A new survey by the Federal Reserve (FED) shows that 39% of former workers in households earning $40,000 or less lost work during the current pandemic, and many of these households do not have the resources to make it through to a return to work.
Operators of affordable housing (HUD/LIHTC) will know immediately that this is the very income group affordable housing programs are designed to serve, and the vast majority of our residents will fall into this income category. The FED survey was released on May 14 and clearly shows that lower income households entered the COVID-19 shutdown in precarious economic positions that have only worsened since March.
At the beginning of the nationwide lockdown, many Americans had limited savings, despite gains from a record-long economic expansion that was of limited benefit to many in the lower-income categories. According to the survey, at the end of 2019, 30% of adults said they could not cover three months’ worth of expenses with savings or borrowing if a job loss were to occur.
20% of people working in February reported losing a job or being furloughed in March or the beginning of April, and most of that job loss was highly concentrated among low earners. In fact, 39% of former workers living in a household earning $40,000 or less lost work, compared with 13% in those making more than $100,000.
The U.S. economy began slowing in March as state and local governments instituted stay-at-home orders in an attempt to slow the spread of the virus. This has almost certainly caused the steepest growth decline in the United States since World War II. Consumer spending has tanked as stores and restaurants closed, and mass layoffs are now a feature of daily lives. Nearly 3 million people filed for unemployment benefits during the week of May 4, resulting in a two month total of more than 36 million.
Congress has provided more than $2 trillion in relief spending, expanded unemployment insurance, and provided forgivable loans to small businesses as a way of protecting jobs. However, it is becoming apparent that these efforts will not be enough to stem the damage and there is no discernable timeframe for fully re-opening the economy.
About 53% of people with jobs worked from home at the end of March, but this is a highly educated group. More than 60% of workers with a bachelor’s degree worked completely from home, versus 20% of those with a high school degree or less.
Among those who have lost hours or jobs due to the pandemic, 48% were “finding it difficult to get by” or “just getting by,” according to the survey. Only 64% of those with reduced employment felt that they would be able to pay their bills in April, compared with 85% of those without a work disruption.
Then there are those who took pay cuts – about 23% of all adults, and 70% of those who had lost their jobs or had hours reduced said their income was lower in March than in February.
About 90% of workers who lost jobs expect to return to work for the same employer according to the survey, but most do not have a return date. About 5% had already returned to work, and 8% did not expect to go back to the same employer.
Additional help from Congress is almost certainly going to be required but it will be a much harder climb than the earlier packages. The Phase IV CARES relief package is already running into trouble in the Senate and passage of the House bill is unlikely. In the meantime, affordable housing operators must be prepared for a reduction in rent collections and if the crisis continues through the summer, without additional help from the federal government, cash flow for some properties may become an issue. This may be especially true for Low-Income Housing Tax Credit developments, which may not have the mortgage forbearance of some HUD-assisted properties. Now is the time to examine planned expenditures for the upcoming year, and unless necessary for legal reasons or to maintain the property is a sound physical condition, consider deferral of such expenditures.