California renters and landlords face a historic financial ‘reckoning’ from coronavirus
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Zoe Kipping, a 30-year-old Sacramento resident, is among the many California renters who find themselves heading toward a historic precipice that threatens to ruin their finances for years to come.
Her job doing door-to-door political campaigning ended in March when the governor ordered California to shelter at home to avoid mass infections and deaths from the fast-spreading coronavirus. Kipping’s backup plan, working for the U.S. Census, washed away with the social distancing edict as well.
Now, the May rent is coming due. Will she pay it? Can she?
She doesn’t know.
“It feels like I’m falling farther and farther,” Kipping said, sheltering in a 400-square-foot studio. She’s thrifty and scrappy, she said. But her credit card is maxed. She can’t move back with her parents. She doesn’t qualify for unemployment.
“Where is the bottom?” she asked. “What does rock bottom look like?”
A Sacramento Bee analysis suggests more than 300,000 California renters, many of them out of work due to California’s coronavirus-induced economy coma, will be unable to pay rent until the economy reopens and lost jobs return. At this point, it is uncertain when that day will come. Gov. Gavin Newsom said Wednesday the state still does not have enough coronavirus testing to lift the stay-at-home order and he’s still unable to give a date of when that announcement could come.
In just three months – April, May and June – California renters could be a whopping $2 billion in the hole on unpaid rent, dragging some landlords into greater debt as well as they risk losing their properties if they can’t make the mortgage.
In Sacramento County, 12,000 to 19,000 renters may end up not paying rent in the next three months, putting them in aggregate debt of $50 million to $90 million.
“I’m calling it the ‘fallout,’” said Kendra Lewis, executive director of the Sacramento Housing Alliance. “Literally everybody’s house caught on fire at the same time.”
California already had a housing affordability crisis that put a drag on the state economy for everyone. Now, renters, landlords, mortgage companies, banks, investors and governments face a far more complicated reckoning.
How they handle it could make or break financial futures.
State of emergency
It’s a domino effect. A month ago, with the coronavirus spreading fast, Newsom ordered all but “essential” workers home to shelter in place. That closed restaurants, bars, hotels, retail stores and many offices.
Knowing that meant many tenants would not be able to pay their rent, the governor, state Judicial Council and some local governments issued a moratorium on evictions. Landlords in most areas of the state will not be allowed to evict renters until 90 days after the governor rescinds his state of emergency declaration, which at the moment is set to lapse at the end of May.
In Sacramento, a local moratorium prohibits evictions until 120 days after the governor’s emergency decree sunsets.
While it’s keeping some renters from finding themselves on the street during the peak of the pandemic, it’s created natural tension between tenants and landlords. Tenants think the freeze doesn’t go far enough, while some rental property owners say the state has gone too far.
Tom Bannon, head of the California Apartment Association, lauds state leaders “for trying to thread the needle at 60 miles per hour” to help renters, but said the rules will make it difficult for mom-and-pop landlords to pay their mortgages.
Soon, he predicts, “You will hear a lot more from landlords who are going to be desperate.”
The emergency rules, notably, do not constitute rent forgiveness or a rent holiday. Renters must still pay their rent if they can. If they don’t, they must provide documentation to landlords showing the coronavirus crisis has affected their income.
And, when the moratorium ends, they will be required to make up those payments.
The moratorium represents quick thinking during a desperate moment, but it creates a looming problem: Some of the state’s less affluent workers, like Sacramento resident Lori Diaz, now unemployed, are piling up debt they won’t be able to repay.
Diaz, 44, was “rent burdened” before the coronavirus hit. She and her older daughter worked part time, earning enough to pay their $1,460 monthly rent. She lost her income as dentist’s assistant, then she got sick. That required her daughter to quarantine with her, losing pay at her warehouse job
Diaz, whose coronavirus test results were inconclusive, has not received her federal stimulus check. She didn’t pay the April rent. Now, thanks to what she calls a “series of unfortunate events” she soon will face a balloon payment that could be more than $4,000.
She won’t be able to pay it. She counts her family fortunate that one of her daughters qualifies for the CalFresh state food stamp program.
“Frankly speaking that’s the only reason we have food,” Diaz said.
A billion-dollar reckoning
Weeks into the moratorium, housing experts are scrambling to determine how many tenants are unable to pay the rent.
An April analysis by the National Multifamily Housing Council shows that 89 percent of renters countrywide made either a full or partial rent payment as of April 19. That is 5 percent less than would be expected to have made their payments by then.
There is no data, however, on how many of that 89 percent paid only a portion of their rent. For the moment, landlords are expressing relief.
“We are pleased to see that it appears that the vast majority of apartment residents who can pay their rent are doing so,” NMHC President Doug Bibby wrote in an online analysis.
In California, where rents are much higher than the rest of the country, the percent of tenants not paying April rents probably is higher, housing experts say.
Cyrus Youssefi, a major Sacramento landlord with 3,700 units, said 8 percent of his renters didn’t pay the April rent.
Of those, about 5 percent filed proof that they have lost income due to coronavirus. It was the working class renters, Youssefi said, who lost jobs in the service industry, such as restaurant jobs.
Most landlords, lenders and renters interviewed by The Bee said they expect the percent of unpaid rents to increase in May, and increase even more in June if the economy doesn’t reopen and jobs don’t come back.
“It is not going to be a picnic,” Youssefi said.
For now, federal and state stimulus and unemployment checks have been lifesavers. A number of renters report they used their one-time federal $1,200 stimulus check to pay the April rent, or plan to use it for the May rent.
Many renters qualify for unemployment insurance of up to $450 a week in California. And many will get a $600 weekly federal supplement through July 31.
But many renters have no savings, and are faced with credit card debt and other large bills.
Matt and Stephanie Weber, who sell microgreens to Sacramento restaurants, had their business grind to a halt last month. They used their stimulus checks to pay their $1,500 April rent, as well as for car loan payments and credit card debt.
But they have stopped paying their student loans, and are not sure how they’re going to pay next month’s rent.
“We’ve got like $200 to $300 bucks we’re holding on to,” Matt Weber said.
It creates a worst-case fear for the Webers: “We don’t want to be homeless at the end of the year.”
Landlords ask for mortgage forbearance
Most landlords have monthly mortgages. Those interviewed by The Bee say they have the financial reserves to make up for the lost rent income in April, and many expect to be able to handle that amount of lost revenue in May.
But if the crisis lasts for months, some landlords will not be able to pay their mortgages. Banks already are working deals with stressed landlords. Those deals include allowing landlords to defer mortgage payments over the next three to six months, then spread out those back payments over the next one to two years.
BEHIND THE STORY
MOREWhy we did this story
Tens of thousands of renters in California have lost their jobs. As the coronavirus pandemic continues, how many will be able to make their rent payments in June?
There are statewide battles brewing between renters and landlords. Property owners could lose their properties if the economy continues to sputter. And some renter groups say state and local eviction bans don’t go far enough. Meanwhile, eviction bans passed at the state and local levels are set to expire.
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Cecilia Martinez, a manager with George Gasnakis Rentals, which owns 150 apartment units in Sacramento, said her company is not worried about its bottom line – yet. Only four renters failed to pay in April, she said, but more renters have alerted her they don’t have the money for May rents.
“We can carry ourselves for a few months, but not long term,” she said. Fortunately, her company’s mortgage holder sent a letter saying her company won’t be considered delinquent if it fails to make full mortgage payments in the next few months. Instead, the mortgage company will add those months to the back of the loan.
“At least we are not going to be considered late,” she said.
Sacramento rental housing industry consultant Jim Lofgren says some landlords, notably smaller “mom-and-pop” operators, may be overwhelmed. He’s telling those landlords to contact their lenders, even if they don’t think their lender will be flexible.
“Anything is negotiable at this point,” Lofgren said. “Landlords should be in communication with their lenders to see what they will offer.”
Anger, activism and rent strikes
Some renters, sick of California’s high rents and lack of affordable housing, see the moment as potentially galvanizing.
Uma Tufekcic, 24, a college student, worked three part-time jobs a month ago, in a restaurant, an art gallery and at a farmer’s market. All are gone now.
She chose not to pay her $900 studio apartment rent in April as a political statement. She calls it a rent strike. This is the moment, she says, for renters to tell government they have had enough of high California rents and lack of apartments.
She is a member of the Alliance of Californians For Community Empowerment, a group that contends Newsom is not doing enough to protect renters.
“It’s awesome, because, right now, and by the end of the pandemic, this is a prime time for change in our society,” she said. “It is time for us to say how we want things to run. The more people we have involved, the more effective this is.”
She tried to organize other residents in her apartment to stop paying their rent, but has been unsuccessful. Still, she says, “at some point we are all going to be striking whether we want to or not. We just won’t be able to pay. We are all sharing the same experience. It is unifying. We are all in the same situation.”
Federal, state and local governments have, in essence, kicked the can down the road. What happens when the rent finally is due, possibly this summer or fall, and renters cannot pay?
Sacramento Justice League activist MacKenzie Wilson forecasts “mass evictions” and a battle between landlords and tenants.
Wilson said she has heard of landlords already sending out three-day “pay or quit” notices to renters who did not pay their April rent. Those notices are the first step in the eviction process. She said that means some landlords are preparing for evictions in a few months when the emergency is over and courts are given the greenlight to process evictions.
Officials with Legal Services of Northern California say they are concerned by those reports, and are asking renters who feel they are being mistreated by landlords to call them.
In the city of Sacramento, which passed its own ban on evictions on March 17, officials said they have gotten 610 emails and phone calls from residential tenants with questions, including 55 from tenants reporting they believe their landlords have been non-compliant.
A written or verbal notice of eviction qualifies as a violation of the ordinance, city official Tina Lee-Vogt said. “They’d be in violation if they said, ‘You’ve got to give me the full amount in rent or I’m going to evict you.’”
One Sacramento property manager and owner, Paul Weubbe of Laughton Properties, told The Bee that landlords are sending “pay or quit” notices, but he said they are focused on renters who fail to pay and also fail to submit documentation showing that they have lost income due to the coronavirus.
Can tenants, landlords make deals?
Can landlords and tenants negotiate a private settlement? Brian Zrimsek of MRI Software, a real estate data analyst, said that would seem, on the face of it, to be difficult.
“In the last decade there has been a lot of animosity built up between landlords and residents,” he said. That is especially the case in California, where rents have soared beyond workers’ wages, and lack of affordable housing has exacerbated the power balance in favor of landlords.
Consultant Lofgren advises landlords “to be proactive in their communications with their tenants. You may be able to create a win-win situation that minimizes negative impacts on both parties.”
But Weubbe said most landlords he talks with already are talking with renters about ways of getting the rent or partial rent paid. Some are encouraging renters to use the $1,200 federal check to pay rent, rather than spend it on other needs or desires.
In some worse-case scenarios with recalcitrant tenants, Weubbe said landlords may just offer the tenant a check in exchange for the apartment keys, figuring that is cheaper and faster than pursuing a court eviction.
Not everybody is crying wolf.
Christopher Thornberg, a noted California economist, predicts this economic shutdown will not be nearly as bad as the Great Recession of 2008. He calls the moment “a medically-induced coma.” The patient – in this case the economy – will come out of it “with a headache, but the patient is going to be fine.”
His prescription, if he were governor: Let renters pay 50 percent of their rents for two months. Then get them back to their jobs.
Newsom continues to say he will take a methodical approach to a gradual reopening that would avoid triggering another, and perhaps worse, surge of COVID-19 cases.
Given that scenario, some housing experts say it is unwise to think landlords and tenants on their own will be able to negotiate rent settlements.
“I am wary of the burden being on conversations on landlords and tenants,” said Carolina Reid, a UC Berkeley city planning professor and research advisor for the Terner Center for Housing Innovation. “It is not going to work out well.”
She is among many who say the government needs to continue efforts, including more stimulus funds, to stabilize renters and landlords. And to use the crisis as a catalyst to work on fixing the state’s longstanding lack of affordable housing.
Long-term California housing crisis
At least two bills are in the works for the legislature to consider when it comes back from recess.
The California Apartment Association is sponsoring a legislative bill, SB 1410, that would provide government funding to 80 percent of unpaid rent attributable to the pandemic.
California state Sen. Scott Wiener said he is coauthoring a bill that would temporarily reduce the amount of rent tenants would have to pay during the crisis, and would allow them a year to make back payments on what they owe after the pandemic is over.
“We need an equitable structure in place for repayment of back rent over time,” he said. “Everyone has to take a hair cut here.”
Wiener said the federal government should step in with more subsidies for renters, as well as help for landlords and homeowners struggling with their mortgages. “We don’t want (national companies) buying up local rental properties.”
Solomon Greene, an analyst with the Urban Institute in Washington, D.C., says the federal and state governments should step in with more stimulus money to cover tenants and landlords, and needs to make a stronger effort to create more affordable housing in the long-term.
“We need it all, the crisis is so big, and the scale of impacts is so daunting. We need to be pushing all those levers at the same time.”
This story was originally published April 23, 2020 at 5:00 AM with the headline "California renters and landlords face a historic financial ‘reckoning’ from coronavirus."
