The Pandemic’s ‘Shadow Debt’
As the coronavirus pandemic ravaged the country, many people had to look beyond their incomes and government stimulus checks to cover housing costs. In San Francisco, thousands of tenants borrowed through credit cards, payday lenders, family or friends to cover rent. They are stuck with that debt, which federal relief programs will not pay off. Photo by Laura Wenus/San Francisco Public Press
In San Francisco and around the country, people borrowed big to pay the rent. Now many are finding the government can’t help them repay that debt
Editor’s Note: This story was produced in partnership with the San Francisco Public Press. Read the original story here.
When the COVID-19 pandemic touched down in San Francisco, Tang’s clientele evaporated overnight.
It was March 2020, and Mayor London Breed had just ordered nonessential businesses to close in a bid to slow the coronavirus’ spread. Tang was allowed to keep operating his restaurant, which the city deemed an “essential” business. But the office towers surrounding his eatery in San Francisco’s Financial District were now empty shells. The foot traffic that sustained his business was gone.
“Some days, we had no orders at all,” said Tang, who asked that his full name not be used because of the stigma that often comes with high levels of debt in his Chinese American community. “I mean, zero orders. It’s so scary.”
Without an income, Tang became one of countless people across the nation to take on debt to cover residential rent during the pandemic — a phenomenon often called “shadow debt.” As the pandemic has eased, these borrowers find themselves worse off than people who let the bills lapse. Federal relief funds cover only unpaid housing expenses.
The exact number of these debtors is unknown. Some types of debt are not tracked. For others, it is difficult to discern whether a rent payment alone drove the borrowing, or if it was among many overdue bills.
What’s clear is that, as COVID-19 ravaged the country, many people had to look beyond their incomes and government stimulus checks to cover housing costs. Fifteen percent of tenants tapped into their credit cards to pay rent during the pandemic, compared with 8% before, according to a January survey by the Federal Reserve Bank of Philadelphia. Twenty percent of renters resorted to loans from friends, compared with 11% before the pandemic.
More recently, 34% of renters reported using credit cards or loans to meet the previous week’s spending needs, according to the Census Bureau’s Household Pulse Survey data for Sept. 29 through Oct. 11, the latest available. About 21% said they had borrowed from friends or family.
Many in San Francisco’s Chinese American community have taken on shadow debt primarily out of a sense of responsibility to pay the rent
Shadow debt In San Francisco
In at least one West Coast city, shadow debt is a major burden on the backs of thousands of residents.
In San Francisco, one in three applicants to a rent-assistance program run by the Mayor’s Office of Housing and Community Development reported taking on shadow debt. That program, which for many months operated in parallel with the state’s, began winding down in September.
The state’s program continues to accept applications. While the state cannot directly pay off shadow debt, it can pay up to three months of future rent. With that cushion, recipients can use other income to pay off their debt, said Russ Heimerich, the program’s spokesman.
Of San Francisco residents seeking rent assistance who also carried shadow debt, 830 reported owing on credit cards; 265 took out payday loans; and 1,334 incurred “other” types of debt, according to the mayor’s office.
The true number of affected renters could be much higher. The city’s count omits applicants to the state’s program — which does not track shadow debt — as well as people who have not applied to either program.
The mayor’s office did not provide the total or average household shadow debt.
But many Latino households in San Francisco reported taking on between $5,000 and $10,000 of debt to cover rent, said Miguel Velasco, workforce development program manager for the Mission Economic Development Agency. He and his staff, who help city residents apply for rent assistance, said clients took out loans because landlords were pushing them to pay up. The average rent-assistance payment in San Francisco is $11,463.
Borrow to pay the landlord
Many members of San Francisco’s Chinese American community have taken on shadow debt primarily out of a sense of duty, said Rita Lui, a housing counselor at the Chinatown Community Development Center.
“The whole Chinese community shares the same value: They don’t like to owe anything” to the landlord, Lui said. “They feel very bad, not comfortable, and like they didn’t do their responsibility to pay rent.”
That may help explain why across California, Asian and Pacific Islander renters accumulated the most shadow debt per household, according to a July report by the University of Pennsylvania, which partnered with officials to evaluate the state’s rent-relief program.
The report surveyed more than 16,000 program participants. More than half had incurred debt to cover the rent. Of those, 90% borrowed from friends or family members. Asian and Pacific Islander households borrowed an average of $4,582, almost a third more than white households and double the amount borrowed by Black households.
Those tenants are especially vulnerable if they later seek different housing in California. Landlords in the state are prohibited from denying someone housing based on unpaid rent or related debt accrued during the pandemic — but they can factor in other types of debt.
“If they are going to be kicked out, and they have a trashed credit score, how are they going to get housing?” said Hannah Appel, an associate professor of anthropology at the University of California, Los Angeles, and co-founder of the Debt Collective, a national organization that advocates for the cancellation of various types of debt.
A livelihood collapses
For Tang, whose business was in freefall during the pandemic, debt was the only option.
He reduced the wait staff at his San Francisco restaurant from 10 people per shift to just one. The business might earn less than $1,000 in a given month, far below its commercial rent of $14,000.
Tang did not qualify for unemployment benefits. By June 2020, he was three months behind on rent for his apartment. His landlord frequently reminded him what he owed, and Tang felt pressured to come up with the money.
The government did not start programs to cover this kind of debt for San Francisco tenants until March 2021. So, back in June 2020, Tang reasonably expected that he’d have to cover the bill in the end.
He paid his landlord with a $4,000 no-interest loan from a close friend.
The restaurant never bounced back. Tang closed it permanently in September of this year, and by October he owed his residential landlord about $13,600 in housing costs. He applied for rent assistance in June, but even if approved, he’ll have to figure out how to pay back his friend.
“I cannot work in my restaurant,” Tang said, “but I can do Amazon delivery. I can do DoorDash.”
Unaware and in debt
Like Tang, many people took on debt to cover rent before the government stepped up with programs to pay those bills for them. Yet even after the programs started, many renters were unaware of them, said José Cartagena, senior program director of homelessness and housing services at nonprofit Catholic Charities of San Francisco.
“If I had known, I wouldn’t have paid,” Cartagena recalled clients saying.
Some undocumented immigrants incurred debt in hopes of avoiding interaction with the court system, said Laura Hernandez, interim director of rental assistance at the Eviction Defense Collaborative. California’s eviction moratorium, which ended Sept. 30, had protected tenants with COVID-19 hardships from eviction if they paid at least 25% of the previous 13 months’ rent by Oct. 1 — but landlords can seek the remainder in small claims court starting this month.
“They think, ‘I’m going to go to court, get charged with something, they’ll know I’m here, so I’ll get deported,’” Hernandez said. “‘So I’ll pay these payday loans.’”
Other tenants took on debt to head off eviction when the moratorium was on the verge of expiring in January and again in June, said Shanti Singh, legislative and communications director at Tenants Together, a coalition of tenant-rights organizations throughout California.
“There was so much uncertainty until the very last minute, about when Newsom and the Legislature were going to extend protections,” Singh said, referring to Gov. Gavin Newsom. She recalled a tenant who had asked her about the likelihood of an extension and was debating whether to immediately pay her landlord the amount necessary to remain housed.
“She said, well, I could pay the 25% but I’d have to max out all my credit cards. What should I do?” Singh asked around, and then advised the tenant not to go into debt because an extension would probably happen. Luckily for her, it did.
“Debt payments can stop. Arguably, often, they should stop. Some debts should probably never be repaid. Some debts are destructive.”
A growing mountain of debt
Debt has become another accumulating burden in the ongoing coronavirus pandemic. Many people borrowed cash or from credit cards to pay the rent, and there’s little hope of a government bailout for that debt. Photo illustration by KomootP/Shutterstock
Shadow debt is just the latest layer on a mountain of debt that has been growing for decades. After hitting a trough in 2013, U.S. consumer debt rose to a record $15 trillion in the second quarter of this year, according to data from the Federal Reserve Bank of New York.
The pandemic caused job losses across the country, deepening the financial holes many households were in. That was especially true for low-income people of color in service jobs. In the San Francisco metro area, which includes San Mateo County, employment in the leisure and hospitality industry, which includes hotels and restaurants, fell from 139,000 jobs in March 2020 to 62,900 the following month. Employment had rebounded to an estimated 106,700 jobs by this September but has yet to fully recover.
But the pandemic changed something else too. “We learned this word: ‘moratorium,’” said Appel of the Debt Collective.
“Suddenly, this idea, this moral idea that debts have to be paid or else all these systems are going to collapse around you — the government just puts a pause on it,” she said. “That message was unthinkable, pre-COVID.”
It was a demonstration that, even at a large scale, repayment terms of debts can shift for the public good. Appel said that this can be fodder for political organizers pushing for debt forgiveness.
“Debt payments can stop,” she said. “And arguably, often, they should stop. Some debts should probably never be repaid. Some debts are destructive.”
Noah Arroyo is an investigative journalist who covers housing, evictions and environmental justice in San Francisco and the Bay Area.