Slipping Into and Out of Arrears: The Dynamics of Arrears Spells in LIHTC Housing

• In Event: New Perspectives on People and Places in the Low-Income Housing Tax Credit Program

Abstract

In the past few decades, rent burdens have increased for renters of all income levels, putting them at greater risk of falling behind on rent when faced with financial shocks (JCHS, 2024). However, little is known about the extent to which shocks lead to a sustained inability to pay rent, versus a temporary spell of arrears. Understanding arrears spells is critical to optimal landlord forbearance and eviction practices, as well as to the design and targeting of public policies related to eviction protection, perhaps especially in the case of publicly subsidized housing. Of course arrears spells can be truncated by landlords’ decisions to evict: If tenants are evicted quickly after falling behind they will not have the opportunity to recover. Landlords therefore face a tradeoff between the risk of foregone rent and prematurely evicting a household that would have self cured.

We explore this tradeoff by leveraging unique, individual-level rent roll data to better understand resident payment behavior and the dynamics of arrears spells in Low Income Housing Tax Credit (LIHTC) housing, a critical component of the affordable housing stock. Our data include 170 developments with nearly 27,600 units across multiple states from early 2023 to 2025. Importantly, our LIHTC properties share a common landlord and management company, allowing us to investigate how resident arrears dynamics and a landlord’s eviction and forbearance decisions vary under different market conditions and policy regimes. 

In aggregate, we observe that 27 percent of residents are behind on rent in an average month. But this static picture conceals considerable cycling in and out of arrears and increases and decreases in those arrears over time. Residents are just as likely to enter arrears as they are to exit them each month. 

Looking over a longer time-frame, we find that over a third of households that fall behind on rent in a month pay back that amount within three months. Some households may not have the chance to repay: on average 9 percent of those who fall behind on rent leave the building without paying within 3 months, presumably through a forced move. 

Despite our focus on LIHTC housing, these patterns are broadly consistent with Humphries et al. (2024), who study renters in unsubsidized buildings in the Midwest. But we show considerable variation across states. The share of households that fall behind on rent in a month ranges from 3 percent to 29 percent across the 16 states in our sample. Similarly, we see large differences in the rate at which residents leave after falling behind - in some states this is as low as 4 percent within 3 months and in others as high as 28 percent. This suggests that a landlord may be less patient in different contexts, quickly evicting non-paying tenants, including those who would repay their arrears if given time.

Given how costly evictions are for tenants, policymakers might consider offering subsidies to landlords who are essentially making small-balance loans to vulnerable renters in order to encourage more socially optimal patience. 

Authors

• Ingrid Gould Ellen, New York University
  Non-Presenting Co-Author

• Katherine O'Regan, New York University
  Non-Presenting Co-Author

• Kristen Nicole Tauber, New York University
  Presenting Author