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Two Months without Pay Pushes Food and Retail Workers to Spend 40% of their Annual Income on Rent

Alexander Casey

Editor’s Note: Since initial publication, this brief has been updated with new data and visualizations that include updated assumptions based on exact figures from the recently passed stimulus legislation (including adjustments to definitions of qualified dependents and income threshold phaseouts), eliminating assumptions from ideas/proposals that did not pass; and correct for a minor coding error that led to some small inaccuracies in the initial data.

Rent affordability has been a growing concern for many American households. Add in the loss of income and/or lack of protections like paid sick leave for millions of these renters in the wake of the unfolding U.S. coronavirus outbreak, and many that were already vulnerable to economic shocks may become even more at-risk of failing to secure adequate housing.

Almost all workers have been impacted to some degree by ongoing business closures and social distancing requirements as the disease has spread, but among the most susceptible to the economic impacts of temporary business closures and/or social distancing include food-service and retail workers. Zillow estimated how missing work for a period of time and/or not receiving paid benefits while out of work may impact rent affordability and household budgets for these workers.

Zillow analyzed the impacts on rent affordability for households working in Retail Trade and Arts, Entertainment, Recreation, Accommodations, and Food Services according to the 2018 American Community Survey, including jobs like waiters or store clerks. We also ran the analysis on households split into three earning-structure groups, based on the number of workers and share of earnings coming from the industries we examined.

Assuming two weeks off without pay, single-earners working in these industries in the Seattle metro – among the markets hit earliest by the crisis – should expect to spend more of their limited income on rent (the median share of annual income spent on rent rises to 38%, compared to 36% without an income loss). These same workers should also expect to take a 5.5% ($1,300) cut to their annual household budgets after rent is paid (assuming lost hours couldn't be made up later).

In more normal times, a mildly ill worker might be expected to come to work anyway and/or to only miss a few days of work before returning. But the intense need during this particular outbreak to keep potentially ill employees at home for several weeks – or longer — despite a loss of earnings has helped reignite discussion on Capitol Hill regarding the availability of paid leave benefits for workers. Because the longer they're out of work without pay, obviously, the more financial pain is inflicted.

In Seattle, if those same workers in one of the affected food and retail industries are forced out of work for 2 months without compensation, they would be forced to pay 43% of their remaining annual income on rent, and would take an almost 25% hit ($5,600) hit to their remaining annual non-housing budget.

Multi-earner households working in these sectors may have a bit more of a cushion, but are by no means immune to the pain of extended income loss. In particular, households in which the primary breadwinner works in these industries, with or without additional earners, are among the most acutely impacted by income loss. In the Seattle-area, 2 months without pay for these households could reduce the median annual budget – after rent – by $8,000, or almost 22%. All of this assumes, however, that rent bills can be paid in time to avoid eviction despite a loss of income. This can be very challenging for households that may have been living paycheck-to-paycheck before emergency eviction protections were put in place.

 

Thankfully, policymakers aren't blind to the risks, and a number of plans were proposed to alleviate the pain somewhat, including the recently enacted Coronavirus Aid, Relief and Economic Security Act (CARES Act).

The CARES Act includes a one-time recovery rebate check of $1,200 for individuals ($2,400 married) with adjusted gross income up to $75,000 ($150,000 married, or $112,500 heads of household). Check amounts increase by $500 for every child under age 17. The rebate amount is reduced by $5 for each $100 that a taxpayer's income exceeds the phase-out threshold.

We measured how these recovery rebate checks could impact the median rent burden among various households with workers in the food and retail industries missing two months pay.

If single-earners in the Houston metro lose their income for 2 months, but receive the assistance included in the CARES Act ($1,200 per adult and $500 per qualifying child), the median rent burden would fall from spending 46% of annual income on rent before the cash assistance to 43%. The assistance would raise the median annual after-rent budget (assuming two lost months of income) from just under $10,900 to more than $12,500.

These are just a handful of examples of impacted workers from a small sample of markets. Use the tool below to see how rent affordability and household budgets change under a number of scenarios for food-service and retail workers in dozens of large markets nationwide.

Workers in these industries and other acutely affected households are well-represented in our communities, and the impacts of lost income and higher rent burdens could be vast. In some markets, including Las Vegas and Orlando, more than a quarter of the local workforce is employed in the Retail Trade and Arts, Entertainment, Recreation, Accommodations and/or Food Services industries. Clearly, help is desperately needed.

But the devil is in the details. In an earlier version of some proposals, eligibility thresholds that required some minimum amount of taxable income could have left the most vulnerable households – those with lower incomes and/or higher rent burdens — with diminished assistance. Both Democratic and Republican leaders recognized this as problematic, and addressed this in the current legislation, ensuring cash assistance is directed to all experiencing the fallout of this crisis, especially those in the least stable financial position.

Finally, one last, critical note: It's clear that the economic effects on renters in the most impacted industries from long-lasting loss of hours and/or lack of paid leave protections have the potential to be devastating. Help, in whatever form it takes, will be welcome. But the most important relief has little to do with legislative efforts, and everything to do with ongoing public health efforts centered around stopping the spread of the virus itself. Social distancing is hard. But without drastic measures now, we run the very real risk of prolonging the crisis later and preventing the "normal" economy from re-emerging, recovering, and putting these employees back to work – which will ultimately prove the best kind of help available.

Methodology

Zillow utilized 1-Year American Community Survey (ACS) data from 2018 to model how workers in Retail Trade and Arts, Entertainment, Recreation, Accommodations, and Food Services industries (as outlined by ACS) would be impacted by income shocks resulting from inability to work or loss of work in terms of rent burdens. We include all Retail Trade industries except for Electronic shopping and mail-order houses.

Zillow analyzed households in the top 35 metros in each of the three following categories:

  • Single-earner households where the earner works in the affected industries
    • Households with one currently employed person with valid personal income (nonzero, non-NA) that is >=95% of household income, working in the affected industries
  • Multi-earner households where at least one adult works in the affected industries
    • Of all household members with valid personal income, there is at least one currently employed in the affected industries
  • Households where the "breadwinner" works in the affected industries
    • One person in the household is currently employed in the affected industries, with a valid personal income that is >50% of household income

Income shock scenarios assume affected earners in each household work 50 weeks in a year, and rent burdens are smoothed over the year. Incomes and rent burdens under each scenario are calculated at the household level, and aggregated to the median household at the metro level.

To model the impact of the rebates laid out in the recently passed CARES Act, we estimate household-level income thresholds for rebates, instead of the family-level thresholds laid out in the bill, by summing up the potential subfamily income thresholds to the household level.

We additionally made assumptions to categorize dependents and who claims them. This methodology stems from the difficulty of ascertaining family groupings and interrelationships based on housing unit-level households that appear in Census, which may contain more than one tax "family." Assumptions include:

  • If there's a married couple in the household, then all children will be their dependent. In other words, if there are other single adults in the household, they would not be assigned the children as dependents, and would not be assigned a "head of household" income threshold.
  • If there are children in the household and no married couple, then one of the single adults will claim the child and would be assigned a "head of household" income threshold.

To calculate household-level income thresholds, we sum up the potential income thresholds of all adult members of the household. We also sum up the incomes of all adult members of the household, and if that household income is higher than the threshold, we calculate the rebate phase-out as 5% of that income difference. We calculate the maximum possible rebate that household could receive ($1,200 to each adult with an income, and $500 to each child), and subtract that rebate phase-out amount.

Take the example where person A (single) makes 75k, person B (single) makes 150k, and there's a child. The two potential "real" scenarios are:

  1. If the child is assigned to person A, they receive the full $1,200 + $500 because they are under the income limit. Person B receives no assistance because: ($150,000 – $112,500)*.05 = $1,875, which is over $1,200 rebate amount. This is because the rebate decreases by 5 cents on every dollar over the maximum income threshold.
  2. If child is assigned to person B, then the entire household would only receive the $1,200 entitled to person A.

So, we assume instead that the household threshold is $75,000 (single filer) + $112,500 (head of household filer) = $187,500. Combined, this hypothetical household makes $225,000, so their maximum possible rebate is $1,200 *2 + $500 = $2,900 and their rebate would be reduced fore being over the income threshold by ($225,000 -$187,500) *. 05 = $1,875, leaving a final rebate of $2,900 – $1,875 = $1,025

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