Landlords as Lenders of Last Resort? Late Housing Payments During Unemployment

This paper examines the role that late housing payments play in helping households cope with job loss. The key idea is that the ability to postpone housing payments often operates as a valuable source of informal credit for households facing income or expense shocks. Using a stylized model, I first show that late payments can reduce the costs of income shocks and offset the disadvantages of consumption commitments. I then empirically examine the prevalence and consequences of missed housing payments after job loss. Missed housing payments are common, especially among renters, and provide substantial liquidity during unemployment. Indeed, the amount of informal credit from missed payments exceeds existing estimates of formal credit card borrowing during unemployment. Lastly, I examine the consequences of missed payments. The large majority of missed payments do not lead to evictions or other forced moves. Instead, households are able to fall behind on housing payments while remaining in the same residence, consistent with missed payments providing an important source of informal credit.