The COVID-19 pandemic could have a significant impact on naturally occurring affordable housing (NOAH) properties.
The health crisis and economic downturn have put a spotlight on people’s ability to pay rent, but many of the problems were at crisis levels even before the pandemic, says Chris Herbert, managing director of the Joint Center for Housing Studies (JCHS) at Harvard University, noting that 11 million renters spend more than half of their income on housing.
Only one in four eligible households receive federal housing assistance, meaning that three out of those four needy families have the challenge of finding affordable housing in the private market. Much of the relative housing that’s out there are smaller properties run by mom-and-pop owners, according to Herbert.
The financial strain on these NOAH properties as a result of the pandemic and renters’ inability to pay rent could be significant, he says.
If landlords aren’t receiving rent, they may have to stop performing maintenance or they may even have to sell their properties if they can’t meet their financial obligations.
“The dynamic may end up being that we’ll either see a deterioration in quality or potentially the deterioration of affordability as these properties get churned as a result of the pandemic,” Herbert says.
The JCHS has reported a substantial drop in the supply of low-cost units as overall market rents climbed. The number of units renting for under $800 fell by 1 million in 2017 alone, bringing the total drop from 2011 to 2017 to 4 million.
One of the questions coming out of the pandemic will be what’s the impact on this segment of the market, says Herbert, who will keynote AHF Live: The 2020 Affordable Housing Developers Summit, Nov. 16-18, in Chicago.
Potential Market Shifts
The health crisis has been devastating. The latest figures from the Centers for Disease Control and Prevention show more than 140,000 deaths and more than 3.7 million COVID-19 cases in the United States. In addition, millions of people have lost their jobs as restaurants, offices, and other workplaces have shuttered their doors.
The full impact on the housing market remains unknown, but Herbert is hopeful that housing will come out of it in better shape than it did after other tumultuous events like the Great Recession when housing was at the center of the crisis. This time, housing is not the cause. And, while there’s been concern about housing costs, the supply has been tight.
“I think housing is going to come out of this in a much stronger position than it did in the last downturn because coming into this it was on solid footing from a market point of view,” Herbert says. “It’s a question of what’s going to happen to households’ finances and how much that affects their ability to participate in the housing market.”
Where and how people live could also see some shifts, depending on how long the pandemic lasts and how much it changes people’s psyches.
Today’s demographics are also important. “We’re now at a point where the millennial generation is moving into their 30s,” says Herbert, noting that this has been a point of discussion at JCHS.
Even though millennials have been slow to get married and have children, they are getting married and starting families.
“That leads to a different phase of life where lower-density living will be attractive,” Herbert says. “I do think we’re going to see greater demand for lower-density single-family housing, which will also be aided by the fact that we’ve learned that we can work remotely successfully. Many people will return to the office, but I think the idea of telecommuting, at least in part, will have gained great credence, and that will enable people to move farther away from downtown and not face that commute on a daily basis.”
However, it’s by no means the end of higher-density urban living whether by owners or renters. Living downtown will still be appealing to many, and the good news is there might be some easing of price pressures in core areas where the costs have gotten very high, he says.
Addressing Racial Discrimination
The other critical issue this year has been the Black Lives Matter movement and increased focus on racial injustice in the country. “If we think about what the response might be in terms of federal policies to address racial discrimination and racial disparities, I would think housing would have to be near the top of the list,” Herbert says.
A large number of Black households live in segregated communities that are often heavily underinvested in terms of public infrastructure and the quality of schools and services. “There’s a long legacy of racial discrimination in housing that has contributed to the patterns of segregation and the disparities we see today,” Herbert says.
As policy discussion emerge, one aspect needs to be homeownership in addition to affordable housing for renters. “One of the significant disparities between whites and Blacks is both the overall homeownership rate and the opportunities that have created wealth through homeownership over time,” Herbert says.
The nation will face another big moment with the presidential election this year. Housing policy has not been much of an election issue in the past, and there generally aren’t big shifts in housing policy as a result of a presidential election, according to Herbert.
However, Joe Biden has put out a housing policy platform that calls for universal access to housing vouchers as one of its key pieces. “That would be a seismic shift in housing policy and the ability for low-income households to be able to afford housing,” Herbert says.
If Biden is elected and Democrats gain control of both houses of Congress in November, there’s the potential for increased federal attention on housing, but there’s still “a lot of ifs” for that to happen, he says.
