Americans were drowning in debt even before the COVID-19 pandemic hit the country and stalled the economy and cost many their jobs. The unemployment rate has decreased since its peak in April at 14.7%, but it is still around 10%.
The situation is grim for people in major metro areas across the country who are on unemployment insurance (UI), as the disparity between rent payments and UI is wide.
People in most major cities simply cannot afford rent and other basic living expenses.
10 least affordable cities on unemployment insurance
According to a recent Real Estate Witch study, the 10 least affordable cities on unemployment insurance are:
1. San Francisco, CA
2. San Jose, CA
3. Washington, DC
4. Oakland, CA
5. New York, NY
6. Miami, FL
7. Honolulu, HI
8. San Diego, CA
9. Fort Lauderdale, FL
10. West Palm Beach, FL
In these cities, residents can’t even afford a studio apartment on unemployment insurance.
The average studio apartment rents for around $1,400 per month in those metros, with monthly costs (including transportation, food, and rent) totaling about $2,600. Yet, the average monthly UI in those metros is only $1,000.
San Francisco tops the list of most miserable places to live if you’ve lost your job, with a deficit of $3,200 in unemployment insurance money after paying for rent for a two-bedroom apartment, food, and transportation. This means if someone in San Francisco is living off UI alone, they’re going into debt of about $20,000 over six months.
Renters are more negatively affected than homeowners
It’s safe to say that renters are hit hard when it comes to the financial impacts of the pandemic. Not only are renters more likely to have service-industry positions and, thus, more likely to be laid off or furloughed, many are also living paycheck-to-paycheck.
Renters are not all financially unstable, but most aren’t prepared for a sudden income loss. The average renter household earns less than $40,000 a year, and homeowners typically have a larger cushion.
Federal mortgage payments were put on hold for up to an additional 180 days as a result of the pandemic (also known as forbearance), providing some relief to homeowners and landlords. Congress’ CARES Act put off tenant evictions until the end of July 2020, and on September 1, the CDC barred evictions until the end of 2020 to prevent the spread of COVID-19.
But, this doesn’t mean tenants don’t still owe back missed rent to their landlords, potentially having a negative effect on their rental history; it only means they won’t lose their home immediately. They still have to find a way to pay rent they’ve missed.
Plus, landlords who don’t have a federal loan — such as Fannie Mae, Freddie Mac, FHA, VA, or USDA — may not have the forbearance option available to them. Private loans through banks must hash these details out on their own. If they’re unable to be granted a forbearance from their lender, landlords still need to pay that mortgage regardless of whether their tenant pays monthly rent.
Florida and California are the two least affordable states on unemployment insurance, while South is least the affordable region
Florida and California are undoubtedly the least affordable states if you’re currently surviving on unemployment insurance alone: Of the 75 metros Real Estate Witch’s study found to be unaffordable on UI, 36% were in Florida, and 20% were in California.
Breaking the data down by region, people in the South are struggling the most on UI. The study found that average unemployment payments in the Northeast are the highest, at $1,738.32, followed by the Midwest ($1,311.18), West ($1,249.65), and South ($870.81).
This distribution directly correlates with being able to afford a studio apartment: 65% of Northeastern metros, 42% of Midwestern metros, 25% of Western metros, and just 15% of Southern metros can afford a studio apartment on unemployment insurance.
So, while many people think that places in the South have relatively low costs of living, that is not true for people living on unemployment insurance.
Unemployment can’t cover basic expenses in 69% of U.S. metros
Overall, unemployment insurance can’t cover basic expenses such as food, rent and transportation in 69% of the 109 metros studied.
According to the Labor Department’s weekly report released August 27, 2020, one million people filed new jobless claims in one week alone — compared to the pre-pandemic high of 665,000 in March 2009. In addition, more than 14 million people who previously filed for unemployment continued their claims.
And those aren’t the only panic-worthy stats. Since mid-March, more than 58 million people have filed new unemployment claims.
Millions of people are relying on unemployment insurance to get by during the pandemic, but they simply aren’t receiving enough.
People can’t pay rent, much less afford a home
As of July 21, 2020, 60% of renters reported losing at least one householder income as a result of COVID-19. Now, that number is likely even higher as the pandemic still devastates the service industry. What’s more — 20% of renters the Census surveyed in July said they rely on unemployment insurance benefit payments to cover necessary expenses. A quarter covered expenses through credit cards, 22% borrowed from friends and family, and 24% used their stimulus payment.
If you’re a landlord, you’ve likely noticed this in tenants struggling to pay rent. While the eviction moratoriums may help renters in the short term, renters are piling debt upon debt. It may take a miracle for them to dig themselves out and get current on bills — even with a new full-time job. And don’t count on many first-time home buyers to purchase during this economic downturn, even with historically low mortgage interest rates and discounts such as home buyer rebates in play.
Additional payments could ease the burden
Earlier this summer, Congress passed the CARES Act in an attempt to ease American’s financial pain. The relief package included a nationwide moratorium on evictions through late July, an additional $600 in weekly unemployment benefit for those collecting UI that expired at the end of July 2020, and a one-time stimulus check for most Americans.
While many of these federal benefits have expired, many states are providing additional relief by applying for an additional $300 a week in unemployment benefits through the Federal Emergency Management Agency (FEMA).
However, only people who already receive at least $100 in unemployment benefits qualify for the additional $300, as required by President Trump’s executive memorandum. What’s more, Some states are still in the process of applying for the FEMA benefit — and some states have decided not to apply, so residents of those states will not receive the additional benefits.
Is it enough?
Although these extra unemployment payments will certainly help those who have lost income as a result of the pandemic, it won’t keep them out of dire straits if they remain jobless for much longer.
Renters already living paycheck-to-paycheck prior to the pandemic are finding themselves desperate and diving into even-deeper debt, affecting them and their families for years to come.