COVID-19’s Impact on Multifamily and Affordable Housing

The coronavirus has heightened inequality in the housing market, a crisis that the country will continue to experience even after the pandemic is over, says Lee Oller of Merchants Capital.
Lee Oller

We are experiencing two crises at once—health-care and housing. How can we expect people to comply with stay-at-home orders when they have no place to call home?

COVID-19 has heightened the inequality of the housing market, a crisis that this country will continue to experience even after the pandemic is over. Millions lack access to safe, stable affordable housing. The United States needs more than 7 million additional affordable housing units to meet the current demand. Yet the housing gap continues to widen, due to the triple-whammy of all-time high levels of unemployment, a severe lack of housing and a global pandemic. We must collectively work to solve this crisis before COVID-19 adds the housing market to its growing list of victims.  

COVID-19 overview and impact

The coronavirus has wreaked havoc on the U.S. death toll. Cases continue to rise exponentially, and the virus has caused over 45 million Americans to file for unemployment in the wake of state-mandated shelter-in-place orders and the closures of many businesses. The unprecedented unemployment rise has translated to tremendous hardship for millions suddenly thrown out of work. As always, this impact has fallen hardest on our most vulnerable populations: minority groups, immigrants, the young and the elderly.

Financial burden does not discriminate. Monthly rent on the estimated 43 million rental properties remains a strain on American households. Additionally, rent prices have continued to rise, increasing 150 percent since 2010. 

These price increases have made it difficult for families to rent in many areas of the country. Monthly rent is rapidly becoming unaffordable for many low-income households and vulnerable groups. This has led to increased homelessness and all the related financial and health problems that come with housing insecurity.

The effect on the affordable and multifamily housing industry

With record-breaking numbers of people thrown out of work—most of whom have not been able to return to their old jobs yet or find new ones—the demand for housing will only continue to grow. The two biggest questions facing the affordable and multifamily housing industries, now that many stay-at-home orders are being lifted, are, what is going to happen once rent and eviction protections are lifted and will there be enough affordable housing to meet demand?

Those still unable to pay their rent will no longer be protected under the eviction moratorium established in many states and local jurisdictions. Freddie Mac and Fannie Mae have allowed property owners to defer mortgage payments if they refrain from evicting tenants who are unable to make rent payments. However, the compounding effect of months of unpaid rent is creating strains on property owners and threatens to ripple through the entire financial system. At some point, these lost revenues must be made up and at least partially repaid. For cash-strapped tenants, this will almost certainly lead to a spike in evictions and homelessness over the next several months and years.

Faced with a significant increase in needed services at the same time their tax revenues are in free fall, state and local governments will have even less money to dedicate to affordable housing in 2020 and beyond, leaving property owners and tenants to fend for themselves.

What’s next for housing?

The simplest and most obvious solution is in front of us: We need to build more housing.

But building requires two important ingredients—permissive zoning and money. Many areas have strict zoning laws that prevent the development of anything larger than a single-family home. Changing these restrictions and opening up more land for development where it is most needed is the first and most important step in making any kind of headway on housing production. But trying to actually change these laws has proven to be a daunting task, even in outwardly “progressive” communities that may support the concept of increased density and affordable housing. Many zoning restrictions were put in place due to the outdated belief that rental housing will lower the value of nearby properties and attract the “wrong kind of person.” At worst, these restrictions are motivated by fear of the “other,” with strong elements of racism and elitism thrown in.

Millions of construction workers also lost their jobs in the early stages of the pandemic. This hinders further progress in creating new units now when they are most needed. It is incumbent upon government officials to change existing zoning laws and to proactively provide the funding and resources needed to build new affordable multifamily units.

It is easy to imagine the affordable housing industry continuing its downward spiral as cash-strapped governments throw up their hands and say, “not my problem.” It’s also possible to imagine a renewed interest in affordable housing at a time when the need is so great and the challenges so numerous. The dire housing needs of countless Americans in the pandemic will, and must, change attitudes on affordable housing.

How banks can provide support

To help provide assistance during this difficult time, banks can, if possible, continue to give eviction protections to affordable housing tenants who cannot pay their bills, and mortgage pauses to property owners who do not have the cash flow to pay. Along with this, new payment plans with more favorable terms in the current market can be adopted, as well. Getting the economy going and sustaining affordable housing is going to require more than just the cooperation of tenants and property owners; it’ll require cooperation from banks and all levels of government.

Banks across the country are providing short-term relief to their customers, including fee waivers and deferred payments. Many jurisdictions adopted eviction pauses during the early months of the pandemic. These pauses are now starting to phase out, even though the economic losses faced by these tenants have not been recovered. Assistance will be an essential ingredient in helping people stay in their homes and speeding the process of national economic recovery.

While these are helpful short-term solutions, they cannot provide the long-term fixes needed to help individuals, families and businesses make their payments. Banks can only do so much and cannot carry this burden indefinitely. Long-term strategies will be needed to help people recover from this unprecedented economic event.

Looking towards the future

The pandemic has put us in uncharted territory, but the housing crisis has been with us for some time. While it may be difficult to pinpoint what’s next with COVID-19, we know banks across the country must do all they can to help solve the housing crisis, where the government falls short. Ultimately, the worst effects of the pandemic on affordable and multifamily housing can be mitigated, but only if we take strong and unified action now.


Lee Oller leads the Merchants Capital Chicago office and brings 26 years of experience as a chief and LEAN underwriter. She has produced more than 350 closed transactions involving the Federal Housing Administration and the Department of Housing and Urban Development loan platforms. She has a deep understanding of FHA, multifamily and affordable housing that will allow Merchants Capital to grow its local presence in Chicago, and regionally across the Midwest. To learn more about Merchants Capital, visit www.merchantscapital.com.