The Back Rent Problem Won’t Hurt The Economy

Protesters Set Up A Barricade In Portland To Prevent Eviction

Eviction protest in Portland, Oregon. (Photo by Nathan Howard/Getty Images) GETTY IMAGES

Ten million renters are behind on their payments, according to the Census Bureau’s Housing Pulse Survey. The total back rent owed could be $70 billion, though nobody has a precise figure. John Kilpatrick has a good summary of the bank rent problem, presenting a variety of estimates. Renter assistance was included in the December 2020 stimulus bill to the extent of $25 billion, with another $30 billion proposed by President-elect Biden.

Being behind on rent is certainly a big problem for tenants when evictions resume. And not receiving rent is a big problem for landlords, especially those with mortgage payments due on the properties. But it’s not a big problem for the economy as a whole, despite the scary numbers.

Over ten percent of apartment renters failed to pay rent in December 2020, which sounds bad. But the prior December, before the pandemic and during a great job market, nearly eight percent didn’t pay rent. What’s different this time around: Bans on eviction have enabled people to continually not pay rent without having to move out. The arrears grow and grow.

For perspective, remember that the U.S. economy totals $21 trillion of GDP. If back rent totals $70 billion, that’s about one-third of one percent. So the back rent problem is only a little larger than a rounding error for the entire economy.

Small problems can sometimes snowball into big problems. The landlords who are not receiving rent have their own bills to pay, which frequently include mortgages and always include property taxes and maintenance. Property owners with much more debt than equity may default on their mortgages. The mortgage holder, which could be a bank, insurance company, or an investment fund, might have insufficient equity to survive the loss of regular payments. That would be unusual, however. Banks and insurance companies are generally well enough capitalized that they would survive, and investment funds often have no debt themselves. So the lack of rent is unlikely to trigger many failures in the capital markets. That’s not to say that lenders won’t be damaged, just that a chain reaction of bankruptcies is unlikely.

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Gary Anderson 1 month ago Contributor's comment

Back rent is one of many problems facing the nation. It does not exist in a vacuum.

Danny Straus 1 month ago Member's comment

I thought the stimulus package had some forgiveness for backrent. Is that not correct?

Gary Anderson 1 month ago Contributor's comment

Some. But not all.