Democratic presidential candidate Joe Biden said he supported the idea:
There should be rent forgiveness and there should be mortgage forgiveness now in the middle of this crisis. Not paid later — forgiveness. It’s critically important to people who are in the lower-income strata.
While it would help renters, rent forgiveness could cripple the housing market. Tens of millions of tenants not paying rent would have disastrous financial consequences on the housing market that would then cascade throughout the economy.
If landlords don’t receive rents, how can they pay for their mortgages, property taxes, and other bills? Property taxes represent a considerable source of income for state governments.
Bob Pinnegar, president and CEO of the National Apartment Association, doesn’t support rent cancellation:
Rent cancellation proposals do not adequately address the problem and fail to recognize that many property owners are in the same dire situation as their residents — substantial loss of income amid ongoing financial obligations.
Jay Martin, executive director of the Community Housing Improvement Program (CHIP), a New York City-organization that represents small landlords, thinks the best way to help the housing market is to keep money flowing to renters.
The federal government could inject money in the housing market by providing direct rental assistance so tenants can pay their rent, which would then go to landlords.
Rather than canceling rent, the National Apartment Association (NAA), says that measures should be more specific.
According to NAA president and CEO Robert Pinnegar,
Resident relief is critical because apartment owners and operators cannot be made to bear the burden of delinquent rental payments. Doing so will destroy the rental housing industry and place the 40 million residents who live in apartments at risk.
Allowing renters to skip rent payments could cause a big housing market crash. Canceling rent is not the best solution for the economy.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.