At the request of the Arizona Multihousing Association and the Arizona Association of REALTORS®, Elliott D. Pollack & Company analyzed the potential impact of eviction moratoria on the Arizona rental housing industry. The results clearly indicate that eviction moratoria and the non-payment of rent could have devastating consequences on the rental housing industry and the real estate industry as a whole.
Renters account for over 35% of total households in Arizona. The latest U.S. Census survey places that at 919,931 renter households across the state. Combined with a median rent of $1,036 per month, nearly $1 billion in rent is paid every month across the state of Arizona. Thus, if renters cannot, or decide not to pay rent during the eviction moratorium, losses will add up quickly.
While the exact percentage of renters who don’t pay rent is currently unknown and likely to fluctuate over time, the following illustrates a potential range of scenarios:
- 1% non‐payment: Over seven months equates to $67.8 million in lost revenue. Adding the eviction process and turnover (up to two months of lost income), totals $87.1 million.
- 15% non‐payment: 7‐month losses grow to over $1.0 billion. Including the eviction process and turnover equates to over $1.3 billion in losses.
Though well‐intended, the combination of relief measures including enhanced unemployment benefits and an extended eviction moratorium have created a perverse incentive for residents to withhold rent payments without penalty. This is patently unfair to rental property owners who have been forced to bear the brunt of someone else’s financial burden without any due recourse or compensation.
Eviction moratoria and the subsequent nonpayment of rent will cause a ripple effect. The employees, contractors, and suppliers that rental property owners utilize will begin to feel the pinch when owners do not have the ability to meet their financial obligations. This, in turn, will impact the employment of those supplier industries and the financial health of those workers and their families. The apartment industry alone employs over 21,900 workers both directly and through their ripple effect. This will impact their estimated $695.9 million in wages and the $3.8 billion economic activity that is generated annually.
We cannot continue to ask one sector of the state’s economy to provide a social safety net without any participation from government. This is not sustainable and will have consequences both near and long-term on Arizona’s housing market.
Rental housing is one of most effective solutions to addressing our state’s growing affordable housing issue. Looking further out, in the medium to long-term, the potential imposition of any future moratoria by government may create a dampening effect on rental housing development. This affects additional jobs as well. Each year, an estimated $1.1 billion in apartment construction activity generates an estimated 14,374 jobs across the state, responsible for $746.6 million in wages, and a total economic impact of $2 billion.
Moratoria are unnecessary and impact small owners
According to Census data, over half the rental market is comprised of smaller housing types and not in a traditional apartment community. An estimated 331,022 rentals are single family homes and another 148,442 units are made up of condos, duplexes, triplexes and fourplexes. These are largely owned by individuals or small businesses, not large companies. For senior owners and state pension funds, rental income may represent a substantial share of their total source of income.
Rental property owners are not just large corporations, but include small and family businesses, individuals, and couples. Many have invested substantial portions of their savings in rental real estate, and the rental income from these properties contribute to their total household income. Without that income, these owners are at risk of losing their properties to foreclosure if they cannot pay their mortgages or HOA fees.
In addition to this loss of income, these operators and owners of rental real estate are further burdened with statutory obligations to provide essential services; all without a plan to provide a source of revenue to cover operating costs. They must maintain employment of maintenance and administrative staff, perform repairs and maintenance to keep the property habitable and sanitary, and pay property taxes; all without recourse for nonpayment of rent by their residents.
Provide resources, not remove property rights
The COVID-19 pandemic has hit every Arizonan in some capacity, and some more than others. Through no fault of their own, many Arizonans have become unemployed, have seen a reduction in their work hours, or have been hospitalized due to COVID-19. Many business owners across the state have also been forced to close their doors in order to slow the pandemic’s spread. In an effort to mitigate the economic consequences of the pandemic, the federal CARES Act, the President’s Executive Orders, and any federal aid that follows has provided financial relief for most affected individuals in the form of stimulus and enhanced unemployment benefits for those who are currently unemployed. Congress has also provided relief to small businesses by way of the Paycheck Protection Program.
These resources, along with the nearly $130 million in Eviction Prevention and Rental Assistance aid offered by state and local governments in response to COVID-19, have provided Arizonans with the means to pay rent.
At a time when affordable housing is at its greatest need, developers may begin factoring future moratoria into their risk assessments for the Arizona housing market and look elsewhere for investments with less risk. This could displace substantial investments in our state in favor of alternative locations.
Elliott D. Pollack is CEO of Elliott D. Pollack and Company, an economic and real estate consulting firm in Scottsdale