Even With Rental Assistance Multifamily Is Still At Risk

New research from Fitch Ratings raises questions about the extent to which rental assistance under the American Rescue Plan will keep apartment delinquencies low.

Fitch analysts say it’s tough to estimate the amount of unpaid back rent despite current mortgage delinquency levels for affordable housing providers being low and only slightly up from pre-COVID levels. And while rental assistance has been a mainstay of the major federal stimulus packages thus far, the lack of data on delinquent rent payments makes it difficult to ascertain whether the assistance provided will be enough to keep delinquencies in check.

The risk for the affordable housing sector is also elevated due to higher unemployment levels for lower income households, and while the outlook for the broader economic recovery is bright, “sustained high unemployment is likely to result in an uptick in delinquencies and evictions, particularly when rental assistance funds are depleted and eviction moratoria expire,” according to Fitch.

Analysts also point to a recent US Census Bureau’s Household Pulse Survey showing that approximately 8.4 million households say they’re late on rent, with 55% of those surveyed reporting an annual  income of less than $35,000. In its most recent Rent Payment Tracker, the National Multifamily Housing Council found 80.4% of apartment renters made full or partial rent payments by March 6, numbers that are far (4.1 percentage points) below those posted in March 2020. 

The sector may benefit from the $10 million provided to each state by the ARP for community development. Fitch notes that “while it is not clear how states will deploy these funds, it is expected to provide a peripheral boost to affordable housing by supporting housing prices and employment through aid to businesses in low income communities.”

In late March, the Centers for Disease Control extended the federal eviction moratorium through June 30, 2021, preventing landlords from evicting tenants unable to make rental payments. The federal eviction moratorium has been subject to multiple challenges across several federal court jurisdictions, most recently last month when an Ohio federal judge ruled that the CDC lacked the authority to enact the last round of moratoria.

In addition, the US Department of Housing and Urban Development loan forbearance was recently extended up to 18 months through Aug. 31, 2022. Fitch notes that State Housing Financing Agencies can work with borrowers to modify loans, and the “equity, available to all programs within a SHFA, may be used to cover cash flow shortfalls should multifamily landlords become delinquent on their mortgage payments.” Fitch’s ratings also reflect a stressed 50% cut in rental revenue for each loan in an SHFA’s multifamily program.