The Covid-19 pandemic and economic crisis have devastated affordable housing residents and providers, threatening the long-term viability of these essential organizations and the housing and economic stability of low-income, vulnerable residents. While the lingering impacts of this disaster are still evolving, recent polling in Los Angeles reveals that nonprofit housing providers are grappling with profound operational challenges, such as more expenses, less revenue, construction and development-related delays, threatening their long-term viability.
By better understanding these challenges, we can enact pertinent solutions to keep housing providers afloat.
In February, Enterprise and the Southern California Association of Nonprofit Housing (SCANPH) surveyed nonprofit affordable housing providers in Los Angeles County to assess the pandemic’s impact on organizational and housing portfolio health. Twenty-three organizations responded, representing the collective voices of 144,000 people they serve and 22,000 affordable homes they own.
Here’s what they had to say.
Key Survey Findings – Financial Distress + Development Delays
The top two impacts from the pandemic that providers reported were increased expenses and reduced rental income. Both were cited by 87 percent of survey respondents. The average cumulative rent debt cited per provider was over $300,000; from 2019 to 2020, the average percentage of units with unpaid rent increased by 160 percent. Only 35 percent had received any rent-relief.
Delays to the affordable housing development process came in as the third-highest reported impact of the pandemic: 74 percent of affordable housing providers reported delays in construction timelines.
Another key finding reported was the impact the pandemic is having on staff who have been working overtime as emergency first responders — going above and beyond to meet resident needs. But after so many months, frontline staff are stretched to their limits.
How the Pandemic is Impacting Affordable Housing Residents
Throughout the pandemic, residents of affordable housing in Los Angeles, like many people across the country, have struggled to pay for necessities like rent, food and healthcare. Housing providers shared quotes and testimonials from their residents, and most centered on the harmful effects of increased economic instability. Many residents have lost work and fear becoming homeless. Anxiety, depression and loneliness are increasingly common.
“Mentally, I am not well,” reported one resident who got Covid-19 and was unable to work for four months. Before the pandemic, they had never missed a rent payment during their 21-year tenancy—they’re now three-months behind on rent.
“The debt is affecting me,” they said. “I have nightmares about getting kicked out of my home. I can’t afford anything else. I fear not having my home and [having] to go live with relatives in overcrowded situations. They are struggling, too.”
Many residents haven’t been able to access unemployment benefits, rent relief and other forms of public assistance. For example, less than half of eligible renter households that applied for emergency rental assistance from the City of Los Angeles in 2020 received rent subsidies—with high demand, the program was quickly oversubscribed.
Beyond funding limitations, residents face other challenges when trying to access public assistance such as immigration status, language barriers and lack of internet access. For those that receive assistance, it’s often not enough.
“I got Covid at work and ended up in the hospital severely ill,” said another 65-year-old resident. “I don’t want to put myself or my wife at risk of getting sick again, but I must keep working because social security would not cover our needs. I worry we will end up in the streets. I want the authorities to recognize the needs we have as elderly, as workers, as low-income people. We are not doing well.”
Serving as A Critical Safety Net, But Facing Challenges
Throughout the pandemic, affordable housing and community development organizations have stepped up to meet the needs of their residents and surrounding communities. They’ve provided safe, stable homes and essential services to vulnerable populations. They've adapted their services to meet the current and evolving needs of their residents. Despite daunting challenges, these nonprofits have responded to this emergency in creative, heroic ways. Doing so has been costly.
Operating expenses increased during the pandemic for 87 percent of survey respondents. Almost half reported their expenses increased more than 10 percent from 2019 to 2020. More than half cited increased insurance costs as well. Other examples of Covid-related expenses include:
- Hazard and overtime pay for frontline staff (e.g., more janitorial staffing for sanitation)
- Adapting services to adhere to public health guidelines (e.g., virtual classes) and to meet current needs (e.g., resident wellness assessments and emergency relief application assistance)
- Meal delivery and food security programs
- Purchasing personal protective equipment (PPE) and cleaning supplies
- Office and building upgrades to reduce viral spread
- Security enhancements and vandalism repairs
- IT upgrades (e.g., building Wi-Fi upgrades and staff telecommuting infrastructure)
- Increasing utility costs
The financial burden of increasing expenses is compounded by decreasing rental revenue.
In 2019, the average percentage of households with some unpaid rent was only 5 percent; in 2020, however, it rose to 13 percent. On average across these Los Angeles-based housing portfolios, that’s a 160 percent increase in households with rent debt year-over-year.
Affordable housing providers are also experiencing delays related to construction periods, receipt of developer fees, maintenance projects, filling vacancies, closing loans and public reimbursement. These delays are another financial hit and have serious repercussions for meeting our region’s affordable housing needs and ensuring the livelihood of the very organizations that are building affordable housing.
Delays are coming in various forms – from supply chain issues, getting certifications, plan checks, permits and building inspections, move-ins and lease-ups being delayed, and losing staff temporarily from Covid-19 exposures or illness. Stacking the trades (typical during framing) is now practically impossible on some sites to adhere to social distancing requirements. Providers also cited a general lack of response, and in some cases, even a lack of understanding from lenders, syndicators and insurance companies.
One provider put it this way: “Everything is dragging on much longer because of the pandemic, and these delays will cost us. The industry as a whole is delayed. There are simple solutions out there that could protect affordable housing providers if lenders and syndicators could just give a little to adjust to the current environment. If not, it will take the lifeblood of developers.”
All these factors—more expenses, less revenue, delays—threaten the long-term viability of nonprofit housing providers and the construction of desperately needed affordable homes. Without significant help, nine providers believed their organization will “exhibit financial distress” and unable to meet financial obligations this year. Three think they’ll be distressed before June 2021.
“Nine of our projects are experiencing hardship and are projected to operate in the red,” one provider reported. “Some do not have sufficient reserves.”
What assistance would help?
Since the early days of Covid-19, Enterprise has been providing financial and technical support to our partners through a national initiative with a local Southern California programmatic version, and coordinating systems change efforts with partners across LA County. However, much more needs to be done collectively to stabilize affordable housing communities, to support resident health and economic security and to stabilize the affordable housing industry.
To start, more federal support for rental assistance is coming through $27 billion just passed in the American Rescue Plan Act. The legislation includes more than $40 billion in resources for affordable housing, many of which Enterprise and our partners have strongly advocated for during the last year. A full breakdown of what was included – and what was not – can be found in Enterprise’s policy blog.
Last December, Congress passed a $25 billion Emergency Rental Assistance Program. From this legislation, the U.S. Treasury Department allocated $2.6 billion to California for the program. Los Angeles County will receive $332 million, and the City of Los Angeles $245 million for rental assistance. Such an infusion of public resources will not resolve all the rent debt in Los Angeles, but it will help, especially for the most vulnerable residents and struggling housing providers.
While rental assistance is critically important and top of mind, it won’t solve everything. More assistance—from state and local governments, philanthropy and private investors—is critical to protect the affordable housing industry and meet the desperate need for affordable homes in our region.
Other creative solutions are within reach. For example, public lenders and housing agencies can adopt policies to support the long-term stability of their borrowers and craft solutions to offer hardship relief and help stabilize affordable housing portfolios into the future, such as:
- Clarifying the eligibility of certain Covid-related expenses as allowable under program guidelines
- Allowing owners to modify and modernize outdated loan agreements
- Allowing owners to use project reserves to address operating shortfalls
- Extending loan payment due dates or waiving payment obligations during the public health emergency
- Revisiting and adjusting loan terms to reflect pandemic delays
- Waiving or extending fee payment due dates, especially for properties experiencing hardship
- Easing monitoring and reporting requirements, such as a grace period for fiscal and occupancy monitoring
Enterprise's Southern California team is committed to supporting our partners—both nonprofit and public—through this health and economic crisis, and beyond.
To get more involved in our systems change efforts to support affordable housing residents and providers with Covid-19 impacts, or for more information on our emergency response program, contact Natalie Zappella, program director, Sustainable Connected Communities.
This blog was authored by Keegan McChesney, fellow, Sustainable Connected Communities; Natalie Donlin-Zappella, program director, Sustainable Connected Communities; and Marc Tousignant, director, Vulnerable Populations.