Renters In Crisis: Housing Experts Say Canceling Rent Isn’t The Best Answer

As the economic consequences of the coronavirus pandemic extend into the future, Americans and policymakers are trying to figure out what type of assistance is needed for both homeowners and renters.

Since mid-March, more than 26 million Americans have filed for unemployment. The CARES Act, a $2 trillion relief package passed by the federal government, implemented financial safeguards for Americans, including expanded unemployment benefits and one-time stimulus payments. The Act also introduced up to 12 months of mortgage forbearance for federally backed mortgage loans on single-family homes.

But experts estimate the national foreclosure suspension leaves out the 44 million households that rent their homes. Now, lawmakers are proposing nationwide rent protections—like canceling rent—but housing experts say it’s not that simple.

What Lawmakers Are Proposing

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States and cities have stepped up and implemented their own eviction moratoriums by pausing evictions until after the national COVID-19 crisis ends. Although these moratoriums are a step in the right direction, housing experts have said since the beginning of the pandemic that these simply aren’t enough. Eventually the moratoriums will lift, courts will open back up and a flood of eviction proceedings will likely occur.

“But eviction moratoria on their own, as many governments are proposing or enacting, would only address a small part of the crisis,” reads a blog post from the Urban Institute’s housing research department, dated March 20, just one week after the national emergency was declared. “Without additional rent relief or flexible cash assistance, moratoria could reduce COVID-19 transmission risks today but create an eviction tsunami later.”

Representative Ilhan Omar (D-MN) has introduced a sweeping proposal aiming to implement nationwide housing relief. The representative from Minnesota is calling for rent and mortgage payments to be canceled (as opposed to being suspended or postponed) for up to a year for all rent and mortgage holders with an existing rental or loan agreement on their primary residence. There are no income or payment level restrictions for who would be eligible. The bill also would provide a federally funded relief fund for landlords and mortgage lienholders to cover losses from the canceled payments.

“In 2008, we bailed out Wall Street,” Rep. Omar said in a statement. “This time, it’s time to bail out the American people who are suffering.”

Considering that renters are a financially vulnerable demographic, there is no doubt that massive waves of evictions could be coming. Research shows that renters have lower incomes and less financial stability than homeowners. A report by the Joint Center for Housing Studies of Harvard University (JCHS) found that 25% of all renters in 2018 spent more than half of their income on housing.

This is far above the financial rule of thumb that recommends spending no more than 30% of income on housing. According to the JCHS report, in 2018, nearly half of renters spent more than that percentage, leaving them especially vulnerable to any potential decrease in household income.

Newly compiled data is already showing a decrease in how many Americans are paying their rent. According to a survey from the National Multifamily Housing Council, 89% of apartment households had made a full or partial April rent payment by April 19, compared to 93% of renters for the same time frame last year. And while the decrease is small for now, analysts say it’s just the beginning of what’s to come.

“Now it’s a question of when we will see these effects accumulate,” says Matthew Murphy, executive director of the NYU Furman Center for Real Estate and Urban Policy. “If the economy isn’t recovering and people aren’t back to employment, we will see more nonpayment and something will have to be done. The federal government is likely going to have to provide some sort of housing package.”

What National Rent Relief Could Look Like, According to Experts

The question of how the federal government can protect rent payers isn’t one that can be answered simply. Both experts say canceling rent would have significant ripple effects on communities, and doesn’t answer the question of who will eventually pay the associated costs.

“It’s not as simple as just canceling rent—we are all connected,” says Mary Cunningham, vice president for Metropolitan Housing and Communities Policy at the Urban Institute. “Landlords pay state and local government taxes, which fund schools, libraries and parks. To prevent ripple effects, we should just help renters pay their rent.”

Rep. Omar’s proposal includes a Rental Property Relief Fund to be established by the Department of Housing and Urban Development. The proposal would allow landlords to apply to have the full cost of any canceled rent payments covered by the federal government. Funding this could be difficult, considering the state of housing in America is one that is historically underfunded, and some experts say it’s often an afterthought for policymakers.

“Before the pandemic, we were poorly housed when it comes to affordability and there was no political will to do anything about it,” says Cunningham. “We definitely have strong research on how to keep people housed—it’s not that we don’t know how to do it, it’s that we won’t pay for it.”

Instead, Cunningham says, expanding existing programs, like the federal Housing Choice Voucher Program, could be a better option. These vouchers allow the government to subsidize portions of rent payments and were utilized during other times of economic distress, including during the aftermath of Hurricanes Rita and Katrina. Vouchers also have the advantage of reflecting local rent values, which fluctuate across the country and increase in higher cost of living areas like California and New York.

The Housing Choice Voucher Program has traditionally focused on lower-income individuals and families, but COVID-19 is sparking a broader renters’ crisis that requires rethinking existing assistance and options.

Murphy suggests that policymakers introduce new housing relief initiatives that will complement programs already passed in the CARES Act, such as sending more cash directly to Americans specifically to help pay their rent. As of now, most Americans say they’ll be spending their stimulus payments on bills. Additional stimulus payments in the future could continue that trend and help keep a roof over Americans’ heads.

Any successful responses to the financial implications of the coronavirus pandemic must address both renters and landlords. Murphy notes that providing assistance to landlords to cover costs like property taxes and water bills could prevent buildings from “tipping into financial distress.” Addressing cash flow issues, Murphy says, could better keep buildings and communities afloat.

Rent Relief Available Now

There’s no way of knowing when federal renter relief will be passed into law or what it might look like. Until then, renters should familiarize themselves with any eviction moratoriums in effect in their state or city. Arizona, for example, has halted evictions of renters facing economic hardship due to the pandemic until July 24.

But even with moratoriums in place, renters could still be at risk for eviction. There are reports of people being threatened with eviction in California during the COVID-19 crisis because landlords don’t understand or respect the current laws that are in place.

Addressing potential evictions is only the first step in assisting renters. Equally—or even more—important is what happens after these moratoriums are lifted. Some states are already implementing safeguards for what might happen in the future: Washington state isn’t allowing landlords to treat pandemic-related unpaid rent like regular debt that can result in an eviction. While all rent payments that are delayed between mid-March and June 4 will still be owed, landlords are required to work with tenants to offer them a reasonable payment plan.

Staying Informed

Information about current safeguards for your state or city can typically be found on your state government or city mayor’s websites. Because evictions are handled through the court system, state judicial departments also are involved in setting non-eviction rules and dates. In many states, the details are contained in governors’ executive orders. The fastest way to find up-to-date state-specific information online may be to search COVID rent relief and the name of your state.

Whatever rent payment programs are developed or legislated—and whether they’re implemented at the local, state or federal levels—it’s important that they don’t cause new waves of crises after the primary COVID-19 crisis period has passed. It would only make a bad situation worse to provide relief to renters for several months that then creates new financial problems. However these programs ultimately are funded, the right solutions will require both short- and long-term thinking that takes into account the needs of both landlords and renters.

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I’m a Personal Finance Reporter for Forbes Advisor. Previously, I covered personal finance at other national web publications including Bankrate and The Penny Hoarder. I’ve been featured as a personal finance expert in outlets like CNBC, Yahoo! Finance, CBS News Radio and more. When I’m not digging up the best ways to manage your money, I’m out traveling the world. Follow me on Twitter at @keywordkelly.

Source: Renters In Crisis: Housing Experts Say Canceling Rent Isn’t The Best Answer

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Renters plunged into economic hardship by the coronavirus will be protected from being kicked out of their homes under a national plan to protect Australians from homelessness. Prime Minister Scott Morrison made the announcement after meeting with his war cabinet saying the protections would last for at least six months. “States also agreed today, and further work will be done on this, on working to identify how relief can be provided for tenants in both commercial tenancies and residential tenancies, to ensure that in hardship conditions, there will be relief that will be available, and ensuring that tenancy legislation is protecting those tenants over the next six months at least,” he said. “That work will be done by states and territories, as it is a state and territory matter, and that work will be led by Western Australia, together with New South Wales, working with all the other states and territories, to bring back some model rules that can be applied in hardship cases. “So understanding what the trigger might be and how in those circumstances the tenants would be able to maintain their tenancies.” Mr Morrison said that decision would “mean something for landlords” but did not specify whether the government would compensate them. Instead he spoke about how every Australian would need to make a sacrifice. “Now, I know that will mean something for landlords, just as the decision taken today means something for banks, just like the decisions we have already taken as a Commonwealth government means things for our balance sheets, and as a people, for the Commonwealth government, as it does for the states,” he said. “All Australians are going to be making sacrifices, obviously, in the months ahead.”

As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug

The mortgage-interest deduction, a beloved tax break bound tightly to the American dream of homeownership, once seemed politically invincible. Then it nearly vanished in middle-class neighborhoods across the country, and it appears that hardly anyone noticed.

In places like Plainfield, a southwestern outpost in the area known locally as Chicagoland, the housing market is humming. The people selling and buying homes do not seem to care much that President Trump’s signature tax overhaul effectively, although indirectly, vaporized a longtime source of government support for homeowners and housing prices.

The 2017 law nearly doubled the standard deduction — to $24,000 for a couple filing jointly — on federal income taxes, giving millions of households an incentive to stop claiming itemized deductions.

As a result, far fewer families — and, in particular, far fewer middle-class families — are claiming the itemized deduction for mortgage interest. In 2018, about one in five taxpayers claimed the deduction, Internal Revenue Service statistics show. This year, that number fell to less than one in 10. For families earning less than $100,000, the decline was even more stark.

                                    

The benefit, as it remains, is largely for high earners, and more limited than it once was: The 2017 law capped the maximum value of new mortgage debt eligible for the deduction at $750,000, down from $1 million. There has been no audible public outcry, prompting some people in Washington to propose scrapping the tax break entirely.

If the deduction’s decline should be causing a stir anywhere, it is in towns like Plainfield, where the typical family earns about $100,000 a year and the typical home sells for around $300,000. But housing professionals, home buyers and sellers — and detailed statistics about the housing market — show no signs that the drop in the use of the tax break is weighing on prices or activity.

“From the perspective of selling and trying to buy, I don’t see any evidence of that,” said Paul Forsythe, who teaches physical education and coaches football at a high school.

Mr. Forsythe and his wife, Kylie, are selling their four-bedroom, two-bath home on a quarter-acre lot in one of Plainfield’s older developments, which dates to 1997. They are moving with their two daughters to a nearby suburb, closer to the schools where they work. They have owned homes through the ups and downs of the local housing market, which boomed in the early 2000s and crashed in the midst of the financial crisis.

“Right now,” said Ms. Forsythe, a fourth-grade teacher, “people are excited that the market is finally good again.”

Such reactions challenge a longstanding American political consensus. For decades, the mortgage-interest deduction has been alternately hailed as a linchpin of support for homeownership (by the real estate industry) and reviled as a symbol of tax policy gone awry (by economists). What pretty much everyone agreed on, though, was that it was politically untouchable.

Nearly 30 million tax filers wrote off a collective $273 billion in mortgage interest in 2018. Repealing the deduction, the conventional wisdom presumed, would effectively mean raising taxes on millions of middle-class families spread across every congressional district. And if anyone were tempted to try, an army of real estate brokers, home builders and developers — and their lobbyists — were ready to rush to the deduction’s defense.

Now, critics of the deduction feel emboldened.

“The rejoinder was always, ‘Oh, but you’d never be able to get rid of the mortgage-interest deduction,’ but I certainly wouldn’t say never now,” said William G. Gale, an economist at the Brookings Institution and a former adviser to President George H.W. Bush. “It used to be that this was a middle-class birthright or something like that, but it’s kind of hard to argue that when only 8 percent of households are taking the deduction.”

Kylie and Paul Forsythe outside the Plainfield home they are selling. “People are excited that the market is finally good again,” Ms. Forsythe said.
CreditAlyssa Schukar for The New York Times

Mr. Gale, like most economists on the left and the right, has long argued that the mortgage-interest deduction violated every rule of good policymaking. It was regressive, benefiting wealthy families — who are more likely to own homes, and to have bigger mortgages — more than poorer ones. It distorted the housing market, encouraging Americans to buy the biggest home possible to take maximum advantage of the deduction. Studies repeatedly found that the deduction actually reduced ownership rates by helping to inflate home prices, making homes less affordable to first-time buyers.

But the real estate industry said that scrapping the deduction could undermine the value of what is, for most American families, their most important asset. In the debate over the tax law in 2017, the industry warned that the legislation could cause house prices to fall 10 percent or more in some parts of the country.

Price growth has cooled in many markets, including New York and Seattle, but not nearly as much as the most alarming estimates suggested, and not in a pattern that suggests the loss of the deduction was a primary factor. Places where a large share of middle-class taxpayers took the mortgage-interest deduction, for example, have not seen any meaningful difference in price increases from less-affected areas, according to a New York Times analysis of data from the real estate site Zillow.

Skylar Olsen, an economist at Zillow, said that the slowdown in the housing market probably had little to do with the tax law. Home prices have risen much faster than wages in recent years, creating an affordability crisis in many cities that probably made slower growth in prices inevitable.

“Housing markets were burning so hot at an unsustainable pace and they had to come down,” Ms. Olsen said.

The tax law may have had another impact: It capped deductions for state and local taxes at $10,000, which had a particularly large effect in coastal cities and other places where property taxes and real estate values are both high. Those places did see a slowdown in the growth of home prices after the law took effect, although it is not clear whether the two were linked.

The national real estate industry argues that the two tax changes have together played a role in weakening the housing market.

“Clearly the housing market is underperforming in relation to economic fundamentals of job growth, wage growth and mortgage rates,” said Lawrence Yun, chief economist for the National Association of Realtors.

Economists like Mr. Yun and Ms. Olsen will probably debate the law’s impact for years. It is possible, and even likely, that sophisticated analyses will eventually conclude that limiting the mortgage-interest deduction did lead to somewhat slower price growth.

But for most home buyers and sellers, those subtle effects will be washed away by forces that have a much bigger impact: changes to mortgage rates, construction costs and supply and demand trends that vary from city to city and from neighborhood to neighborhood.

The tax law also rolled back the mortgage-interest deduction in a way that minimized the chance that taxpayers would notice its absence. Congress did not take away the tax break; it just changed the law in a way that meant fewer people would benefit from it — and buried the change in a much broader overhaul to the tax code.

But while Washington think tanks plot the deduction’s demise, the real estate industry is still hoping to restore it in some form. Mr. Yun of the National Association for Realtors said that as the housing market weakened, pressure would mount for Congress to restore some of the tax advantages that homeownership has historically enjoyed, although not necessarily in the same form.

For now, though, real estate agents and developers do not see the erosion of the mortgage deduction playing much of a role.

Plainfield’s housing market has been shaped by abrupt changes over the past 30 years. In 1990, a tornado leveled parts of town, killing more than two dozen people and forcing a huge rebuilding effort. At the turn of the millennium, the town had fewer than 10,000 residents. It has since quadrupled, with more growth on the way.

During the housing craze of the mid-2000s, developers leveled corn fields and sod farms to make way for cul-de-sacs. When the crisis hit, activity in many of the new subdivisions froze, said Ellen Williams, a real estate agent with Coldwell Banker in Plainfield who has sold homes in the area for nearly two decades. Only in the past few years has construction restarted in earnest.

CreditAlyssa Schukar for The New York Times

Ms. Williams helped the Forsythes buy their home several years ago, when the housing crash still weighed on the market and the couple was underwater on a townhouse that had become too small for their growing family. They rent the townhouse out now, which means that they still itemize their deductions, including for mortgage interest. They said the deduction was not a factor in the sale of their home this summer or in their purchase of a new one.

Ms. Williams said that has been the case across the market. “I don’t know that it’s been a huge enough change yet,” she said. “People worry about Illinois taxes more.”

In the Forsythes’ ZIP code, housing prices are up 2 percent from the last year, according to data from the online real estate brokerage Redfin. Homes are selling quickly, Ms. Williams said, as she gave a quick tour of a recently listed four-bedroom house backing up to a pond in a nearby community. The hardwood floors were well kept, the kitchen hardware dated to the mid-1990s and the home was listed for $267,000.

“There’s not a lot available in this subdivision,” Ms. Williams said, “so I anticipate it selling quickly.”

Jim Tankersley covers economic and tax policy. Over more than a decade covering politics and economics in Washington, he has written extensively about the stagnation of the American middle class and the decline of economic opportunity. @jimtankersley

Ben Casselman writes about economics, with a particular focus on stories involving data. He previously reported for FiveThirtyEight and The Wall Street Journal.

 

Source: As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug – The New York Times

Blackstone Calls Logistics Its ‘Highest Conviction’ Real Estate Idea After Striking $18.7 Billion GLP Deal

At Blackstone Group, the world’s largest private equity firm, with $512 billion in assets under management, few properties or companies are out of reach. So when the firm strikes a record-setting deal and anoints the sector as a top firm-wide idea, it’s worth listening to.

In real estate, Blackstone is doing just that when it comes to logistics space—the warehouses where the orders of Amazon and other e-commerce giants are delivered in bulk, sorted and sent out to customers. On Sunday evening, the firm disclosed an $18.7 billion deal for the U.S. logistics assets of Singapore’s GLP, inking the biggest private real estate deal in history. And Blackstone isn’t coy about its optimism for the real estate that houses America’s increasingly e-commerce-oriented supply chain.

“Logistics is our highest conviction global investment theme today, and we look forward to building on our existing portfolio to meet the growing e-commerce demand,” Ken Caplan, co-head of Blackstone’s real estate business, said in a statement.

It’s a bold statement coming from Blackstone given that logistics space is probably only noticeable to the average American as they drive along the interstate or make landings at airports on a clear day.

The warehouses Blackstone is buying are often massive white windowless and logo-less boxes bigger than a football field. They sit adjacent to airport runways, highways, large ports and rail hubs. Increasingly, inside these buildings is what looks like science fiction: Massive robots move and sort palettes of goods, drones check inventories, and orders are sifted and sorted on conveyors that have the sophistication of an automotive assembly line.

For Blackstone, Sunday’s deal is a major doubling down on the U.S. logistics market. Its $140 billion real estate investment arm rolled up logistics warehouse operators and formed Indcor, which it sold to GLP for $8.1 billion in 2015. Then the firm’s real estate gurus set their sights on Europe, building pan-European giant Logicor into a $13.8 billion logistics behemoth that was sold to China Investment Corp. in 2017. In buying GLP’s U.S. business, Blackstone is bulking back up with familiar assets, acquiring some 179 million square feet of urban, in-fill logistics assets nationwide, doubling the size of its existing footprint. It also bought back a piece of Logicor from CIC in late 2017.

Blackstone’s global opportunistic real estate funds will acquire 115 million square feet of GLP space for $13.4 billion and its income-oriented non-listed real estate investment trust, BREIT, will acquire 64 million square feet for $5.3 billion. “Our global scale and ability to leverage differentiated investment strategies allowed us to provide a one-stop solution for GLP’s high-quality portfolio,” said Caplan.

Blackstone has its pick of real estate ideas to crow about.

It is one of the biggest office, hotel and single and multifamily property owners in the United States and globally. Its $140 billion portfolio contains 231 million feet of office space globally, 151,000 hotel room keys, 75 million feet of retail real estate, and 308,000 residential units and homes. It built and remains a top shareholder of Invitation Homes, an NYSE-listed single-family landlord with a portfolio of 80,000 homes nationwide. In Chicago, Blackstone owns the Willis Tower, and in Las Vegas it owns the trendy Cosmopolitan hotel and casino. By square footage, logistics space now appears to be Blackstone’s top real estate holding.

The $18.7 billion price tag is a coup for GLP, the seller. Based in Singapore, GLP is was cofounded by entrepreneur Ming Zei Mei, who spun out the international logistics space of Prologis, mostly based in China, Brazil and India. Now GLP, short for Global Logistics Partners, operates 785 million square feet of space, with more than half in China.

Once listed in Singapore, GLP was taken private in 2017 by its cofounder and a consortium of Asian investors including HOPU Jinghua (founded by Goldman Sachs’ former China chairman), Hillhouse Capital and China Vanke Co. In addition to logistics space, GLP is becoming a force in real estate and private equity asset management, with $64 billion under its watch. For the firm, Sunday’s deal is a watershed, reportedly receiving interest from Prologis, a publicly trade real estate investment trust that is the leader in U.S. logistics space.

“GLP was able to leverage our deep operating expertise and global insights in the logistics sector within four years to build and grow an exceptional portfolio,” Alan Yang, chief investment officer of GLP, said in a statement. As it recycles capital, the firm remains bullish on the U.S. “We are looking forward to expanding our footprint in the United States to continue to seize key opportunities in the U.S. market,” Yang said.

For more on Logistics:

See our 2017 feature on Prologis, the world’s logistics leader

Also see our mention of GLP in our coverage of a bet Brookfield made in China.

I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks.

Source: Blackstone Calls Logistics Its ‘Highest Conviction’ Real Estate Idea After Striking $18.7 Billion GLP Deal

1031 Exchange – Complete Guide to 1031 Exchange Rules in Real Estate

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A 1031 exchange allows an investor to sell their investment property and defer capital gains taxes as well as depreciation recapture taxes that would normally be triggered on their sale, if they agree to use all of their sale proceeds to purchase one or more new properties of equal or greater value. In total, taxes can be up to 40% of your real estate profits. A 1031 exchange applies to any property that isn’t your primary residence and can even apply to primary residences if they have a home office, Airbnb use, or business use. There are several key rules and regulations that you need to know before you open an exchange. Read more….

 

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Real Estate Markets Cooling Across The Country, And It’s Not Just The Winter Effect – Caroline Feeney

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In December 2008, almost a decade ago exactly, Case-Shiller posted a record 18% price drop in home values across the country as the subprime mortgage crisis reached fever pitch. After a slow and painful recession period, economic prosperity pushed the market out of recovery mode and into a full-fledged real estate boom characterized by double-digit price growth, rock-bottom inventory and surging buyer demand over the past few years. It’s been the lowest of lows, followed by a glorified golden age for the country’s trillion-dollar residential real estate business……….

Read more: https://www.forbes.com/sites/carolinefeeney/2018/11/15/real-estate-markets-cooling-across-the-country-and-its-not-just-the-winter-effect/#2bd98b12172b

 

 

 

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