Bill seeks to address rent defaults
State senate proposal could cost up to $10B over decade
Mounting debts for unpaid rent during the pandemic could upend the state’s apartment industry — throwing tenants out on the street and choking small landlords unable to make mortgage payments.
But an unprecedented state Senate plan is moving forward to give tax breaks to landlords for forgiving rents and halting evictions and allow tenants 10 years to repay back debt to the state.
And the estimated cost to taxpayers? Up to $10 billion over the life of the program.
“We’re trying to stabilize the housing market,” said the author of SB 1410, Sen. Anna Caballero, D-Salinas. “The last thing we need in California is evictions.”
Small landlords are protesting the bill, which is before the Assembly, saying it doesn’t hold renters accountable or provide relief fast enough.
The persistent unemployment and economic slowdown caused by the pandemic has put millions of California renters at risk. Tenants in California already are the most stressed in the nation, with many poor and working-class renters paying well over one-third of their incomes toward housing every month.
But the state proposals seek to address a problem that has not yet emerged — widespread rent defaults. A
June 27 survey from the National Multifamily Housing Council found about 94% of U.S. tenants paid some or all of their bills — just a slight drop from the previous year.
Landlord advocates in California report similar, strong payment records from their tenants. Income has been boosted by federal stimulus checks, as well as a $600 weekly federal supplement to unemployment insurance. The supplements are scheduled to expire this month and add pressure on many renters.
Gov. Gavin Newsom and the state courts have enacted temporary moratoriums on evictions, saying the public health crisis would worsen with widespread dislocation and homelessness. Local eviction protections found in San Jose, Oakland and San Francisco have added another layer of security for renters.
But anticipating a deeper and longer economic slump, lawmakers and advocates for affordable housing and landlords are searching for solutions to stave off widespread evictions and apartment foreclosures.
Newsom included $600 million in the recently passed budget for Project HomeKey, a program to buy and renovate motels for permanent shelter for the homeless. Another $300 million is earmarked for cities and counties for safety net housing programs, and $31 million is dedicated to legal support and counseling for property owners and renters.
Assemblyman David Chiu, D-San Francisco, has proposed a ban on evictions until April 2021, or three months after the state of emergency ends, whichever comes first. Tenants must prove their financial hardships were caused by the pandemic under the bill, AB 1436.
Renters would be given an additional 12 months to repay back rent, and landlords could collect the debt through civil courts. Property owners would be banned from evicting residents for unpaid rent due to COVID-19.
Caballero’s constituents in the agriculture-rich Salinas and Central valleys are concerned about rent payments and keeping shelter for their families. “They need some rent relief,” she said, adding that small landlords also need support during the crisis.
Caballero said the proposal may be the first of its kind to address unpaid rent during the pandemic through a state-endorsed repayment plan. The plan would allow tenants and landlords to enter into a voluntary COVID-19 eviction relief pact. It does not forgive rent, but it creates a repayment plan through the state.
Tenants would be protected from losing their homes for unpaid rent accumulated during the emergency. Renters would agree to repay the debt to the state by making additional payments with their tax returns between 2024 and 2034. The poorest residents could apply for rent forgiveness.
Under the agreement, landlords would cease eviction proceedings for the unpaid rent. They would be eligible for state tax credits equal to the amount of rent forgiven during the crisis. They could redeem the credits between 2024 and 2034 — a delay some property owners say comes too late to help with mortgage and maintenance payments.
But the owners can also sell the tax credits, likely at a discount, providing cash during the lean times.
The program is estimated to cost the state $13 billion in short-term revenue but start to return roughly $3 billion beginning in 2026 as renters repay their debts. Costs would go down if renters make more payments than the state expects.
The California Association of Realtors and the California Rental Housing Association, a consortium of 22,000 small landlords across the state, have come out against the bill. Landlords are concerned that tenants able to pay their rent will take advantage of the program.
Jack Schwartz, a landlord and legislative chairman for CalRHA, said the plan would prevent property owners from evicting problem tenants. Small landlords would also likely find selling tax credits through banks or in an open market too complex and risky, he said.
The group is looking for a holistic solution that works for landlords, tenants and the state, he said.
“We don’t believe that one size fits all,” he said. “We’re not in the business of evicting people.”