LA Apartment Owners Face This Question When the Nation's Last Major Eviction Ban Ends
By Jack Witthaus and Richard Lawson
November 30, 2022
Multifamily Demand Appears Healthy Ahead of Evictions Resuming, Analysts Say
The Los Angeles apartment eviction moratorium, one of the nation's longest-running pandemic-era tenant protections, is set to expire on Jan. 31, sparking a high-profile debate on whether its end will boost homelessness and apartment vacancies or, as some industry analysts suggest, have more muted effects.
The Los Angeles City Council raised the question by voting in early October to end the moratorium in the second-largest U.S. city. Established at the onset of the pandemic in March 2020 to prevent people losing their homes as the economy came to a virtual halt, the moratorium had some success keeping people housed. About 30,000 city evictions were filed annually before the pandemic, a number that fell about 67% during the health crisis largely because of the moratorium, according to a statement in September from Councilmember Kevin de León's office.
The end of the moratorium, the last removal of such a ban in a major U.S. city, approaches as the number of evictions nationwide is on the rise, with rent relief running out and other government-mandated moratoriums ending. Evictions surpassed historical averages in October, the most recent statistics available, in five of the 18 states tracked by Legal Services Corp., a Washington, D.C.-based publicly funded nonprofit legal aid group.
In Harris County, Texas, the third-most populous U.S. county, for instance, evictions climbed above the county's monthly average each month since January, according to LSC. The number of evictions in Maricopa County, Arizona, the nation's fourth-largest, rose in June, July and August, according to the latest statistics from LSC. LSC does not track eviction data in Los Angeles County and Cook County, the nation's two largest counties.
Apartment industry analysts have argued that the eviction moratorium was hurting small, mom-and-pop property owners and that the eviction's repeal is welcome news for some struggling landlords. About half of all of California's rental housing stock is four units or less, meaning that one tenant failing to pay rent can make it tough for landlords to pay the bills, said Frank Sutton, senior vice president for public affairs at the California Apartment Association.
In addition, some tenants have used the protections to avoid paying rent, he said, adding “there are people who abused the moratorium from day one.”
While the number of Los Angeles city residents who may be evicted after the moratorium ends is unknown, it was estimated between 36,000 to 120,000 households in Los Angeles County, which includes the city of Los Angeles, may experience homelessness because of the pandemic, according to a May 2020 study from the UCLA Luskin Institute on Inequality and Democracy. About 600,000 people in Los Angeles County at the time lived in households where 90% of the household income went toward rent.
Few recent statistics exist on the state of rental collections in Los Angles, but an August 2020 study from the University of Southern California found that 1 in 5 L.A. County residents struggled early on in the pandemic to pay rent.
Evictions Coming to LA
Publicly traded apartment owners in greater Los Angeles already have predicted that they'll start evicting nonpaying tenants next year.
Ric Campo, Houston-based Camden Property Trust's CEO, told investors on the company's third-quarter earnings call that collections in back rent dropped to about 94% compared to 97% in the second quarter. He posited that the drop was because California extended the rent moratorium and renters saw an opportunity to stop paying.
"And so hopefully, starting in January, we have no eviction moratoriums or things driving bad consumer behavior, and that will hopefully improve in 2023," he added in the call.
Essex Property Trust, a San Mateo, California-based investor with a portfolio concentrated in California and Washington, told investors on its third-quarter call that L.A. removing the protection will "allow us to recapture delinquent units in an area that accounts for approximately 40% of our outstanding bad debt and will allow us to finally get back to our historical level of delinquency," CFO Barb Pak said.
Eviction moratoriums sprung up across the country in the early days of the pandemic, and many came to an end starting in 2021 as restrictions loosened and vaccines became prevalent. The state of Illinois stopped its eviction ban in October 2021, the state of New York's eviction ban ended in January of this year and the state of California’s eviction ban ended in June 2022.
While evictions can resume in L.A. next year, some tenant protections remain. For example, some rental units are prohibited from having an annual rent increase, and rent that's owed doesn't have to be paid, in some cases, until February 2024, according to the city of L.A.'s website.
However, tenants must start paying their current monthly rent beginning Feb. 1 to avoid eviction for nonpayment of rent.
Nationwide, about 6 million U.S. renters owed roughly $20 billion in back rent in May 2021, according to a University of California, Berkeley, study. The study found that those affected were mostly low-income workers, women and people of color. Researchers in the study argued that a large number of people could be evicted nationally and that could cause housing insecurity for some for years to come.
Health, Employment Effects
Studies show that evictions have health consequences. Evictions can cause a large and persistent increase in risk of homelessness and increase emergency room use and mental health hospitalizations, according to a 2018 study of New York City evictions from researchers at New York University and the Federal Reserve of Philadelphia.
The study noted that formal evictions probably aren't a principal driver of overall poverty, but that's probably because of a darker reason.
"Those experiencing eviction are mostly already living in poverty, and their labor market outcomes are not dramatically different when they are evicted," according to the study.
Irma Vargas, founder of Los Angeles-based property management firm RST & Associates, said the eviction ban could have ended sooner, maybe even in mid-2021. That's when people began returning to work or were able to look for a new apartment while home sales and rental rates rebounded in Los Angeles, she said.
The moratorium was kept in place to secure political favor from L.A. renters and didn't reflect what had become a stable apartment market in recent months, she added. The moratorium has deflated inventories and caused rental rates to increase because nonpaying tenants are allowed to stay in their units, she added. Nonpaying tenants remaining in units prevents landlords from putting apartments on the market, said Vargas, whose property management firm works with apartment landlords, elected officials, inspectors and real estate professionals.
There likely won't be any effect on vacancy rates or rental rates in Los Angeles, Vargas said, because units that become vacant will quickly be absorbed amid L.A.'s housing shortage.
"The [for-sale] market has slowed substantially, so the rental market has picked up as people are opting to rent than buy," Vargas said. "There is little inventory, so pricing of rents are going up despite the eviction moratorium."
Lost in the discussion about the eviction moratorium is that many L.A. landlords probably will work with tenants who struggle to pay rent because of financial hardship, said Kitty Wallace, a Los Angeles apartment analyst and senior executive vice president of Colliers. Apartment landlords have pointed out throughout the pandemic that it can cost more to go through the process to evict a tenant, refurbish the empty unit and go months before finding a new tenant than it is to negotiate with an existing tenant on a new rent payment schedule.
Potential Tenant Shuffle
Landlords may move to evict renters who have intentionally avoided paying rent despite having the means to do so, Wallace said. Those renters may negotiate settlements with their landlords or leave their apartments altogether, causing a reshuffling of some tenants around Los Angeles.
Wallace said doesn't think there will be a mass eviction of people come February.
"I have the feeling a lot of these people will pay up," Wallace said.
Not all apartment analysts agree. Michael Lucarelli, CEO and co-founder of Los Angeles-based online multifamily rental application firm RentSpree, said the moratorium kept renters in place and lowered vacancies. Therefore, lifting the moratorium will have the opposite effect: displacing renters and increasing vacancies, Lucarelli said.
"This latest move may solve some problems, [but] it can bring about many unintended consequences," Lucarelli said.
The National Multifamily Housing Council, a Washington, D.C.-based industry group, stopped tracking data late last year on U.S. rent collections after seeing consistent results and determining that the "multifamily industry was stable." The final report in December 2021 found that 92% of renters made full or partial payment that month.
Moving forward, Los Angeles landlords may face new issues with nonpaying tenants. These tenants may try to only pay back rent that's owed under the new law instead of paying back all the rent that's owed, complicating finances for apartment owners, Sutton said.
"It's basically forcing housing providers to become credit providers,” Sutton said.
Witthaus, Jack, and Richard Lawson. “La Apartment Owners Face This Question When The Nation's Last Major Eviction Ban Ends.” CoStar, 30 Nov. 2022, https://www.costar.com/article/915308114/la-apartment-owners-face-this-question-when-the-nations-last-major-eviction-ban-ends.