David Brogan is the executive director of the New Jersey Apartment Association — Photo by Mary Iuvone for Real Estate NJ
It will soon be a year since the start of New Jersey’s COVID-19 outbreak, one that has rippled through the state’s apartment industry and left landlords with unease and uncertainty.
In part one of a two-part column, New Jersey Apartment Association Executive Director David Brogan answers some of the biggest questions still facing the multifamily sector, including how owners of all sizes are dealing with nonpayment of rent and the ongoing eviction moratorium, along with the prospect of state and federal rental assistance.
How is the multifamily industry grappling with the crisis 11 months into this pandemic?
A growth in nonpayment of rent has been the single largest issue facing the multifamily industry. There are some tenants who are truly facing hardship, and they really need assistance. There are others, however, who are using the pandemic and the eviction moratorium to game the system and simply stop paying rent. Small landlords are really struggling, and it is truly heartbreaking. These are people who put their life savings into their properties and hoped that it would fund their retirement, pay for their kids’ college or simply be a source of income. Now, some of these people have lost everything, while others are at the brink.
For the larger landlords, they are feeling the pain at different levels. It really depends on the location, the percentage of tenants not paying and how much debt they have on their properties. Some landlords have borrowed additional funds from banks to help them get through the next six to 12 months. Others shifted money out of capital improvement budgets to fund operations. Still others are asking investors or partners to provide more cash. Then there are some who are simply giving up and selling their buildings. None of this is positive.
How does the extension of the federal eviction moratorium impact New Jersey’s landlords?
A provision in the Centers for Disease Control moratorium maintains that if the state or local moratorium provides an equal or greater level of public health protection than the CDC’s order, the state order takes precedence. In New Jersey, the state eviction moratorium has broader protections and supersedes the federal CDC eviction moratorium. Therefore, the extension of the federal moratorium won’t have any impact in New Jersey as long as the state moratorium remains in place.
Having said that, there are two striking differences between the two moratoria. First, the federal moratorium ends on March 31, 2021, unless there is a subsequent extension. In New Jersey, we have no idea when that moratorium will end since it is tied to the health emergency or state of emergency, whichever is longer. This uncertainty is difficult for our industry. How can you plan if you don’t know when rent revenue will start to come back in? We really need some level of certainty and, given the positive progression, of vaccine distribution and the stabilization of hospital admissions, now is the time to provide that certainty.
Second, the federal moratorium has criteria that must be met and a certification that must be submitted by the tenant that they are, in fact, COVID-impacted. New Jersey’s moratorium has no such criteria. As such, we have seen situations where people who have not been impacted by COVID and have not lost their job are exploiting the broad nature of the state moratorium. They are simply telling their landlords that the state has told them they don’t need to pay, which is wrong. This is a major flaw in New Jersey’s eviction moratorium and, if it remains in place, it does need to be corrected.
I think most people understand the rationale for a temporary eviction moratorium, especially at the outset of the pandemic. But the moratorium should apply to those who were impacted by COVID-19, not anyone who simply doesn’t want to pay rent. It should also have had a finite duration, and it needs to be coupled with financial assistance. Simply maintaining an eviction moratorium for a year or more is going to have serious ripple effects on the entire multifamily ecosystem, which includes tenants, landlords, homeowners, municipalities and the state. This will also have an impact on property taxes. I just hope the state comes to that realization before it is too late.
The federal government recently provided $25 billion in rental assistance. Will that help the multifamily industry in New Jersey?
The short answer is, absolutely. NJAA has been advocating for rental assistance going back to April of 2020. Broad-based rental assistance will prevent the negative domino effect I mentioned earlier, and it will mitigate a property tax shift onto homeowners. As we have said consistently, rental assistance is the only solution to this crisis. Unfortunately, there has been legislation attempting to simply shift the burden from tenants to landlords without assistance, as well as bills that create ridiculously long repayment periods, but those are not solutions. In fact, they would simply create more problems.
As for the amount of federal assistance New Jersey will receive, in total it is $589 million. Of that amount, about $353 million will go to the state and about $235 million will go to 14 counties and two cities. The minimum population threshold to receive these funds was 200,000.
How will the money be disbursed and what exactly can it be used for?
I would assume that the money coming to the state would be disbursed through the previously established COVID-19 Emergency Rental Assistance Program (CV-ERAP), but we are not entirely sure. We will know better in the coming weeks. As for the counties, some of them have rental assistance programs they funded with CARES Act funds, while others will have to create programs from scratch. Having said that, it is incumbent upon the governor and county officials to disburse this assistance as efficiently and effectively as possible. We have until Dec. 31, 2021, to utilize that money.
The programs can help pay up to 12 months of rent and/or utilities, plus an additional three months if it is necessary to ensure housing stability. Funding could go entirely toward paying back rent or utility arrearages, or it could go toward future rent payments. However, a household’s rental arrearages must be satisfied before future rent payments can be made.
This assistance will be tremendously helpful. However, there is one problem. The rental assistance can only help those with incomes of 80 percent of the area median income or less, but must be prioritized for households earning at or below 50 percent of AMI or who have faced long-term unemployment. On the positive side, this assistance will be critical for low-income families who are struggling, but there is a large contingent of impacted tenants who make between 80 and 120 percent of AMI who cannot avail themselves of that assistance. These are middle class people living in workforce housing and right now, there is no program to help them.
Are you saying that there needs to be additional assistance, and if so, how will we pay for that?
The $589 million will have a significant impact and should help tens of thousands of low-income families, which is exactly what we have been asking for. But as I mentioned, there are middle class families that are struggling who also need assistance. What we are asking for is that state government take the same steps that private-sector businesses had to take throughout this pandemic to survive, and that means reallocating resources.
Private-sector businesses took funds from savings or money slated for capital improvements and used that for operations. Why won’t government operate in the same way? New Jersey has its own resources that it can allocate for middle class rental assistance. Last year, New Jersey also received $2.4 billion in CARES Act money, some of which was free to allocate to rental assistance, and there has to be unspent funds.
Additionally, allocations for prospective projects were doled out in 2020, but government must understand that the environment has changed, and it cannot be “business as usual.” People need help now. For example, in December the governor provided $14,879,280.00 to fund the construction of 68 units of affordable housing. That same amount could have provided nearly 3,000 tenants (2,975) with $5,000 each to help address their rental needs. Now, I am not saying that affordable housing isn’t important. It is important and it’s one of the top priorities of our association. But we are in the middle of a global pandemic. Shouldn’t government utilize the money it has now to help nearly 3,000 residents, instead of funding 68 units that will take years to build?
David Brogan is the executive director of the New Jersey Apartment Association. Click the link below to read part two of his column.