The Rent Debt Bubble

By Derek Barnes–

There is something ominous that is hiding in plain sight. Very few people talk about it or write about it, but its presence is an undeniable threat to the Bay Area’s housing market—the growing balance of unpaid rental debt.

The COVID-19 pandemic unleashed a series of state and local laws that legislators rushed to enact to protect renters without doing proper impact studies or analysis. Some municipal leaders even used the pandemic’s urgency to push more sweeping and permanent housing restrictions and enforcement policies—rent control, Just Cause, rent increase caps, and establishing rental registries. Health Emergency Mandates at the state and local levels led to three-year eviction moratoriums in San Francisco, Oakland, Berkeley, Alameda County, and Santa Clara County.  

Continuing eviction moratoriums present great challenges to the rental housing market in Bay Area cities. During the height of the pandemic in 2020, unemployment levels soared to over 15% in some communities as renters struggled to meet their financial obligations. Today, COVID-19 infections and deaths are significantly lower, the Bay Area economy is thriving, and unemployment is below 4% in many areas. However, rental housing providers are still unable to remove non-paying and non-compliant renters due to eviction moratoriums in place in the aforementioned municipalities.

It’s worth noting that households never needed to prove COVID-19 hardship and many renters who had no financial impact decided to stop paying rent. As a result, a growing unpaid rent debt crisis has ballooned across the Bay Area. After moratoriums being in place in some areas for three years, the rent debt bubble will have shocking impacts on the Bay Area housing market for years to come.

Sources like The Urban Institute, National Low Income Housing Coalition, and Bay Area Renters Coalition believe the current unpaid rent debt in the nine-county Bay Area may be as high as $3.5 billion. In San Francisco, the unpaid rent debt may exceed $900 million, and Oakland holds about $640 million in unpaid rent debt due to the eviction moratorium as federal and state emergency rental assistance has also been exhausted. These numbers are staggering.

The growing rent debt is a crisis that also hurts rental communities. According to experts, there are other unintended consequences when rental owners cannot take action against non-compliant renters. A ripple effect in the market causes increased mortgage defaults (especially for smaller, BiPOC, and immigrant rental owners), a spike in eviction filings due to a three-year backlog, more nuisance complaints directed at non-compliant renters, and higher vacancy rates because owners may leave homes empty for fear they can never remove a renter from their property. Additionally, there have been decreased rental rates, reduced security and community safety, less maintenance on older properties due to insufficient income and higher operating costs (inflation), and an overall decline in property values.

To address the growing unpaid rent debt bubble and negative effects on the housing market, the following solutions should be implemented:

• Rent relief funds or spot grants can be established to provide ongoing assistance to low-income tenants struggling to meet their financial obligations. The fund should be able to assist with rent and financial counseling to those legitimately affected by the pandemic.
• Rental owners/operators should have incentives to work with their renters to negotiate repayment plans that are both affordable and manageable. This could include a rent forgiveness program or a rent reduction program.
• Local legislators need to work towards creating more equitable and transparent resolution practices that provide greater protections and services for both renters and rental owners—equipped to handle disputes well before expensive legal triage and remedies are needed.
• Investors can be encouraged to invest in housing development to increase production, add more affordability, and reduce vacancy rates.
• A task force should be established to monitor the unpaid rent debt on an ongoing basis and make recommendations to local legislators on how to move forward.

If the rent debt bubble expands or bursts, local municipalities who continue their eviction moratorium without installing adequate programs to ensure a smoother reconciliation should expect a protracted or more painful crisis. Unpaid rent debt is a serious concern that must be addressed to protect the long-term health of our Bay Area housing market. The mentioned solutions can help mitigate and resolve the crisis and ensure that rental property owners and renters have access to fair practices, equitable housing services, and incentives that produce positive results.

Derek Barnes is the CEO of the East Bay Rental Housing Association (www.EBRHA.com). He currently serves on the boards of Horizons Foundation and Homebridge CA. Follow him on Twitter @DerekBarnesSF or on Instagram at DerekBarnes.SF

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Published on March 9, 2023