The American Rescue Plan Act: 5 ways it provides relief to the multifamily real estate

The American Rescue Plan Act

On March 11, the U.S. Congress signed the American Rescue Plan act of 2021 into law. President Biden signed the $1.9 trillion COVID-19 stimulus package. It is considered to be one of the largest economic relief packages. The American Rescue Plan aims to provide millions of American households with rental assistance and unemployment benefits. It also includes child tax credits, the Paycheck Protection Program, additional housing funding, and much more. In this article, we will discuss how this legislation will focus on improving the aspects of multifamily real estate in the coming year.

1. The American Rescue Plan Act maximizes rental assistance

The covid-19 pandemic has given rise to widespread employment and an adverse economic crisis. The loss of jobs and income severely affects the housing market. CNBC reports nearly 20% of American renters are behind their rent for four months.

According to a study by Moody’s Analytics and the Urban Institute, a typical renter owes an average of $5600 on their monthly rent. So, about 10 million American renters owe a whopping total of $57.3 billion.

As a result, eviction and consequent homelessness have become a grave cause of concern among young adults.

The Consolidated Appropriations Act came into effect in December 2020. It provided $25 billion for the Emergency Rental Assistance Program (ERAP). On the other hand, the American Rescue Plan provides $40 billion for rental and mortgage assistance. 

To illustrate, the $40 billion stimulus package of The American Rescue Plan Act consists of :

  1. $21.55 billion for emergency rental assistance ( in addition to the previous $25 billion ),
  2. $5 billion for emergency housing vouchers,
  3. $750 million for tribal housing needs,
  4. $100 million for rural housing.

The $5 billion emergency housing vouchers will help the homeless or at-risk families and individuals. In addition to this, this act also provides $5 billion for homeless support services. This is particularly useful for tenant-based rental assistance, the development of affordable housing, and non-congregate shelter units for the homeless. Thus, this could be a real-life-saver for an additional 750,000-100,000 homeless people in the country.

Furthermore, this legislation is the first of its kind that provides direct incentives to state, local, and tribal governments to help eligible American households with rent, rental arrears, utility payments, and other home energy costs for a total of 18 months.

The households that have experienced the loss of income, homelessness, or significant financial constraints due to the pandemic, qualify for such federal aid. Moreover, the legislation ensures that each grantee receives at least 40% of its funds within 60 days of the enactment.

California provides some of the strongest renter protections in the country. In February, the state extended its eviction moratorium through June 30. Furthermore, it has also allotted over $2 billion to help tenants and small property owners.

2. More Direct Payments and stimulus checks

One of the most important highlights of the package is its provision of $1400 as direct payments for each individual, and a head of a household filer, who makes less than $75,000 and $112,500 annually. Also, their dependents are eligible for an additional $1400.

Furthermore, joint filers or married couples with adjusted gross income (AGIs) under $150,000 will receive $2,800. Such stimulus builds on the $1200 in the first round and $600 payments in the second round of stimulus checks. Indeed, with more than $150 million in economic payments, the American Rescue plan truly benefits from paying off rental obligations.

According to U.S. Census Bureau, over 28.2 million people have benefited from the funds for rental purposes.

However, once a person’s income reaches $75,000 the checks start to reduce. Moreover, individuals, couples, and heads of households making more than $80,000, $160,000, and $120,000 respectively are not eligible for the stimulus checks.

3. Expanded Child tax credits

The American Rescue Plan increased the existing child tax credit from $2000 to 3600 dollars for younger children under the age of 6. Similarly, children aged 6 to 18 will receive a tax credit worth $3,000. Families that have an individual earning $75000 annually or has a head of the household filer earning $112500 or married couples earning $150,000 qualify for this expansion. 

Furthermore, about half of the tax credit would be paid out monthly. This would be made out through periodic payments from July 1 to December 31st, 2021.

As a result, economically backward households can receive immediate financial aid. Moreover, the families can claim the remainder of the Child Tax Credit benefits in the 2022 tax filing session. 

4. Extended Unemployment Benefits

The Coronavirus Aid Relief and Economic Security (CARES) Act of March 2020 created major unemployment insurance programs. Some of the schemes include Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Federal Pandemic Unemployment Compensation (FPUC). The American Rescue Plan Act extends the PUA benefits of $300 a week through September 6, 2021.

It also extends the total number of weeks of benefits available to individuals from 50 to 79. Additionally, it also increases the duration of the PEUC benefits from 24 weeks to 48 weeks. Lastly, this act also prolongs the FPUC benefits of $300 a week through September 6, 2021.

As the pandemic caused nearly 20 million to lose their jobs last year, the American Rescue Plan Act prioritizes those who are struggling with joblessness and have claimed unemployment assistance.

Hence, the Act remits federal income taxes on the first $10,200 of unemployment aid received in mid-2020 by lower-income taxpayers. As a result, more than 20 million Americans utilized these benefits to cover their essential bills including rent.

5. Massive funds for Paycheck Protection Program (PPP) loans

This legislation also allocates additional funding of $7.25 billion for the Small Business Administration’s Paycheck Protection Program (PPP). The PPP is particularly helpful for small businesses, non-profits, and hard-hit industries to keep their workforce employed during the pandemic. 

The American Rescue Plan Act expands the inclusion and eligibility of more small businesses to apply for forgivable loans to cover the payroll and other operational expenditures.

Organizations that employ not more than 500 workers per location are now eligible for first PPP loans. In the same way, non-profit entities with less than 300 employees per physical location are also eligible for the second PPP loan. However, the loans will only be waived off if at least 60% of the funds are used for payroll.

Other qualifying operating expenses must comprise the remainder of the loan. These expenses include rent, utilities, mortgage interests, and even property damage that insurance does not cover. Furthermore, the Act also extends the deadline to apply for the first and second loans to May 31, 2021. 

Which Real estate businesses qualify for the benefits of the PPP loans by The American Rescue Plan Act?

Real estate businesses including property management firms, leasing companies, etc are eligible for PPP loans.

According to the SBA, almost 80 million real estate firms were approved for more than $10 billion in loans in the first round of PPP. Each real estate, rental, and leasing firm received nearly $134,000 on average.

Moreover, property management firms are also eligible for such loans as long as the funds are used for monthly payroll, rent, utilities, and mortgage interest for up to 8 weeks after the loan is made.

The American Rescue Plan Act to the rescue of multifamily investors

The third stimulus package in the form of The American Rescue Plan Act aims to address the significant issue of evictions, homelessness, and unemployment that have been pressing problems in the country since the start of the pandemic. With the continued flow of rental assistance, direct payments, unemployment benefits, or PPP funding, the nation’s economic infrastructure is expected to improve at a steady rate while creating job opportunities.

As a result, this, in turn, benefits commercial real estate investors who seek to invest in Opportunity Zones or multifamily properties. Since the American Rescue Plan Act expands the panorama of eligibility to more people, more tenants can pay their rent on time and escape evictions. Thus, the multifamily real estate sector will continue to stay afloat attracting a large number of commercial real estate investments.