What can an equitable pandemic rental assistance program look like in New York State?
Oksana Mironova
As we head into week eleven of the pandemic, data from Signature Bank and New York Community Bank, both preferred lenders for rent stabilized building landlords, shows that rent collection was 50 percent and 20 percent respectively in April. A survey by a trade group representing a subset of the city’s rent stabilized landlords that control about 100,000 units found that rent payments were down by 25 percent in May.
With more than a third of New York households experiencing job loss, many tenants are struggling to pay rent. But, arrears only tell a sliver of the story. Even before the pandemic, about half of all low-income renters had difficulty affording basic expenses like rent or food.1 With worsening economic conditions, people are making increasingly difficult sacrifices to pay rent, including cutting back on food and medical care. Some are resorting to using expensive and risky types of debt, including payday loans and credit cards, to keep a roof over their heads.
In addition to tenants falling deeper into housing insecurity, there are nearly 79,000 homeless people in the city. Thus far, the governor has been resistant to calls for action, beyond a partial extension of the eviction moratorium to August 20th. At this pace, we are heading toward a painful summer and early fall where tens of thousands of households will face evictions and, in time, will join our city’s overburdened shelter system, which, has essentially collapsed under the burden of the pandemic. New York City’s Housing Court has already begun to hear cases virtually, to “lighten caseloads ahead of an anticipated surge of cases.”
There are actions that the city and state should have already taken to address the humanitarian crisis unfolding on our streets and to head off the wave of evictions that will flood New York’s housing courts. New York State received $385 million in housing block grants in the first wave of CARES Act funding distribution, and is slated to receive an additional $70M in the second wave.2 These are flexible funds that can be used now, and cities like Newark, Philadelphia, and Los Angeles have already begun putting them toward short-term rental assistance programs. As early as late March, the Federal Emergency Management Agency (FEMA) committed to covering the cost of hotel rooms as a short-term strategy for safely housing homeless New Yorkers, but this strategy has been met with hostility from the mayor.
While the state and the city need to take action now, the pandemic’s vast impact requires additional federal investment. The main pathways for federal support are outlined in two recently introduced bills: Representatives Maxine Waters’ and Denny Heck’s Emergency Rental Assistance and Rental Market Stabilization Act and Representative Ilhan Omar’s Emergency Rent and Mortgage Cancellation Act. The first would create a $100 billion block grant program that would provide up to 24 months of emergency rental assistance to tenants impacted by the pandemic. The second would cancel all rents and mortgage payments for the duration of the current national emergency, and create a bailout fund for landlords and lenders who experience losses and agree to increased tenant protections and fair housing provisions for five years. Representative Omar’s bill has the support of progressive groups like People’s Action and the country’s growing rent strike movement. Representative Waters’ bill has momentum within the Democratic Party and was included in the latest stimulus package proposed by the House Democrats. If the federal emergency rental assistance proposal is successful, New York State would receive $5 billion in the first round of funding and $3.5 billion in the second round.3
Why is the real estate industry interested in rental assistance?
Landlord industry groups are increasingly joining housing advocates to lobby for federal rental assistance, to stave off an impending crisis in the multifamily rental market with a major infusion of public funds. And, while a sharp decline in rental income as a result of the pandemic is the most visible facet of the real estate industry’s troubles, practices by landlords and lenders in the wake of the 2008 mortgage crisis have paved the way for the multifamily rental market’s currently precarious condition.
A frenzy of building purchases in lower-income neighborhoods followed the mortgage crisis. In an analysis of recent housing finance trends in the Bronx, University Neighborhood Housing Program (UNHP) found that “landlords who took part in this speculative wave have generally maximized their debt service,” refinancing their buildings as their value grew and pulling out the equity. Since a building’s value is tied to its potential for future rental income, these larger and larger mortgages–especially in rent stabilized buildings–could have been tied to natural tenant turnover trends, or to tenant harassment and systematic exploitation of rent law loopholes (which have since been outlawed under the June 2019 rent laws). Landlords generally did not put the equity back into the building itself in the form of capital improvements or repairs, but rather used it to purchase additional buildings or to keep as profit. As a result of these speculative practices, many older, modest buildings in neighborhoods like University Heights in the Bronx, Washington Heights in Manhattan, and Flatbush in Brooklyn currently operate on thin margins, and are extremely vulnerable to financial distress. These buildings are home to low-income, black and Latinx New Yorkers bearing the disproportionate health and economic impacts of the pandemic.
An additional underlying problem for the multifamily rental market are loose lending practices within the commercial real estate sector, up to and including “systematic fraud that allowed [banks and other lenders] to award borrowers bigger loans than were supported by their true financials.” Bigger mortgages are just as profitable to financial institutions as they are to landlords. With a sudden decline in rent payments on properties overloaded with debt, some observers have looked to increasing commercial mortgage-backed securities delinquencies,4 and sounded the alarm about the potential for another real estate crash.
Perhaps what is most troubling about another crisis is that private equity firms are ready to use the “once-in-a-lifetime opportunity created by the pandemic” to deploy $328 billion in “dry powder” to buy up distressed real estate. To avoid another speculative wave of investment into New York’s rental market, any kind of action to stabilize the multifamily housing market, including rental assistance, must include checks and balances to minimize speculation.
An equitable pandemic rental assistance program for New York State
The proposed $100 billion federal rental assistance program represents both a commitment to tenants’ needs, and an infusion of public funds to stabilize the multifamily rental market. The buildings where low-income New Yorkers impacted by the pandemic live are often the same buildings that have cycled through multiple bouts of disinvestment and speculative investment. The primary goal of any housing program in the time of the pandemic is to stabilize tenants’ lives. However, an emergency assistance program should also look toward the near future and leverage public funding to ensure that the buildings and neighborhoods where low-income New Yorkers live remain stable and protected from predatory lending and real estate practices.
The federal rental assistance bill creates a block grant program with a lot of latitude for local decision-making. This means that the extent of benefit to tenants and landlords will be hammered out by state policies and legislative decisions. This offers an opportunity for New York State to create an emergency rental assistance program that is not just reactive, but that also protects tenants’ interests and curbs predatory real estate practices. The New York State legislature is getting ready to vote on the Emergency Rent Relief Act of 2020 this week. The program that this bill creates should:
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Ensure that support is available to both tenants in place who have lost income and to homeless New Yorkers who have been disproportionately impacted by the pandemic.
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Limit speculative practices and the potential for rent inflation5 in buildings where tenants are receiving assistance by implementing eviction moratoria, just cause eviction protections, or an extension of rent regulation.
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Incorporate strong enforcement of laws that protect tenants from discrimination based on their COVID-status, race, ethnicity, gender, source of income, sexual orientation, gender identity, criminal, credit, and housing court histories, and immigration status.
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Tie rent assistance payments to tight enforcement of housing codes, rent laws, and anti-harassment statutes.
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Ensure that undocumented immigrants are eligible for rental assistance through state and local funding supplements.
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Minimize the burden of proof necessary to receive rental assistance by designing an easy to use and rapid application system, in partnership with grassroots tenant groups.
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Conduct public outreach to inform the public about the availability of COVID-related rental assistance.
What happens when short-term rental assistance runs out?
Time-limited rental assistance programs have a troubled history in New York State. In 2007, the Bloomberg administration launched Advantage, a rental assistance program for households exiting the shelter system that cut off subsidy at the end of a two-year period, with the assumption that families would have saved enough money to pay rent on their own. Instead, with stagnating wages and growing rents, homelessness skyrocketed under Bloomberg. The city abruptly ended Advantage in 2011, as a result of State budget cuts, without a sufficient programmatic replacement. This is one of the core reasons why homelessness is so stubbornly high in New York.
If the state implements a pandemic rental assistance program, a two-year assistance period (as outlined in the federal rental assistance bill) may be sufficient for some laid-off and furloughed workers. With projections of a major recession and a lengthy recovery, a sudden end to rental assistance in the near future would likely have similarly disastrous consequences for tenants who have not recovered for the effects of the pandemic and for the housing stock in low-income neighborhoods, which might then see another speculative wave of investment.
Universal and permanent rental assistance was gaining currency within the Democratic party before the pandemic began. Both the Biden and Sanders campaigns proposed an expansion of Section 8 vouchers to all income-eligible households (about one in four eligible households received a voucher before the pandemic). The Sanders plan would have provided rent assistance worth $680 a month to an additional 488,000 families in New York City, for a total of $4 billion a year. The Biden plan would do the same, plus add smaller benefits through a tax credit for 172,000 somewhat higher-income families, totaling $4.6 billion.6 Locally, homeless advocates and State officials have been contemplating an expansion of permanent rental assistance through Senator Kavanagh’s proposed Housing Access Voucher Program.
When considering an expansion of vouchers on this scale, especially in light of continuing investment into the multifamily housing market by private equity firms, it is even more important to ensure that vouchers are targeted to support the operations of permanently affordable social housing and paired with a major expansion of rent regulation, to curb rent inflation and speculation.
1. The Unheard Third is a scientific telephone survey designed by Community Service Society in collaboration with Lake Research Partners who administer it using Random Digit Dialing and professional interviewers. In 2019, 1,829 New York City residents were reached by cell phones and landlines from June 18 to July 20. Interviews were conducted in English, Spanish and Chinese. The margin of error for the entire survey is +/- 2.29 percentage points and +/- 2.97 percentage points for the low-income component.
2. As NYHC notes, New York’s share of HUD relief funds in the second wave falls short of the need created by the pandemic.
3. Assuming the same funding formulas used under the CARES Act, which underestimate the pandemic’s impact in NYS.
4. A financial instrument that acts like a bond and is secured by multiple commercial mortgages (including mortgages financing apartment buildings).
5. See Matthew Desmond and Kristin L. Perkins. (2016). “Are Landlords Overcharging Housing Voucher Holders?”
6. See “How will the candidates’ housing plans affect New York City?”
