4 minute read
WELCOME
A LETTER FROM EBRHA CEO
Derek Barnes
Today, there are so many variables to consider when weighing the risks of doing business in the rental housing market, especially in the Bay Area. Housing providers have to assess the cost of building and improvements, property and tenant management, legislative compliance, asset protection and wealth preservation in environments that seem to be hostile and working against us—today and possibly in the future.
“Future-proofing” is a fancy term that means finding opportunities and anticipating needs while navigating potential risks from future shocks and stress in the market. The idea of controlling your destiny is a central point/benefit of future-proofing. It is one key reason why many property owners and investors get into the rental housing business.
As last year revealed, shocks and stresses to the system impact communities and business sectors differently. Some businesses, like online retailers, thrived during the pandemic, while others, like hospitality and travel, were decimated. The same is true for areas of rental housing, which is a tale of two cities. While most renters were able to pay their rent or work out terms with property owners/ operators if they lost income due to COVID-19, a significant number of property owners/operators suffered economically because their renters couldn’t, or wouldn’t, pay rent.
As our recent midyear member survey confirmed, many of our members are rental property owners/operators who own fewer than 10 rental units. The vast majority are small family businesses, women and people of color, and often retirees who rely on income from their rental property investments. Any disruption to rental income; inequitable or unbalanced legislative mandates; gaps in insurance coverage; or higher material and labor expenses (costs of doing business) have devasting consequences for small rental housing businesses. Many of us have seen all of these scenarios due to COVID-19’s lingering impact on our economy.
This past June, eviction moratorium extensions were once again imposed by the state—September 30. They required no means of testing or qualifying household need at all. $5.2B in rental assistance federal aid has been allocated to California—$2.6B from the Consolidated Appropriations Act in December and $2.6B from the American Rescue Plan in March (not fully
administered yet). The Emergency Rental Assistance Program (ERAP) application portals at the state and local level have been open for over three months. Still, only 15% of the funds have been distributed to housing providers from the first round ($2.6B) of rental assistance with a deadline to fully distribute by August 1. The bottom line is that housing providers who have applied have received neither updates nor payments yet.
With direct federal ERAP funding ($12.8M), cities like Oakland prioritized their applications to address the needs of households at 30% AMI or less from the allocation of the December stimulus package. The city received over 2000 applications through its own ERAP process with average household assistance of around $8,000. Oakland’s ERAP website has stopped processing applications because the city’s funds have been exhausted. Over the last 16 months, about 20,000 households genuinely needed rental assistance in the city. Oakland’s total projected rental assistance need is $160M-$240M. Even with the next round of 2021 rental assistance stimulus, there is still a huge gap to overcome. Federal and state aid will not fully address the need, forcing renters and housing providers to make difficult choices.
The ongoing moratorium mandates and inadequate rent assistance relief funding, coupled with the slow distribution of ERAP funds, subject the community of housing providers in desperate need of relief to continued economic stress and keep us all on high alert. There are so many variables to consider in running a business in this economic and legislative environment.
Assessing and managing risk isn’t sexy or exciting, but it’s necessary to determine how businesses must prepare for the unknown. Knowing your risk tolerance level is critical —greater risk taken can lead to greater return or substantial loss. But what if business environments are too obstructive or burdensome? It can feel like the deck is stacked against you. Nothing has been made this more apparent than seeing legislative priorities unfold over the last 16 months as we’ve managed our way through this pandemic. It revealed real vulnerabilities in our industry as housing providers and who’s fighting for us (or not) in this struggle. These conditions make it necessary to engage new strategies, practices, and models for navigating different terrain and uncertainty.
We continue to see solid growth in new memberships at EBRHA. Many of our existing members adapt extraordinarily well, and the vast majority of their residents have been paying rent. There will always be a cycle of incoming and outgoing investors in desirable markets like the Bay Area. As a housing provider, there are two key questions you must ask yourself in determining your risk tolerance: What are you willing to let go of AND adopt as market conditions continue to change? And what are you ready to fight for to protect your business and property rights?
One thing is clear. Housing providers have a whole new landscape of variables to consider and conditions to manage in the evolution of Bay Area housing. EBRHA will be here to support, guide and prepare you for investing in a destiny that you can control.
