Eviction bans have hurt the lower-income people they were supposed to help, landlords tell NR.
Debi Stobie intends to sell one of her two suburban Denver rental homes when the family who lives in it moves out at the end of the month.
When the tenant of her other rental house eventually leaves, she plans to sell that one, too.
Stobie and her husband also are considering selling the 24-unit apartment complex they own in the Denver area. Stobie’s husband bought the complex 23 years ago. It’s their main source of income. “If the right opportunity came along, we wouldn’t hesitate much,” she said.
In Stobie’s view, over the last couple of years there have been so many new layers upon layers of uncertainty for landlords – pandemic-related lockdowns that forced her tenants out of work, a federal eviction moratorium and other government edicts that allowed renters to stop paying for over a year – that the rental business has become “a crapshoot in a way that it’s never been before,” she said. She and her husband are ready to get out.
“What happened is, it’s the perfect storm for selling right now. It’s a hot market in Denver, so we can sell it. And the Colorado laws are skewed against us, and then the federal action is … skewed against us,” Stobie said. “It’s a mess.”
Stobie and her husband aren’t alone. Even though the Supreme Court ended the federal eviction moratorium in late August, rental owners in several blue states still are struggling under a bevy of state moratoria (which often have more teeth), and new tenant-friendly laws and regulations. Local landlords increasingly are cashing in while the housing market is hot.
The United States already has a severe rental housing shortage. In fact, not a single state in the country has an adequate supply of affordable rentals for low-income renters, according to the National Low Income Housing Coalition. Industry leaders worry that a massive sell-off of single-family rental homes driven by record high prices and increasingly burdensome government regulations will make any already dire rental-housing situation substantially worse.
Single-family rentals are “the nation’s naturally occurring affordable housing,” Bob Pinnegar, president and CEO of the National Apartment Association, told National Review. “If we lose those units and people sell, we’re never going to be able to replace that housing stock.”
A National Rental Home Council survey conducted earlier this year of single-family rental home owners across the United States found that half had tenants who missed at least one rent payment since the beginning of the pandemic, and more than a third had to dip into their personal savings to cover shortfalls. Eleven percent of the respondents said they would be forced to sell at least one property, and 12 percent were liquidating all of their properties.
A recent survey of over 2,500 rental property owners in ten cities conducted by Harvard University’s Joint Center for Housing Studies found that 10 percent of all landlords collected less than half their yearly rent in 2020, with smaller landlords being the hardest hit.
The survey also found a 10 percent increase in the proportion of landlords who listed a property for sale in 2020. In Albany, NY, 22.5 percent of landlords listed a property for sale in 2020, up from 3.9 percent the year before. In Philadelphia, 20.9 percent of landlords listed a property for sale last year, up from 3.5 percent in 2019, according to the Harvard paper.
David Howard, executive director of the National Rental Homes Council, told National Review that the strong real-estate market over the past year was bound to incentivize some rental-property owners to sell. But government actions – federal and state moratoria that banned evictions of non-payers during the coronavirus pandemic, and state and local laws and regulations that, among other things, capped rent payments and limited how much landlords could screen potential tenants – have had the unintended consequence of driving more rental property owners to sell, he said. Many landlords feel like they have targets on their backs.
In New York, for example, a 2019 law capped security deposits, limited the ability of landlords to recover attorney’s fees and legal costs in lawsuits, and banned so-called “blacklists,” on which landlords and listing agents share records about nuisance tenants. That same year, Oregon became the first state to impose statewide rent control, and the city council in Portland passed a package of regulations that required landlords to use a first-come-first-served application system, stopped them from requiring proof of citizenship or a government-issued photo ID, and capped income-to-rent ratios.
In Minnesota, both Minneapolis and St. Paul will have rent-control measures on the ballot in November. And in Colorado, the legislature just passed a couple of Democratic bills that make it harder for landlords to evict non-paying tenants, give late-paying renters a one-week grace period before they can be charged late fees, and limit rent increases.
“It’s now much more difficult to be a property owner in this country than it was two years ago, or five years, particularly if you are a small, individual owner of a single home,” Howard said.
Stobie said she had some tenants in her apartments who struggled to pay during the height of the pandemic, but she worked with them. It’s the uncertainty about the future – will there be more pandemic-related lockdowns, and will Congress sign off on another eviction moratorium? – that has her ready to sell her properties.
“The political will exists outside of COVID to keep non-payers housed,” she said. “In that environment, we’re really going upstream.”
‘The Renters Are Suffering’
There are about 43 million rental housing units in the U.S., which may bring to mind images of big-city apartments in New York and Chicago, or sprawling suburban complexes.
But the reality is more than half of those rental units, approximately 23 million – or 53 percent – actually are single-family homes and two-to-four-unit buildings, duplexes, and townhouses. And the vast majority of those 23 million units are owned not by large institutional investors, but by mom-and-pop small business owners who own ten or fewer units.
That includes a lot of people that Howard calls “accidental landlords,” people who inherited homes, or people who moved out of their home and decided to rent it rather than sell it. For a lot of these small-time rental property owners, being a landlord is a part-time gig, a side hustle to help pay their bills or pad their retirements.
They’re often owners who are less knowledgeable than the big corporate players about the rental industry in general, are less able to understand and adjust to new government regulations, and typically do not have lawyers at the ready to help guide them through the legal maze. They’re also the owners who industry leaders most worry will cash out.
There’s evidence that many already have. More homes were sold in 2020 during the hot pandemic housing market then in any year since at least 2006, before the housing bubble burst. In the second quarter of 2021, 94 percent of U.S. metro areas saw double-digit growth in real estate prices, the National Association of Realtors reported in August. For some wealthier people, that meant buying a second or third home. Vacation home sales skyrocketed during the pandemic, up 16.4 percent in 2020, according to the National Association of Realtors, further distorting the housing market.
While large investment companies increasingly are scooping up single-family properties that they will keep on the rental market, most rental homes that are being sold are being purchased by people who intend to live in them, Howard said.
“There are just a lot more people out there who are looking to buy a home and live in it than there are large companies looking to buy your home and convert it to a rental,” he said.
Having more homes on the market may be good news for people who can afford to buy a house, Pinnegar said, but for every person that wants to buy and can afford an increasingly substantial downpayment, “there’s many others that simply don’t have that resource, and they’re priced out of the market.”
Pinnegar said the sell-off and the increased single-family rental shortage may be more pronounced along the coasts, where housing prices are sky high. Big rental firms, he said, are more interested in investing in places like the Sun Belt, where costs and regulations are low.
“When those properties are sold, you’re not going to see re-investment,” Pinnegar said of homes sold in coastal communities. “They’re going to live a life of single-family owner-occupied, which is fine. But they’re creating a situation in those markets that they’re going to have consistently under supply of rental housing.”
The impact of having fewer single-family rental properties won’t just be felt by people on the lower end of the economic scale, Howard said. Young adults increasingly are comfortable renting everything from their clothes and their music to their cars and their homes. There will be fewer opportunities for them. There also will be fewer options for job-hopping professionals who move to a new city and want to test-drive neighborhoods before buying, Howard said.
“Renters tend to get typecast into the notion that they’re only renting because they have to,” he said. “The reality is, there are a lot of people in this country who are renting because they want to rent, whether it’s an apartment or a single-family home. The demand is huge.”
Richard Hewins, a real-estate agent and property manager in Cape Coral, Fla., has seen that first-hand. Before the pandemic, he managed about 60 rental properties, which provided him a steady income. Now, he’s managing about 30. Clients who bought rental homes cheap after the housing bubble burst in 2008 are now selling them. “The prices are just so darn high,” he said.
He said he’s getting bombarded with calls from prospective renters who can’t find a place.
“The renters are suffering,” he said. And it’s not just lower-end, affordable homes. It’s everything, he said. “I’m getting stuff that was $1,500, I’m getting $2,400 a month for a 1,500-square-foot home off water. It’s nuts.”
‘I Don’t Need This’
Raj Sookram, who owns and rents 13 homes in Rochester, N.Y., told National Review that he’s decided to get out of the rental business.
Sookram has one tenant who hasn’t paid rent since December, and another who owes him $20,000 after he stopped paying 20 months ago. One tenant stopped paying this spring, and then demanded he fix her broken water heater. City officials threatened him with daily fines if he didn’t fix it. Another tenant recently stopped paying, Sookram said. “Her argument was, ‘I was paying you all through the pandemic,’ like she was doing me a favor,” he said.
“More and more, these things started to just pile up, and you say, ‘You know what, I don’t need this,’” Sookram said. “If you’ve got a market that’s paying a lot of money, and you’ve got these kinds of problems where you’re locked down by the government, why not take that opportunity to make the money and get out, do something else?”
Sookram said he’s offering an opportunity for his good tenants to buy their homes for a good price, considering he wouldn’t have to pay to list or market them. He plans to offload his other properties when he can. He didn’t pay a lot when he bought his homes, so he expects he’ll turn a decent profit. He said he’ll probably go back to being an employee for a while, but he’s also interested in finding a new business to invest in. And he said he wants out of New York.
Tracy Burgess, a real-estate agent and rental homeowner in Vancouver, Washington, told National Review that her colleagues in the landlord business are selling off “by the droves.”
She’d like to sell her ten properties – eight townhomes and two single-family homes – but she’s probably stuck with them for now. She’s typically had jobs that didn’t offer pensions or a 401(k), so she’s counting on her rentals to provide income during her retirement.
Burgess is her family’s sole breadwinner (her husband had a stroke and can’t work, she said). She figures she could net $400,000 if she sold off now, not enough to fund her retirement.
“Always the idea was these rentals would be our income in our retirement,” Burgess said. “Right now, they generate not a whole lot of income. Right now, it just pays for our life insurance and a couple of hundred bucks into a Roth, and they pay for themselves in terms of their maintenance and their mortgages.”
During the pandemic, Burgess got stuck with a tenant who trashed one of her townhouses, she said. He was a hoarder who filled the back patio with garbage, attracting rats and racoons. Before the pandemic hit, they’d agreed he would move out. Instead, he stayed for over a year without paying, moving in more people and pets, and taking up other tenants’ parking spaces.
When he finally left, he owned her $18,400 in unpaid rent, Burgess said. He left behind over a ton of debris: dirty diapers, dog poop, broken furniture, trash, and drug paraphernalia. All told, Burgess said she’s out about $36,000 in rent and repairs.
“I was left 100 percent powerless,” Burgess said of the state and federal eviction moratoria. The government, she said, “basically seized my properties, still making me pay all of the mortgages, the taxes, the maintenance, and everything else.”
Getting Off the Rollercoaster
Even though the Supreme Court has stopped the federal eviction moratorium, for many local landlords, “the damage is done,” Pinnegar said. They don’t trust that political leaders have their best interest at heart.
“I think that you have a group of people who have operated rental housing that are largely disillusioned at this point,” he said, “and they’re looking for the exit ramp to get off this rollercoaster ride.”
Pinnegar said proposals to solve the problem by artificially increasing wages will only be inflationary, pushing up the price of everything. The real problem, he said, is an overall housing shortage in the U.S. A recent National Association of Realtors report found an “underbuilding gap” of 5.5 million to 6.8 million housing units since 2001.
“In this country, there is simply not enough housing out there,” Pinnegar said. “It doesn’t matter if you’re looking at rental properties, if you’re looking for single-family homes, there’s not enough.”
With fewer single-family homes for rent, increased demand for suburban homes driven by the pandemic, and more laws on the books protecting non-payers from eviction, many property owners are upping their standards for accepting new tenants, Howard said.
“If you have any kind of blemish on your history – rental history, credit history – I think that is going to play a bigger factor,” he said. “I think it’s going to be more difficult for renters.”
Stobie, the Denver landlord, said that as Colorado’s laws have increasingly made it hard to evict non-payers, she and her husband have been more strident about seeking out “eviction-proof” tenants. “Rents are going to go up,” she said, and responsible tenants “that are paying are going to have to subsidize potential ones that won’t be paying.”
“In the end,” she said, “the renters are the ones that are going to get hurt.”