Transcript

Charles Gerena: I'm Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Thank you for listening to "Speaking of the Economy." You can find past episodes on the Richmond Fed's website or Apple Podcasts. And, starting this fall, look for us on other podcast platforms when we expand our distribution. We'll also have a new look to show off.

My guest today is Peter Dolkart, the Richmond Fed's community development regional manager for Maryland and the Washington, D.C. metropolitan area. Peter's work in the field of affordable housing and community and economic development spans more than 15 years.

We'll be talking about what's happening with renters in the Fifth Federal Reserve District. Back in February, Peter interviewed a community development executive and a legal aid lawyer in South Carolina about the ongoing issues of renters being evicted at high numbers in certain parts of the state and nationwide. We thought now would be a good time to circle back to this topic as COVID-19 infections surge and eviction protections wane.

Thanks for joining us on this side of the microphone, Peter.

Peter Dolkart: Thanks, Charles.

Gerena: Before the pandemic, what was the extent of rent nonpayment and evictions in the Fifth District?

Dolkart: Well, truth be told, evictions in our region had reached a crisis stage long before the COVID-19 pandemic shut down the economy. In 2018, the Times reported that Richmond had the second highest eviction rate of all large U.S. cities according to Princeton University's Eviction Lab. In addition, five of the 10 cities listed by Princeton with the highest eviction rates were in Virginia, while eight of the 10 were in the Fifth District. North Charleston in South Carolina topped the list with an eviction rate of 16.5 percent.

How communities responded to that pre-pandemic crisis and the action that they chose to take [and] how early they chose to take it, that I think helped define how successful they've been in dispersing funds for emergency rental assistance during the pandemic.

Gerena: That's an interesting point. Can you elaborate on that?

Dolkart: Sure.

Back to Virginia, because they reacted to the story in the New York Times and they started to take action — implementing reforms and programs to address that pre-pandemic eviction crisis — they were in a better position in terms of staff and resources to address the emergency rental assistance funds during the pandemic, whereas other states struggled to stand up their program for the pandemic and try to staff it. For example, in North Carolina they had to take their disaster relief program — something they use for hurricanes [and] which has about, on average, 60 staff members — and they had to now readapt that to put out millions of dollars in rental assistance, hiring as many as 200 new temporary workers in the middle of a pandemic.

Gerena: Okay, that makes sense.

Have you noted any variations in the level of rent nonpayment or eviction rates by geography, or by other dimensions?

Dolkart: Unfortunately, I don't really have any good data that distinguishes rent payment or eviction rates versus rural or urban communities.

According to the Eviction Lab at Princeton, high eviction rates are disproportionately found in minority communities, with more than 60 percent of all majority African American neighborhoods facing eviction rates greater than about 10 percent.

Also, on average, an individual or family is evicted for failing to pay one or two months and involves probably about less than $600 in rental debt. That correlates with conversations I've had with property owners who rent in, say, Maryland to low-income workers. They say that a household that falls one month behind, they will try to work with them. A household that falls a second month behind, that's when they start thinking about filing an eviction because their view is if that household, that low-income household is three months behind, they're never going to dig out of the hole and it's time to start the process.

Gerena: Interesting.

There was a recent study that the Furman Center at New York University did. According to that study, they said that subsidized households had higher levels of nonpayment than unsubsidized households before the pandemic. Why is that?

Dolkart: As the Furman Center observed, households that qualify for housing subsidies — and what we're predominantly talking about is known as the Housing Choice Voucher Program, some people better know it as Section 8 — those households are the extremely low-income households. They earn less than 50 percent of area median income. So, notwithstanding the fact that they're getting this subsidy to help them with the rent, they are still the most vulnerable to economic downturns or shocks. All you need is one member of the household to lose income on a given month and that's enough for them to not be able to make their rent payment.

There are mechanisms built into the subsidy programs to make adjustments for loss of income, so that the subsidy will cover whatever gap the renter can't make and make sure that the landlord is paid. But that does require a process by which they have to certify what that individual voucher recipient's income is. In the middle of a pandemic, I'm not certain all of those processes were up and running with fully staffed offices, not to mention dependence on technology, in some cases, that the low-income household may not have access. That is why possibly a lot of rental income adjustments in the program did not occur during this period.

The silver lining is that the households that do have a subsidy are not going to accrue as much of a back rent versus households that don't have a subsidy. I did think it was interesting that Furman looked at households that not only are receiving a housing voucher, but they're also getting other fixed income payments, such as social security, veterans' assistance, disability, and so on. They obviously seem to do better because they have that cushion, that safety net.

That does correlate with conversations I've had with property managers. The large nonprofit affordable housing company in our region, Enterprise Community Development, they have properties in Pennsylvania, Maryland, D.C., Virginia. They didn't experience as much of their tenants falling behind on their rents. They were able to maintain about 93-95 percent of on-time payment. That's because a lot of their residents receive fixed income payments in the form of social security and those other types of fixed income support.

Gerena: How did this all change when COVID-19 forced everything to shut down in 2020?

Dolkart: Well, no question rental delinquency rates got significantly worse as a result of the economy locking down. However, because of the various moratoriums that were put in place, basically eviction proceedings also shut down. Courts were not accepting new filings for eviction for many, many months.

What researchers have been doing — including at our sister Federal Reserve Banks — is tracking the amount of debt owed. For example, in North Carolina, about 6 percent of renters are now in arrears. That's about 62,000 households that owe, on average, about $6,100 per household. Cumulatively for that state, that's $378 million in debt.

One thing to keep in mind about the moratoriums, it only applies to unpaid rent related to the pandemic. So, a landlord could still proceed on other violations of the lease. That's assuming, of course, that the court systems were up and running and filing dockets. One of the things that was happening during the moratorium is that leases were just expiring. They were coming to the end of their natural lease term and landlords could proceed on that basis.

Gerena: Hmm, that's a good point.

How did federal and local governments respond to the situation?

Dolkart: Well, again, moratoriums became the immediate policy response, either enacted by local governments through emergency orders, state governments through executive order or eventually by a state legislature. But then ultimately, Congress stepped in through the CARES Act. Eventually, of course, the CDC took over under a public health policy. The Supreme Court just ended that moratorium in August.

The District of Columbia probably offered the most comprehensive support to beleaguered rental tenants. First of all, they completely suspended almost all eviction proceedings that was in place, probably the longest local moratorium in our District. They also did require that multifamily property owners offer payment plans with their tenants, so they had to make an effort to figure this out outside of the court system.

Maryland was initially unique among the states in the Fifth District early in the pandemic by actually allowing landlords to apply directly without having to go explicitly through their tenant to get rental assistance. Eventually, that became uniform across the region. On the other hand, you get West Virginia who, after doing some initial moratorium, they essentially provided no substantial state rental assistance program, that is until congressional funding from the CARES Act or American Rescue Act eventually provided it to them.

The issue that we've really been following, though, is how state and local officials have been trying to disburse the billions of dollars in emergency rental assistance that has been provided by Congress. It's been fairly ineffective.

My colleague, Stephanie Norris, and I authored a Regional Matters publication back in June that speaks to the poor performance of dispersing rental assistance, not just across our region but across the country. At the time, I think we documented that something less than 4 or 5 percent of households eligible have received rental assistance at that point.

Gerena: Do you have a sense of why the flow of money has been so slow?

Dolkart: The Philadelphia Fed has also been studying this, and the numbers are pretty amazing. It's something like 60 percent of the households eligible for emergency rental assistance hadn't necessarily even applied. In some cases, they were not aware that they should be doing it.

I think it speaks to what I mentioned about, for example, North Carolina. A lot of the state and local governments where this funding was being dispersed, they just took a long time to stand up their programs or they got overwhelmed in resources. Again, I think it was North and South Carolina that opened up their application process [and] almost essentially had to shut it down within a week to 10 days, I think it was last fall, because they just couldn't process the amount of volume. They have to set up these programs, but they also have to do it in the context of a pandemic, where not everyone is necessarily working in the same offices. So that's what really explained, I think, up to a few months ago that it just was taking a long time to get these programs up and running.

I would tell you, Charles, I'm not sure I understand completely why it's still taking this long. The U.S. Treasury did identify some best practices where states had come up with some streamlined approaches. And the Treasury has just last week issued revised standards by which they streamlined some of the regulations to remove some of the administrative barriers that they also believe has been causing this disbursement to be so slow.

Gerena: You made a good point there. This has been a sort of extraordinary situation where you have so much money that the federal government has been funneling, not just for rental assistance but a variety of things under the American Rescue Plan and other pots of money. The states are trying to manage these flows of money. It's not surprising it's taken a while to get all that together, and you want to make sure you do it right.

Dolkart: If I could just give an example.

Let's use Maryland where I live and work. I think it's about 75-80 percent of the state population lives within major metropolitan counties in the greater Baltimore area or the D.C area. As a result, the state instead of setting up a full statewide program, they essentially passed the money on to those counties and allowed each of the counties to set up a separate program. The state would then set up only a program for the non-metropolitan counties to go directly through the state department of housing. Then, some of those counties delegated that to a nonprofit who's like United Way. You talk to landlords who have multiple units across different counties and they're saying, you know, you're dealing with a different program often. That, in of itself, can be complicating.

Back to my original point, since Virginia was already in the process of thinking through eviction and how to avoid it and also how to prevent it and address it, they seem to be in a much better position to get this funding out.

Gerena: It seems like it has taken some creativity to deal this situation. I was going to ask what approaches you've learned about in the District to keep renters in our homes. I understand that Virginia is doing some things.

Dolkart: Responding to that Princeton report in 2018, the Virginia Poverty Law Center formed a coalition of advocates and service provides to launch something they call the Campaign to Reduce Evictions or CARE, not to be confused with the CARE Act.

CARE identified the need for additional data. First of all, they wanted to kind of do a granular analysis, literally property by property. Where are the properties in which there's a large turnover and eviction [and] in what neighborhoods is this happening? What property owners is this happening [to]? They really did a very detailed analysis to figure out what is driving the large eviction rates. From that, they could figure out what players in the property management and rental space that we need to be talking [with] to understand why they're having such high turnaround on their units.

Then, they put in place various reforms [with] the state legislature that apply to rental assistance. They set up a state eviction diversion program that imposes a court ordered payment plan for delinquent tenants. They also required that landlords provide written leases. That is a big deal because a lot of leases across the country are possibly month a month and they're not really formalized in a document. In Virginia, you have to have a written lease and you have to offer extended time for tenants to pay their rent. The landlord cannot evict unless a tenant refused to enter into a payment plan or missed a payment in the plan. They put in all these various measures that were really ready to fire up just as the pandemic took hold.

Despite the presence of moratoriums during 2020, that Richmond eviction diversion program still diverted a total of 413 households from imminent potential eviction. Those households who completed that diversion plan were no longer at risk for an eviction lawsuit. Landlords were willing to forego or drop eviction proceedings. That's example of an innovative program.

Gerena: Where do things stand today? Eviction moratoriums are expiring or have expired. What problems still remain for renters?

Dolkart: Last time there was any kind of specific analysis that I saw on the impact of the moratorium was back in the fourth quarter of 2020 because, at that time, that was when people expected the CDC moratorium to end. So, the numbers are a little bit out of date, but they are still underlying issues that I think are relevant now that the moratorium is ending.

The RVA Eviction Lab reports that in Virginia, about 169,000 to 262,000 households were at financial risk of eviction by last fall, assuming eviction proceedings resumed. That would include about 88,000 to 134,000 households with children, in effect a total of about 300,000 to a little over 740,000 Virginians. The estimated shortfall is about $169-370 million dollars in shortfall in rent in Virginia. On average, tenants owe more than $2,000 in back rent. If you think back to prior to the pandemic, the average rent owed in terms of triggering eviction was like $600. Now we're talking about $2,000.

The issue is what are the ripple effects of even having this debt and what impact that's going to have, not just on immediate housing security but almost all other aspects of a family's health and financial well-being. Tenants typically prioritize paying rent first and foremost when they are facing an income loss. To make rent payments, they're going to have to shift from other household items and limit healthcare, medication, food. They may end up accruing more personal credit card debt.

Even after the immediate crisis of a potential eviction has passed, the possible damage to credit, to a household's personal and mental health, those are going to be long term fixtures in those households' lives.