While many worry about violence after Election Day, a concern the recent riots in Philadelphia, New York, and Washington have done nothing to calm, there is another time bomb ticking that has nothing to do with the election: Unpaid rent.
While the media has been worrying about COVID-19 cases, they have neglected to talk about the problem affecting far more people: layoffs, furloughs, and unemployment. The impact losing your job can have on people’s lives is hard to underestimate and in times of high unemployment rates can lead to homelessness. In the long run, the crumbling of our economy may do far more harm to the lives of the younger generations than catching the coronavirus, in part because a loss of income often leads to a loss of housing. And being homeless can become a spiral that is difficult to climb out of.
Millions Face Eviction
According to the Wall Street Journal, between 30 and 40 million people (more than one in ten Americans) may face evictions as early as next year. From the article:
A large number of renters have been unable to pay some or even all of their rent since March, when the pandemic temporarily shut down most businesses….
Federal and local eviction moratoriums have protected many of them from losing their homes if they missed payments during the pandemic. But the national eviction ban and some state and city protections are set to expire by January or sooner. Renters then will be on the hook for months of missed payments, which even those who have jobs could struggle to pay.
Estimates of total outstanding rent debt vary widely. Yet by any measure, the effects of missed rent payments are bound to imperil millions of renters and wash over the broader economy.
Many young adults move back in with their parents if they cannot pay rent, but not everyone has family willing or able to take them in.
My advice if you are on the verge of becoming homeless is to see if your county social services people can provide any aid and talk to your church and other non-profits to see if they can help. Once you run out of these options, your las resort is to pay your rent with a credit cards or a credit card advance, if you have credit cards, and don’t pay the card bills. Then, when the credit card companies start hounding you, declare bankruptcy. Having a roof over your head is more important than having a good credit report.
A House of Cards
Earlier this year, we saw how the just-in time-supply chain was vulnerable to disruption. For example, being unable to shift production from commercial or industrial packaging to consumer packaging resulted in empty store shelves even while there was food being raised and harvested. One small thing kept food off the shelves and forced farmers to dump food that was ready to be harvested.
Now we will be seeing how the inability of tenants to pay rent has far reaching repercussions throughout the housing sector.
For example, if a landlord cannot collect rent, they will have difficulty paying the underlying mortgage o the rental property. That could lead to a foreclosure on their rental property. This can affect large commercial landlords who own apartment complexes as well as smaller landlords who have a portfolio of just a couple rental properties. Even individual landlords who don’t have a mortgage count on that income to pay their bills, make repairs, and to provide retirement income.
Retail space is also collapsing, starting at the malls but continuing to main street as restaurants and smaller retailers go out of business and declare bankruptcy, leaving creditors unable to collect past due amounts. Then there is commercial office space where prices are collapsing as businesses realize they do not need all their employees under the same roof. Hotels are also losing money and some prize properties are being handed over to their creditors because occupancy rates are insufficient to pay for their financing. It’s just not a bad time to be in commercial real estate.
Homeowners and Mortgage Deferrals
While renters are a more immediate problem, home owners could also be subject to foreclosure. While some mortgage payments can be deferred, eventually the banks want their money. In the Great Recession in 2008, homeowners faced the double whammy of losing their jobs and owing more than their house was worth after the housing bubble collapsed. That may happen to people in cities as property values drop in urban neighborhoods as people move to the city and suburbs.
Restarting the economy and boosting hiring is critical to helping people resolve these issues. Governors who are preventing business as usual should read the Great Barrington Declaration and relax their restrictions.
How to Protect Yourself
Job loss is not uncommon. Companies fail. Business cut back. Some bosses are idiots. Some employees deserve it. But in most cases, getting a new job isn’t that big a problem. Its the combination of a bad economy and job loss that makes things seem hopeless.
The best advice to prepare yourself for this kind of situation is to follow Dave Ramsey’s advice and have no debt and an emergency fund that holds enough money to pay all your expenses for six months. Outside of having cash on hand, about the only thing you can do is get a job below your level of expertise. It may hurt your pride, but its not as bad as losing your house and pawning your favorite gun.
Lockdowns May Lie in Our Future
France and Germany have both implemented new lockdown measures. Biden has already said he would do so if elected. Some governors may do so, even without a federal mandate. That will be bad for business, bad for the economy, and worse for the common man. Get your finances in order, your food storage in place, and buckle up. This winter may be the worst in recent memory.
If you found this article valuable, you might like Get Prepared for a Long, Cold, Lonely Winter.