Why America's next housing crisis threatens Trump's re-election
The FT's US managing editor Peter Spiegel travels to Philadelphia to ask if the housing crisis caused by the coronavirus pandemic risks derailing Donald Trump's re-election hopes
Filmed, produced and edited by Ben Marino. Graphics by Russell Birkett and Kari-Ruth Pedersen. Additional footage by Getty and Reuters.
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PETER SPIEGEL: Americans heading to the polls on November 3 are facing a political landscape that is more complicated than any time in modern US history, a pandemic, racial division, Supreme Court brinkmanship. But looming over all that is an economy that is struggling to recover from the sharpest collapse since the Great Depression. And there is no clearer sign of that economic hardship than in the housing market.
An estimated 30 to 40 million American renters are at risk of losing their homes, after tens of millions lost their job during the pandemic. The data is bleak. 32% of US households are facing the prospect of being evicted or having their homes foreclosed on. And more than 30% of adults are struggling to meet their household expenditures, with 10% facing food scarcity in the last seven days.
When Donald Trump launched his re-election bid, most of the campaign thought his closing argument would be about the economy. It remains the one place where he consistently polls strongly amongst the American people. However, over the last six months, since the start of the pandemic, support for his economic policies have begun to wane. As a matter of fact, in the latest FT Peterson poll, the number of people who said that they think economic policies coming from the White House is hurting the economy overtook the number people who think it is helping the economy.
We've come here to Philadelphia, the biggest city in one of the swingiest of swing states, in the heart of South Philadelphia, 9th and Passyunk, where Geno's Steaks and Pat's Steaks sit at each other's corner. A lot of people here are renters. And a lot of people in the low and medium income in the working class neighbourhoods no longer can pay their rent, which means their landlords are going be unable to pay their mortgages. It's beginning to have that knock on effect that many analysts have worried about for some time, and a lot of people on Wall Street are worried about. Could it infect the financial system?
Lower to middle income landlords are the backbone of the domestic real estate sector. Of the more than 47 million rental homes in the US, more than 22 million are owned by so-called mum and pop landlords. For these small landlords, even a month without rental income can be catastrophic.
Greg Wertman is vice president of HAPCO, the Homeowners Association of Philadelphia. They represent low to middle income landlords across the city. As of July, August-- that's sort of when the stimulus really started to run out-- what did you start seeing in that segment of the population.
GREG WERTMAN: So the problem with renting low to moderate income obviously is there are more people that default with the rent. So that's when it's good. When it's bad like it is now, it exacerbates the situation.
We have a huge spectrum of men and women working together, husbands and wives. They're all getting hurt. And at this point, it's almost to the point when people call up. They're just confused, because they don't understand why they are the ones providing housing. They're trying to keep the people in there. They're trying to work with them. Why are we being painted the way we are?
It's the people that do have people that are paying are going to start to sell. They're all talking about it, because the restrictions that they've seen put on the market-- the government at every level has taken a piece of paper, which is called a lease, and that is a legal tender piece of paper-- they have taken that and said, (RIPPING SOUNDS).
PETER SPIEGEL: Across the US, states have enacted moratoriums on evictions. They have been imposed in accordance with CDC guidelines in order to protect tenants during a pandemic. But landlord groups say this has frozen rental incomes, forcing many to face the prospect of repossession or selling up.
The largest banks in the US have already started making provisions for the worst case scenario. And already, loan loss charges across Citigroup, JPMorgan, and Wells Fargo exceed those of the 2009 financial crisis.
SUSAN WACHTER: This is nowhere near the extent of mortgage defaults that occurred in the Great Recession. So we're not likely to see that kind of financial collapse. However, it is a far worse problem for low income renters than the Great Financial Crisis. Particularly vulnerable are people of colour, underrepresented minorities, who we know are disproportionately hit by the loss of jobs. We do not yet have a solution for it. It is temporarily a band-aid, the moratorium. That's a good thing. But there is no one speaking of who's going to pay the rent when the rent comes due.
PETER SPIEGEL: Federal assistance in form of the CARES Act has run out, and the stalemate in Washington over a new stimulus is not helping working class Americans. We spoke to Congressman Brendan Boyle, of Pennsylvania's 2nd district in Northeast Philadelphia.
BRENDAN BOYLE: This is the most unique economic downturn I think in American history, because for some it's not a recession. It's not a Depression. And yet, for others, it's not a recession. It's not a Depression. It's a total stop.
I agree with Federal Reserve Chair Jay Powell. We cannot go big enough. I believe that we need to go even bigger than we have. Before I voted for the HEROES Act, which was $3.4 trillion. I think we need another COVID relief bill as soon as possible. And I don't think that'll be the end of it either.
To the housing crisis for not just renters, but also property owners, and also the banks, we do need to figure out a systemic way to prevent defaults and prevent evictions.
Just doing the short term-- you know, right now there is a freeze on evictions in Philadelphia. And there's been a freeze on sheriff sales. But all of that is getting backlogged in the system. So suddenly, months from now we have a tremendous amount of defaults on mortgages. We're going to have a tremendous problem on our hands. I think there needs to be a systemic fix on the housing issue.
PETER SPIEGEL: What we've seen here in Philadelphia is being repeated in working class neighbourhoods across the country. It is even as Wall Street and the equity markets continue to rise, the real economy in the US is suffering. People who have jobs are losing them. And people who thought they could pay their rent, or have been paying their rent using savings, or Federal aid, or state aid, are now running out of that aid.
Donald Trump needs those working class white voters in cities like Philadelphia, Pittsburgh, and elsewhere here in Pennsylvania that took him over the line in 2016 to return to 2020 to get him back to the White House. But the reason it is not likely to happen here in Pennsylvania and many of the other states is because those very voters are turning against him, particularly women.
Women, we show in polls, are much more concerned about those pocketbook issues, those issues that come around the kitchen table. They're concerned about the inability to pay rent. They're concerned about the inability to pay their bills. And if those voters do not return for Donald Trump here in Pennsylvania and other states like it, Donald Trump is unlikely to win re-election on November 3.