January 12, 2021

Despite New Aid, 3M+ U.S. Renters Facing COVID-19 Unemployment Bear Extreme Housing Cost Burdens

Despite New Aid, 3M+ U.S. Renters Facing COVID-19 Unemployment Bear Extreme Housing Cost Burdens

  • Zillow estimates more than 3 million renters who were employed last March remained unemployed as of November, largely due to widespread layoffs in high-contact industries like hospitality and restaurants.

  • Unemployed U.S. renters will typically spend 43% of unemployment insurance income on rent because of $300 weekly payments in the newly passed stimulus package, down from 81.2% with only state unemployment insurance.

  • While still well above the 30% threshold for being considered rent burdened, the extra payments may help some of the millions of renters behind on their rent reduce the debt owed to their landlords before temporary eviction moratoriums expire.

The recently finalized fiscal stimulus bill is a desperately needed lifeline for millions of renters unemployed because of COVID-19, helping to bring their typical rent burden — the share of earnings spent each month on rent — from almost all of their income to less than half. But even with the extra assistance, renters reliant on unemployment insurance income still face substantial rent burdens, and remain notably worse off now than they were in the late spring.

The additional $300/week in unemployment insurance (UI) payments included as part of the more than $900 billion package will bring the typical unemployed renter’s rent burden down to roughly 43% of all their UI income, down from 81.2% in November[1], according to a Zillow analysis of expected renter incomes. That extraordinary cost burden prior to passage of the bill — ⅘ of all UI income out the door on the first of the month — led to impossible financial choices for many, forced to choose between paying for shelter, food, clothing or healthcare. The extra $300/week will give these renters modestly more flexibility in their monthly budgets.

But while the improvement is notable and will certainly be welcome, a rent burden of 43% is still well above both the general rule of thumb that says a household should not spend more than a third of its income on housing costs, and the threshold of 30% at which a household is considered officially “rent burdened.” Peer-reviewed research from Zillow and collaborators at the University of Pennsylvania and Boston University found a statistical connection between sharp increases in homeless rates and rent burdens once the 30% threshold is breached.

A Rollercoaster Relief Ride

After passage of the most-recent bill, the typical rent burden is on par with levels achieved in early fall, but still well below where it was in early spring. In late March, the $2.2 trillion CARES Act was passed, one of the first in a series of federal measures taken to buttress the economy and help struggling workers in the early days of the pandemic. That initial relief bill provided for an additional $600/week in federal aid on top of existing state-level UI benefits, helping bring the rent burden for unemployed renters down to about 29.5% for a time — slightly below the 30% “rent burdened” threshold and in line with historic norms.

But that $600 weekly supplement expired at the end of July, and was replaced with a smaller $300/week benefit that lasted for an additional 6 weeks, bringing the typical rent burden up to 43.2%. And when that assistance expired, renters faced a dark period in October, November and December, when the typical burden almost doubled overnight, to approximately 81%. This rollercoaster ride is a clear demonstration of just how much of a difference even modest amounts of federal assistance can mean to struggling renters.

Of course, not all renters’ employment was impacted by COVID-19 — and for those fortunate enough to maintain stable employment in 2020, their rent burdens actually improved somewhat throughout the year as rent growth slowed or even fell in some areas. In November, the typical U.S. renter not reliant on UI income (and that earned a typical renter income and rented the typical rental home), should have expected to pay 29.6% of their income toward rent, a slight improvement from 29.8% in March.

Blind Spots

Even so, the evidence is clear that renters are shouldering much more of the burden of the pandemic than their homeowning peers, in large part because of dramatic job losses in high-contact industries that are often staffed by renters. In 2019, almost half (48%) of workers in the accommodation and food services industries identified as renters. According to the Bureau of Labor Statistics, there were 2.1 million fewer jobs in these industries in November 2020 (11.6 million) than there were in March 2020 (13.7 million). Assuming that job losses in accommodation and food service were independent of renter status, it is likely that approximately 1.01 million renters (48% of 2.1 million) that were employed in March were no longer employed in November. Applying this same approach to all NAICS sectors, we estimate that 3 million[2] renters that were employed in March were no longer employed in November — and the primary source of income for these millions of renters is federal and state unemployment insurance.

And because renters in general have been more disproportionately impacted, that means renters of color are also bearing a heavier load. In 2020, an estimated 55% of Black households and 59% of Latinx households were renters, compared to only 29% of white households according to Current Population Survey data. High rent burdens make it that much more difficult for Black and Latinx households to build wealth, perpetuating a vicious cycle of poverty in communities of color.

A federal evictions moratorium enacted as part of the initial CARES Act has thus far been maintained and extended into 2021, helping to keep a roof over the heads of struggling tenants. But when tenants struggle, their landlords do too, and unpaid rent often means a host of landlord obligations are also impacted or unpaid, including local taxes, insurance and property maintenance. An analysis from the Federal Reserve Bank of Philadelphia found that by December 2020, 1.34 million renter households would owe $7.2 billion in rent debt, approximately $5,400 per household. Another study by Moody’s Analytics estimated that 12 million renters will owe an average of $5,850 in back rent and utilities by January 2021.

Finally, the recent relief package does very little to close an affordability blind spot: low-income renters who maintained employment during the pandemic, making them ineligible for UI benefits. In 2014, the lowest 25% of renter households with positive net income — those who earned less than $17,600 — typically paid 56.8% of their income toward rent, according to an analysis of ACS data. In 2019, the most recent year for which data are available, the lowest 25% of renter households earned $22,000 or less and spent 53.1% of their income on rent, a marginal improvement but certainly not enough to meaningfully reduce their cost burden. Extended UI benefits in the new stimulus package will not reach these low-income workers, but their rent affordability plight is very real.

Local Differences

At a local level, we expect the most-recent $300/week supplement will make the biggest difference in the Miami metro area. When the previous $300 UI supplement ran out as September turned to October, the rent burden for Miami renters reliant on UI rose from 65.5% of UI benefits in September to 137.6% in October. In other words, for almost three months in October, November and December, unemployed Miami renters’ housing costs alone — to say nothing of day-to-day living expenses including food and transportation — exceeded their total income by 37.6%.

Because rents in Miami have been relatively flat over the past six months, restoring the $300/week UI supplement effectively reverses this drop-off and brings the expected January rent burden closer to September’s level of 65.5%. We expect similar improvements in affordability for unemployed renters in Phoenix (from 124.8% prior to the aid package, to 54.7%), Orlando (125.0% to 59.4%) and San Diego (129.2% to 69.4%).This is undoubtedly good news for unemployed renters in these areas, but even with more relief they will still be severely cost burdened by any definition.

The additional $300/week supplement will make the smallest dent in affordability for unemployed renters in Oklahoma City, where we expect a 15.8 percentage-point improvement in affordability — from 42.1% in November to 26.3% in January. The additional supplements will make similarly small dents in Cincinnati (47.6% to 28.6%) and Pittsburgh (47.7% to 28.2%).

It might be counterintuitive that the biggest changes in affordability would come in more expensive markets, because the fixed UI benefit represents less of the overall rental cost the higher typical rents are. So, for example, an extra $300/week totals $1200/month in both Miami and Oklahoma City — but typical monthly rent in Miami in November was $1,935/month, compared to $1,103/month in Oklahoma City. But that also assumes that the baseline UI benefit from each state is equal, which it is not. Maximum weekly UI benefits (without supplements) are more generous in Oklahoma ($539), Ohio ($480), and Pennsylvania ($572) than they are in Florida ($275), Arizona ($240), and California ($450).

Removing the $600 and $300 supplements represents a smaller percentage change in the overall UI benefit in these states, and thus the change to rent affordability is smaller in Oklahoma City, Cincinnati, and Pittsburgh. For example, adding the $300 federal benefit in Arizona takes the maximum weekly UI amount from $240 to $540, an increase in benefits of 125.0%. On the other hand, the maximum weekly UI benefit in Pennsylvania will increase from $572 to $872 when the federal supplement is added back in, an increase of 52.4%. The federal supplement makes a bigger percentage difference for the typical unemployed renter in Arizona than it does in Pennsylvania.

Looking Ahead to 2021

The stimulus package — which also provides many with direct, one-time cash payments of $600 — provides short-term relief to renters, but another cliff looms on March 14, 2021, when the $300 weekly supplement expires. It is unlikely that the labor market — especially for renters previously occupied in still-tenuous fields, like hospitality and food service — will fully bounce back to pre-pandemic levels by March, and many Americans will still face a severe affordability crunch. Rent affordability, solutions to renter debt, and eviction moratoriums will need to be high-priority housing policy items for the incoming Biden Administration.

[1]These calculations assume only one person in a household is receiving UI benefits, and represents a theoretical ceiling on rent burdens for single-earner households. Rent burdens will be lower if additional people in the home are also receiving UI benefits.
[2]The BLS employment estimates from the Current Employment Statistics program represent a sample of approximately 149,000 businesses throughout the U.S., and it is likely that the number of unemployed renters exceeds this 3 million estimate.

The post Despite New Aid, 3M+ U.S. Renters Facing COVID-19 Unemployment Bear Extreme Housing Cost Burdens appeared first on Zillow Research.

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