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Make Corporate Landlords Pay the Bills During the Pandemic
With fortunes inflated by corporate welfare, wealthy real estate owners can afford to cancel housing-related expenses and debts for millions of struggling American families.
Research & Commentary
August 17, 2020
The Covid-19 crisis has both exposed and exacerbated racial and wealth inequality in the United States. As unemployment skyrockets and tens of millions of Americans struggle with a sudden loss of income, many are unable to pay rents or mortgages and are facing eviction, foreclosure, and possible homelessness.
We’ve seen this eviction crisis brewing for months, and despite platitudes about racial justice, our elected officials and corporate landlords haven’t taken any meaningful action to prevent it from hitting poor people of color hardest.
Latinx and Black workers have been hit hardest by job losses and are more likely to suffer evictions. In July 2020, Latinx unemployment was 12.9 percent, and Black unemployment was 14.6 percent, compared to 9.2 percent for white Americans. Given this, it’s not surprising that an Urban Institute analysis of U.S. Census survey data indicates about 44 percent and 41 percent of adult Latinx and Black renters, respectively, had little to no confidence they could pay next month’s rent, compared with about 21 percent of white renters who felt the same.
While so many of us struggle to survive, some of the richest billionaires in the world dominate the residential real estate industry in the United States. These corporate landlords are companies owned by extremely wealthy individuals, Wall Street entities like private equity firms and hedge funds, and institutional investors. At least six leading residential property owners — Essex Property Trust, Brookfield Property Partners, Equity Residential, Related Companies, Irvine Company, and Blackstone — have top executives on the Forbes billionaires list.
Other prominent corporate landlords include Kushner Companies, Mosser Capital, Starwood Capital, and CBRE. Across the country, these companies own large apartment complexes, office buildings, hotels, single family homes, and a significant chunk of our mortgage debt. Corporate landlords do not pay their fair share in taxes at the local, state or federal level. Here’s why: for decades, they have successfully lobbied City Halls, state legislatures, and Congress to put their needs first, to create loopholes, special statuses, corporate welfare programs and other schemes to avoid taxes and regulation and boost their profits.
Amid the current crisis, some of these obscenely wealthy companies and individuals, many of which profited immensely during the Great Recession, are lobbying aggressively for taxpayer funded assistance programs and making plans to exploit the pain of so many to grow even wealthier.
It’s time to make them pay
With millions of tenants, homeowners, and small property owners struggling to survive during the Covid-19 pandemic, hundreds of thousands of tenants, organized by low income people of color, are taking action across the country to demand that Congress and state governments act immediately to require corporate landlords to pay for the cancellation of rent, mortgages, and utilities, and to provide financial relief to small property owners facing foreclosure.
These corporations are sitting on billions of dollars and will keep getting richer through tax breaks and giveaways, including in the federal stimulus packages. They can easily afford to cancel monthly housing-related expenses and debts for millions of Americans whose jobs and incomes have been destroyed by Covid-19. Making them pay will help stabilize the housing market, the national economy, and communities across the country. Relief can’t come soon enough.
This is the fairest and most pragmatic way to address the financial crisis that so many households face right now. It’s likely that many Americans will have no ability to pay rent, mortgages, and utilities for the duration of the Covid-19 pandemic. Those who can’t afford housing-related costs today won’t be able to afford them for the foreseeable future.
Well before the Covid-19 crisis hit, many American households, especially households of color, were spending huge proportions of their income on housing, leaving little left over for other necessities, and nothing for savings. For example, one in four Black households spent more than half their income on housing (compared to one in ten white households). Many cities were already experiencing housing affordability crises, with renters and owners struggling to pay rents and mortgages and homelessness skyrocketing, while corporate landlords and lenders prospered. The pandemic is turning the housing affordability crisis into a national catastrophe.
That’s why the full cancellation of housing-related expenses and debt is so important. Low-income Americans can’t afford to stay home from work, even if they’re feeling sick, unless their rent, mortgages, and utilities are canceled. And if low-income and unemployed people lose their homes to eviction or foreclosure, they will not be able to “stay home” at all.
Corporate landlords must provide the relief millions need
With Congress deadlocked on a new stimulus package, President Trump attempted to give the impression that he’d taken executive action to extend the current eviction moratorium. In reality, his memorandum merely directs federal agencies to “consider” measures to prevent evictions.
But even extending the moratorium wouldn’t be enough. Moratoriums do not alleviate the growing financial burden of unpaid rent, mortgage, utility, and other housing-related bills that will come due in the near future.
Tenants are demanding that Congress and state governments instead make corporate landlords pay for the cancellation of all housing-related expenses incurred during this pandemic, so households — and the economy more generally — can begin to recover financially. That’s the real policy response and solution to the current crisis. Anything short of full cancellation will continue to trigger mass evictions and an explosion in predatory debt, both of which hit communities of color hardest before Covid-19, and will only be compounded. And wealthy corporate landlords can afford it.
Federal Handouts and Giveaways to Corporate Landlords
The largest corporate landlords have siphoned money out of public budgets at all levels of government and are using Covid-19 as an opportunity to expand their riches even further.
The stimulus package Congress passed in March gives $170 billion in immediate tax benefits to real estate and millionaires. The CARES Act permits all businesses’ losses to be carried back — which allows immediate tax refunds — for five years from 2018, 2019, and 2020. Losses carried back to years before 2018 will generate refunds of already paid income taxes at the older, higher rates — previously 35 percent maximum for corporations (compared to current 21 percent) and 39.6 percent maximum for individuals (37 percent today).
The Congressional Joint Committee on Taxation (JCT) estimates that owners of pass-through businesses will receive $170 billion in tax benefits over the next 10 years. For 2020, the JCT estimates that roughly 43,000 taxpayers with at least $1 million in annual income will reap 82 percent of the benefits, with an average tax cut of more than $1.6 million. Which millionaires will come out on top? According to the Tax Policy Center, the key groups include real estate professionals and hedge fund investors, including developers — in other words, corporate landlords.
Real estate companies had already received nearly $50 billion from President Trump’s 2017 Tax Cuts and Jobs Act (TCJA). The TCJA allowed real estate investors to deduct 20 percent of pass-through business income to lower the effective tax rate on income if they have sufficient real estate assets. This benefits real estate companies as well as those investing in Real Estate Investment Trusts (REITs). Experts estimate this is worth $29 billion over the next 10 years.
The TCJA also created “opportunity zones” — zip codes where one can invest capital gains in real estate and businesses through designated opportunity funds and receive huge tax breaks. The tax cut was purportedly aimed at fostering economic rejuvenation of lower income areas but was so poorly designed and implemented that it provides tax breaks for developments that were already underway or in rapidly gentrifying areas, including corporate landlords like Related Companies and Stephen Ross. Real estate firms and developers are raising up to $5 billion for each opportunity fund and the JCT estimates opportunity zones will cost $3.5 billion a year from 2019 through 2022, for a total of $14 billion over those 4 years.
The TCJA also allowed real estate investors to deduct all of their interest payments on buildings from their income while other large businesses could only deduct 30 percent of their interest payments. Experts estimate this tax break is worth $16 billion over the next 10 years.
Even before the corporate tax giveaway of 2017, the federal tax code included real estate industry tax benefits that are worth nearly $250 billion over the next 10 years. For example, real estate investors have a special loophole, “like-kind exchanges,” to avoid paying capital gains taxes on profits from the sale of assets as long as these profits were reinvested in comparable assets. Essentially, profits from the sale of a building can be used to buy another building without paying any taxes. Experts believe this tax break is worth almost $134 billion over the next 10 years.
In 1986, tax reform prohibited businesses from investing in other business which generated losses in order to reduce their income for tax purposes. But in 1993, the real estate industry lobbied to exempt rental income from these passive loss rules, creating a tax benefit for these “money-losing” real estate investments. The Treasury estimates this tax break is worth $79 billion over 10 years.
Businesses can depreciate assets that lose value over time as the assets age, reflecting declining value of things like machinery or vehicles. Real estate investors can depreciate their assets and reduce their taxes even though real estate values often rise over time, especially in more expensive or rising markets. This depreciation is counted against the value of the property when it is sold, reducing the capital gains taxes. The JCT estimates rental and other real estate at $21 billion over 5 years.
With a standard corporate structure, the government levies taxes twice—on the corporation’s profits and on employees’ incomes. But nearly all real estate operations are run through limited liability corporations (LLCs), which are allowed to pass profits to the owners who then pay income taxes on the money, while the corporation does not pay any taxes on the money at all.
Real Estate investment Trusts (REITs), created in the 1980s to encourage investment in real estate, are also treated as pass-through entities for tax purposes, which means they pay no corporate taxes in exchange for paying 90 percent of their taxable income to shareholders as dividends. As described above, the TCJA also allowed those that do have to pay tax on this “income” to deduct 20 percent.
State and Local Giveaways to Corporate Landlords
Many federal tax breaks for real estate firms have already been or will be enacted at the state level as well. For example, the Center for Budget and Policy Priorities (CBPP) describes how, because nearly all states piggyback on the federal tax code’s definition of “gross income,” the opportunity zone tax breaks outlined above will automatically flow through to state individual and corporate income taxes unless states proactively “decouple” their law from these provisions. Corporate landlords and real estate investors are likely to see billions more at the state level from the giveaways described above, as well as others they have lobbied to create in each state.
Corporate landlords frequently also benefit from Tax Increment Financing (TIF), Payment in Lieu of Taxes (PILOT), bonding, and other schemes at the municipal and local level connected both to single projects and broader development work. One example of this is Related Companies’ Hudson Yards in New York City. Research shows that Related’s project cost the city $2.2 billion, through a combination of subsidies, including over $350 million in property tax breaks for residential developers.
The tax breaks and schemes described above are just the tip of the iceberg in terms of the myriad ways that corporate landlords, real estate investors, private equity and financial actors are and will continue to profit off the rental housing market in the U.S. Debt and mortgages are other key areas the industry exploits, including through government financed agencies and programs, to maximize profit margins. These schemes are all the more galling in a moment when people don’t have enough money just to make ends meet and are being forced from their homes as a result.
Using Covid-19 as an Opportunity to Seek Billions More in Tax Breaks and Giveaways for Corporate Landlords
On top of these many handouts, industry lobbyists are using Covid-19 to ask for even more support. The National Multifamily Housing Council and National Apartment Association, which corporate landlords dominate, are pushing their wish-list of measures, including taxpayer funded rental assistance, narrowing the already limited eviction moratorium criteria, expanding Payment Protection Program eligibility to all multifamily businesses, including the largest corporate landlords, and increasing tax relief for all multifamily residential businesses, which could go to corporate landlords that clearly don’t need it.
Their pitch also calls for expanding low-income housing tax credits, creating middle-income housing tax credits, increasing the breadth of opportunity zones, and enacting legislation to clear regulatory barriers for construction of more multi-family housing irrespective of cost. All of these would be immensely lucrative for the industry overall and corporate landlords in particular. They are examples of the broken “trickle down” housing models that enrich those dominating residential real estate while exploiting our racialized housing system, hurting workers and families, and putting communities at risk across the country.
How Corporate Landlords Are Planning to Capitalize on Covid-19
Corporate landlords amassed enormous fortunes during the Great Recession and are now expressing excitement about the potential for profiteering post-pandemic. The president of a division of Fortress Investment Group said of the coming pain, “It’s kind of exciting times. I mean, this is what you live for.” These landlords certainly have the resources to exploit this new crisis—according to the Wall Street Journal, at the end of December 2019, real estate investment funds had $142 billion ready to spend on distressed and opportunistic real estate investments.
The Blackstone Group, Inc., Brookfield Asset Management, and Starwood Capital Group are “sitting on billions of dollars in cash and capital commitments they have raised from pensions, sovereign wealth funds and other big institutions” as the industry eyes hotels, retail properties, mortgage backed securities, and defaulting borrowers. On a 2020 Q1 Earnings call, Starwood Capital CEO Barry Stenlicht said, “when it’s really ugly, it’s a good time to invest.” Blackstone raised the largest commercial real estate fund ever in September with $20.5 billion, and as of December 2019 Brookfield held $15 billion.
People within the industry are saying “many [real estate investors] have been waiting for this for a decade.” The Kushner family has announced they are putting together a fund through Cadre, their real estate investment vehicle, to take advantage of “opportunities” during the pandemic. While Jared Kushner himself formally divested from the fund in February of 2020, it’s clear that a prominent corporate landlord with very close ties to the White House is gearing up to profit from the crisis and its effect on the real estate market.
The U.S. real estate industry is led by some of the richest, most powerful people in the world. They have profited handsomely from the last foreclosure crisis, the commodification of housing, and decades of racist housing policy, all while actively lobbying to avoid paying their fair share in taxes. The Covid-19 pandemic has magnified what we already knew: Corporate landlords’ bill is long past due. It’s time to make them pay for the cancellation of rent, mortgages, and utilities for the duration of the Covid-19 pandemic. Making them pay will help millions of tenants, homeowners, and struggling property owners who are struggling to survive.
Sofia Lopez is a Senior Research Analyst at the Action Center on Race and the Economy and Sara Myklebust is the Research Director for the Bargaining for the Common Good network, based at Georgetown University’s Kalmanovitz Initiative for Labor and the Working Poor.