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Action by Congress critical to prevent housing market crisis

Action by Congress critical to prevent housing market crisis
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There is a key deadline at the end of this month when both the national eviction moratorium and the extended unemployment benefits are set to finish. So if that deadline comes and goes without action, the stability of families are not all that is at risk. Entire communities could face a crisis because their stability depends on the financial security of both renters and building owners who provide affordable units. A significant federal rental assistance package is the best way to stabilize renters and owners, and to ensure we do not face another housing market crisis.

There are more than 13 million small rental properties across the country. Those units represent about 30 percent of the total rental housing stock. Many of the building owners are individual investors who, like many small business owners, rely on this source of income for their livelihoods. Much of this housing stock is also more affordable than units owned by bigger investors, and it provides affordable rent for many who qualify for federal subsidies but do not receive them due to a lack of funding.

Both renters and landlords are financially struggling since the benefits provided through the Cares Act, such as supplemental unemployment insurance, expired at the end of July. Further, the Federal Reserve Bank of Philadelphia has estimated that more than one million renter households owe an average of $5,400 in back rent. So without rent payments, small property owners will need some other source of income.

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We saw this play out in the single family market in the Great Recession. Banks foreclosed on homes, destabilized the lives of those homeowners, and weakened entire communities. Small rental housing owners now have more equity in their properties, and foreclosure may not be as common. But these owners may still feel pressured to sell their properties. A recent survey of more than 1,300 small landlords across the country found that owners of small rental buildings, especially those with lower incomes and mortgages, face increased pressure to sell their properties.

When owners with affordable rents are pressured to sell to investors with deeper pockets, there is no guarantee those investors will keep the rents affordable. That means renters could face an even greater shortage of affordable options, and small “mom and pop” owners would suffer. There are certainly policy options to ensure rental buildings are sold to owners who promise affordable housing, but that complex and costly process could still destabilize renters, owners, and communities.

In addition to the federal government extending the national eviction moratorium, some action by Congress is critical to prevent a widespread affordable housing crisis. The extension of unemployment benefits is a start, but unemployment insurance would not help lower wage workers who lost hours or who face medical bills or health issues in the pandemic. Rental assistance would stabilize renters, landlords, and communities. So any rental assistance program should be flexible, be able to be disbursed swiftly, and be able to help renters pay past rent owed.

Even if Congress passes rental assistance now, federal programs can still take months to get funding into the hands of renters and landlords. But an extended national eviction moratorium and knowledge that critical rental assistance is on the way could be the best chance for Congress to help stabilize struggling renters, owners, and their communities. It could also be the best chance to prevent a housing market crisis.

Kathryn Reynolds is a housing expert and a policy program manager with the Research to Action Lab based with the Urban Institute in Washington.