SCOTUS Decision On Student Loan Relief One More Financial Hardship For Renters
President Joe Biden's announcement last year that he would wipe out thousands of dollars in student debt created the possibility that some of the 40 million affected debt holders could redirect their loan payments to saving to purchase a house.
But with last week's Supreme Court decision striking down that plan, that possibility has vanished, removing the would-be buying power that might have taken renters out of the apartment market.
The effects of the decision to strike down a plan that would have forgiven approximately $430B in student loan debt owed to the government have yet to be seen. But in a country where home prices are beyond reach for many and rents have spent years defying gravity, multifamily market watchers say the decision is one more thing that weighs on renters.
“The existing renter universe is probably going to be facing a little bit of a financial hardship that they might not have otherwise been budgeting for, which might actually make things a little harder for rental landlords,” Bloomberg senior REIT analyst Jeffrey Langbaum said.
At a national level, the multifamily market is finally seeing rent growth cool after about two years of stunning increases.
But from a renter’s perspective, news of rents stumbling likely isn't much of a consolation. More than 40% of U.S. renter households — some 19 million — spent more than 30% of their income on housing between 2017 and 2021, according to Census Bureau data. As of this year, 30% of the median U.S. income is required to pay the average rent, a Moody’s report published in January found.
“The impact of this will be higher for households which carry student loan balances and which also pay a high percentage of their income toward rent,” CBRE Americas head of Multifamily Research Matt Vance said. “For renters who pay a very low percentage of their income toward rent, this will have much less effect in their daily lives.”
Biden’s plan would have applied to individuals with an income of less than $125K or $250K for married couples, the goal being to help low-income and middle-income borrowers. The plan would have erased up to $20K in debt for those with loans held by the Department of Education.
With debt relief off the table, it’s possible that borrowers who would have benefited will look to make cuts to their spending, which could include looking for a cheaper place to live once their lease is up.
But it would be challenging to draw a straight line from the striking down of the plan to changes in vacancy or rental rates as there are so many other economic factors affecting the multifamily market, including a potential recession and a pipeline that’s preparing to deliver, in some markets, a significant amount of supply.
“We don't expect to see the sky fall, right, we don't expect to see a severe downside, we expect to see normalization, and more modest performance for multifamily than we've seen in the last few years,” Vance said.
“It's going to be very hard to attribute [any changes] either entirely or even in part to one specific change like this,” Langbaum said. “You put everything together in the mosaic. This is definitely one of the pieces.”
Those who spoke to Bisnow felt that there were already so many factors stacked against potential buyers that the persistence of student debt was unlikely to make a broad and significant impact.
There was already very low first-time homebuyer participation in the market before the Supreme Court’s decision, National Association of Realtors Chief Economist Lawrence Yun said.
High home prices, rising mortgage rates, home affordability issues and low supply were all having a powerful effect on people looking to make the jump from renting to homebuying. Still, whatever segment of those potential homebuyers hoping that student loan debt relief would help them make the leap are likely slamming the brakes.
That said, “a certain segment of the population, no doubt, will be pushed back in terms of the housing market,” Yun said.
