Joe Biden has called for rent forgiveness during the coronavirus pandemic — here’s how that would work

“There should be rent forgiveness and there should be mortgage forgiveness now in the middle of this crisis,” Biden said during his appearance. “Not paid later, forgiveness. It’s critically important to people who are in the lower-income strata.”

(Biden’s campaign did not return a request for comment.)

Renters are feeling the adverse effects of the coronavirus pandemic and the resulting economic slowdown acutely.

“The tenant is the most vulnerable person in the economy right now,” said Tara Raghuveer, housing campaign director at People’s Action, a political network devoted to grassroots organizing.

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The unique attributes of the coronavirus-fueled economic downturn have indeed hit renters harder than homeowners. Tens of millions of Americans have lost their jobs or been furloughed as businesses shut down to comply with stay-at-home orders.

Overwhelmingly, those job losses occurred in the service sector, according to an analysis from title insurance company First American Financial Services
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A third of the jobs lost in April were in the leisure and hospitality sector — and most of those jobs were in food service, an industry that is more likely to employ younger workers with less education.

“The young and less educated are clearly more impacted by the service sector consumption contraction, but the young and less educated are also less likely to be homeowners or potential home buyers,” Odeta Kushi, First American’s deputy chief economist, wrote in the report.

A separate study found that more than half of renters nationwide have lost a job because of the outbreak. And before the coronavirus swept the country, research showed that one in four renters was spending over half their income on housing, leaving little money left over for other expenses and emergency savings. Nevertheless, most renters are still making their monthly payments.

Much of the government’s housing relief has focused on homeowners

The housing relief provided thus far hasn’t been sufficient to protect renters from losing their homes or facing serious financial stress, activists say.

The CARES Act, one of the many bills Congress has passed to offer relief to Americans hit by the coronavirus outbreak, did include some protections for renters. It enacted a 120-day moratorium on evictions for tenants living in rental housing covered under the Violence Against Women Act, which includes Section 8 public housing, the rural housing voucher program, and anyone whose rental unit was purchased with a federally-backed mortgage.

That means tenants can avoid being evicted until mid-July — in the meantime, though, they are still technically obligated to pay rent. Some states and cities also issued their own individual eviction moratoriums, but in some cases those have already ended even though the labor market continues to see job losses.

The CARES Act also included $17.4 billion in funding for rent assistance, housing vouchers, public housing, and housing for the elderly, but not all renters benefit from that money.

The $1,200 stimulus checks allocated by the CARES Act could also offset housing costs for many renters, but it wouldn’t be enough to meet multiple months’ of rent payments. “A onetime payment is not getting the average, poor working class person out of this crisis — $1,200 just ain’t it,” Raghuveer said.

Comparatively, homeowners have received arguably more assistance. The CARES Act issued a blanket policy that allows any homeowner with a federally-backed mortgage to get forbearance, meaning they can skip up to 12 months’ worth of mortgage payments. There’s evidence that some homeowners have received forbearance even when they didn’t need it.

Also see: Is this a good time to buy a home? Here’s what you need to know to score a deal

What cancelling rent would achieve

The proposals put forward by activists call for rent and mortgages to be cancelled. Rep. Ilhan Omar, a Democrat from Minnesota, has introduced legislation that would bar landlords and lenders from collecting monthly payments and imposing late fees “through the duration of the pandemic.”

(Omar’s office did not return a request for comment.)

Renters and mortgage borrowers, under Omar’s plan, would not owe anything once the rent and mortgage forgiveness policy ended. Any lender or landlord who violated the plan would face penalties.

To supporters of rent forgiveness, this approach will keep people in their homes and out of financial ruin. But some industry experts say that any plan for rent forgiveness would need to take into account the ripple effects cancelling rent would have across the housing finance ecosystem.

“If multifamily landlords, particularly the small mom and pop landlords who own just maybe one to four units can’t make their mortgage payments and can’t stay in business, those are affordable units that are going to be lost to the private market,” said Flora Arabo, national senior director of state and local policy at Enterprise Community Partners, a national nonprofit organization that focuses on the development of affordable housing.

“Rent forgiveness without rental subsidies could be pretty catastrophic for tenants,” Arabo said.

Omar’s plan addresses these concerns, supporters say, because it creates a fund for landlords and lenders so that they could recoup any losses. It would also set aside money to be used to purchase properties from distressed landlords and lenders, which the government would then convert into affordable units.

These funds act as subsidies in a way, but rent forgiveness activists say it puts the onus on the right party.

“The landlord relative to the tenant has way more power and way more security in this moment simply by virtue of having an asset to borrow against,” Raghuveer said. “Tenants should not be faced with the burden of navigating a government bureaucracy to get their relief.”

Raghuveer’s organization worked with Omar in drafting the bill, which also includes stipulations that landlords who receive assistance provide information on their revenues, refrain from discrimination based on the source of income, and other tenant protections.

The rental industry opposes rent forgiveness

Despite the provisions Omar’s bill meant to support landlords during a period of rent forgiveness, it is opposed by industry groups including the National Apartment Association.

“While we appreciate the intention of legislation like Rep. Omar’s Rent Mortgage Cancellation Act, we need practical and sustainable relief tailored specifically to COVID-19,” Bob Pinnegar, president and CEO of the National Apartment Association, told MarketWatch. “Rent cancellation proposals do not adequately address the problem and fail to recognize that many property owners are in the same dire situation as their residents — substantial loss of income amid ongoing financial obligations.”

Pinnegar added that “all but nine cents” of every dollar tenants spend on rent goes toward paying “mortgage, property taxes, maintenance, payroll for staff managing and maintaining the property among other financial obligations.” Without that money, Pinnegar said the quality of rental housing would decline and job losses could occur.

Instead of rent cancellations, the National Apartment Association supports robust rental assistance, expanded mortgage forbearance and expanded eligibility for landlords for small-business loans, among other policies.

But rent cancellation proponents see little alternative to their proposal as long as the economic damage of the coronavirus outbreak remains. “The alternative to not canceling the rent is complete bottoming out of the market,” Raghuveer said. “And tens of millions of people literally never financially recovering from this moment.”