An Extended Eviction Moratorium Could Deter Investment In Affordable Housing

Discussions are underway in Washington, D.C., among lawmakers to create a new federal stimulus package that will offer continued financial support for Americans still reeling from the economic disruption of the coronavirus pandemic.

The Coronavirus Aid, Relief and Economic Security Act is poised to expire on July 31, ending a variety of stimulus initiatives, including higher unemployment pay and a moratorium on evictions at properties with a federally backed mortgage.

Among the possible features of a new stimulus package is a proposal to extend the eviction moratorium for 12 months, a prospect that has developers concerned about the ability to finance and deliver future affordable housing at a time of pressing need.

“If investors lose money and get burned, they're not going to come back,” Slate Property Group principal David Schwartz told Bisnow.

The CARES Act eviction moratorium is due to expire on July 24, with an additional 30-day notice period requirement for tenants to vacate. 

The Health and Economic Recovery Omnibus Emergency Solutions, or HEROES, Act and the Emergency Housing Protections and Relief Act of 2020 were passed by the U.S. House of Representatives in May and June, respectively. The bills provide $100B in emergency rental assistance, as well as a 12-month extension on eviction moratoriums.

ITEX Group President Chris Akbari said that if the 12-month eviction moratorium makes it through a final iteration of the new stimulus bill, the company would probably finish the 1,500 affordable units in its pipeline across several states, but it would be very difficult to move forward with any new projects.

“A large part of the way that we do our business is by having a solid portfolio of properties that we were able to [keep] a strong balance sheet [for]. People don't lend to borrowers who have a very shaky portfolio,” Akbari said.

“A lot of my investors that are in the properties that we have — if that moratorium goes through, they're probably not going to be investing in new projects. They're going to be investing their time and capital in trying to protect their current projects that are going to be suffering from not having income coming in and not being able to evict people who were unable to pay their rent.”

Slate Property Group has around 800 affordable housing units in New York City, with another 3,000 units in the pipeline over the next eight to 10 years. Schwartz said the company is still waiting on financing to proceed with development, but the latest 40% cut to the city's affordable housing budget for fiscal year 2021 could make it very difficult.

“The need for affordable housing has only increased significantly, and I think that it's only going to be harder, as local governments have fewer dollars to work with,” Schwartz said.

Like Schwartz, Joy Construction principal Eli Weiss is concerned about the cuts to New York’s affordable housing budget, which will affect the company’s own anticipated delivery of around 1,000 units over the next 15 months.

“The degree of uncertainty right now in the field of affordable housing in New York is higher than it was in 2009 during the Great Recession,” Weiss said.

Rent collections have remained relatively high across most multifamily portfolios, thanks to stimulus provisions such as one-time checks, higher unemployment pay and government loans for small businesses. But developers are increasingly concerned that a lack of financial support for tenants after the CARES Act expires could have a serious impact on rent collections.

Weiss said rent collections have been high for the company’s existing 2,800 units in New York City. Those units are a mix of low-income housing tax credit units and middle-income units. But if stimulus funding isn’t renewed soon and evictions become necessary, it could hurt the image of the sector.

“My big worry about affordable housing right now is, will there be enough money to fund more affordable housing, because it's needed, and it's needed now more than ever,” Weiss said.

“But if people look and say, well, you know, there were just mass evictions in affordable housing — well, why are we building more? I think it would work against that.”

At this stage, capital for affordable housing development is still available in the market. Real estate investment firm Tishman Speyer announced plans this week to establish a new affordable housing platform within its organization, which will initially focus on the New York City region.

In addition, Alliant Capital this week announced it closed a $92M fund, which will facilitate the construction of eight new affordable housing properties with 870 units in five states and the District of Columbia.

“While investor interest has understandably diminished as the uncertainty surrounding eviction moratoriums, mortgage forbearance, and government assistance for renters and the unemployed persists, being able to close a $92M fund in these circumstances, as well as a $65M fund last week, shows us that investments are still happening and not likely to disappear completely, even if the eviction moratorium is extended,” Alliant Capital Executive Vice President Dudley Benoit told Bisnow.

“We can see that the need for this type of investment will grow as the cost of housing becomes more challenging for many, particularly if federal unemployment support ends on July 31.”

For some states, the eviction moratorium on federally backed properties is less pressing than state and city eviction moratoriums, many of which have been extended already, typically through September or October.

Weiss noted that in New York, which has a state eviction moratorium running through Aug. 20, it still takes around nine months to evict a tenant. He said in reality, the CARES Act moratorium has been more of a topic of cocktail conversation than a pressing daily issue.

“It's hard for me to believe that a short-term acute eviction moratorium — when you know somebody is not paying their rent for valid reasons — I don't think it should have any effect on people's outlook on the industry,” Weiss said.

Rather than extending an eviction moratorium, Akbari said housing choice vouchers would be a better solution to the issue, as it would provide rental assistance that would also be passed on to the landlord.

Schwartz said he wasn’t necessarily opposed to a moratorium extension, but he believes there should also be some kind of loan forgiveness for landlords and developers, who could face hardship in making their own payments on time.

“I think that there needs to be some thought through that the lenders need to give forgiveness at the same time, because the thing that you worry about is, you don't want to break this ecosystem of people that are producing affordable housing,” Schwartz said.

“The last thing that we want to do is create a system in which people are disincentivized for building affordable housing.”