The COVID-19 pandemic has caused widespread disruption to family financial stability, among many other things. According to the Census Bureau’s Household Pulse Survey, around 18.6 million Americans reported experiencing housing distress (defined as falling behind on mortgage or rent payments) during the period of Jan. 20 to Feb. 1, 2021.
Falling behind on payments can lead to eviction or foreclosure, both of which can be devastating for households’ financial, physical and mental health. Furthermore, loss of housing during the pandemic can lead to greater transmission of the COVID-19 virus through the inability to shelter at home and overcrowding of shelters and the homes of family and friends, undermining a critical public health goal.
This hardship has not been borne equally across the population. As the figure below shows, renters experienced it more often than homeowners, and Black and Hispanic individuals experienced it more often than white individuals. The disparities in housing distress were seen before during the Great Recession, as Black and Hispanic homeowners lost their homes at disproportionate rates.
During the early stage of the pandemic, researchers at the Social Policy Institute at Washington University in St. Louis leveraged new survey evidence using their Socio-Economic Impacts of COVID-19 Survey to better understand what may drive these racial disparities in housing distress. In addition to mortgage and rent delinquency, they explored other indicators of housing instability, including missing a utility bill payment and the experience of eviction or foreclosure.
Housing distress was concentrated among low- and moderate-income (LMI) householdsLMI households are those that have 120% or less of the median income in their areas. of all races and ethnicities. However, disparities existed across the LMI racial and ethnic groups, (See the figure below.)
Statistical analyses of the Socio-Economic Impacts of COVID-19 Survey data show that LMI Black households were 1.4 times more likely than LMI white households to be delinquent on both housing payments (12.9% versus 9.2%) and utility bill payments (18.5% versus 13%) in the early months of the pandemic (from about late January to mid-May 2020). The relationship was somewhat different between white and Hispanic households, as LMI Hispanic households were more than twice as likely as LMI white households to experience eviction or foreclosure (6.5% vs. 3.1%). The risks of missing a housing or utility payment were roughly the same between Hispanic and white households.
Given that race and ethnicity per se do not necessarily cause housing distress, the effects of two potential key channels—low buffers of pre-pandemic emergency savings and job and income loss during the pandemic—were explored. The Social Policy Institute researchers found notable differences by race and ethnicity for both of these potential drivers.
Black respondents typically had one-fourth ($1,800) the cash on hand as white respondents ($7,250). In contrast, Hispanic households fared better but still fell short of typical balances of white households. These gaps in emergency savings are consistent with research from the St. Louis Fed’s Institute for Economic Equity that has consistently found large and persistent gaps in wealth holdings by race and ethnicity.
With regard to job and income loss, Black households were actually less likely (22.7%) to report a pandemic-related disruption to their earnings during the first three months of the pandemic than both white (29.4%) and Hispanic (30.4%) households, according to research by the Social Policy Institute.
Cash on hand has been shown to be critical in avoiding numerous forms of financial hardship, given it insures against unexpected financial setbacks. Perhaps counter to some popular financial wisdom, maintaining an emergency fund—rather than paying down high-interest debt—provides better outcomes for households’ financial health.
In the case of the pandemic, emergency savings appear to be an important factor contributing to racial disparities in housing distress, as differences in the amount of cash on hand prior to the pandemic explained over a quarter of the disproportionate rates of missed housing and utility payments. (See figure below). Our results also indicated that differences in the amount of cash on hand explained over half of the disproportionate rate of eviction and foreclosure, though this effect was not statistically significant.
Surprisingly, emergency savings did not meaningfully explain differences in housing distress among Hispanic and white households, despite the fact that Hispanic households had roughly 55% of the median level of liquid assets held by white households. (See the figure below.)
This may indicate that other factors, such as poorer access to social services and discrimination based on ethnic identification or immigration status, are stronger drivers of the observed housing disparities for Hispanic households than differential access to liquid assets. Differences in employment disruptions did not appear to be a driving factor of disparities in housing distress for Black or Hispanic households.
Given the connection between a lack of liquid assets and housing distress, particularly for Black households, the current pandemic has the potential to prolong and exacerbate long-standing racial inequities. Inequities in emergency savings and, more broadly, wealth can be traced back to a history of exclusion and discrimination against Black households in government-subsidized asset-building programs (for example, the Homestead Act and Social Security), along with systemic barriers experienced today (such as labor market discrimination). Efforts to sustain households during the remainder of the pandemic should include a focus on these racial inequities.
As we move beyond the financial triage stage of the pandemic and into the recovery, a focus on building emergency savings across racial and ethnic groups has the capacity to shore up households for future downturns. Building these assets will require identifying and addressing driving factors for gaps in emergency savings, such as income inequality, housing disparities and access to affordable financial services. Doing so will not only make households more resilient but also contribute to a more inclusive and prosperous economy for all.