Apartment rent collections during the coronavirus pandemic are unfolding as a deterioration rather than a collapse that some industry executives expect to keep worsening in coming months.
The National Multifamily Housing Council said Wednesday 86.2% of renters made a payment this month through Sept. 13. That’s an increase as expected from the 76.4% that paid up by Sept. 1. But it’s down from the 86.9% that paid by Aug. 13, a sign that the rate of payment is softening at a gradual pace. A year ago, 88.6% paid by Sept. 13.
NMHC, the largest trade group advocating for the apartment sector, provides updates on rent collections from five data providers that track over 11.4 million apartments nationwide.
New York, Chicago, Miami and Seattle are among the hardest hit U.S. cities for rent collections, apartment industry executives say, while expensive coastal cities are seeing the highest increases in the vacancy rate during the pandemic.
The numbers are glum, but not as apocalyptic as predicted when the extra $600 a week federal unemployment benefit expired at the end of July.
Even so, renters are strained. Jeff Adler, vice president of Santa Barbara, California-based Yardi Systems, one of NMHC’s data partners, compared the long-awaited shrinking of rent payments to a slow-motion train wreck, not an explosion.
The divide between payments made in the second week of the month this year versus the same time last year, for instance, translates into 279,000 households that couldn’t make rent.
“The pain will become more transparent as time goes by, but not dramatic,” Adler said Wednesday during an NMHC webinar. “It will be more of a grinding, a slog, as opposed to a cliff.”
Along with Yardi, Entrata, RealPage, ResMan and MRI are the property management software companies that feed NMHC’s rent collection survey.
Immediate Effect
The pandemic hit the industry immediately. April’s first-week payment numbers were the worst since NMHC, based in Washington, D.C., began tracking the rate after COVID-19 shut down the economy and millions lost their jobs.
For the past decade, since the recovery of the Great Recession, multifamily has been called the Cadillac of commercial real estate sectors. A shift in demographics to younger tenants helped keep demand high. Rents and property valuations soared, developers ramped up building projects, and new markets became investor darlings.
When the latest recession hit, service workers and low-wage laborers were most affected. They’re by and large renters, and apartment industry watchers predicted a sudden, dramatic breakdown.
But payments have stayed strong, falling by 2% or so month-to-month since April, according to the NMHC, meaning that disaster has largely been averted.
Instead, according to Adler and other executives, the multifamily sector is seeing the wheels of the Cadillac fall off slowly.
The latest survey from the U.S. Census Bureau backs them up: 15.3% of renters said they were not paid up on their rent, and 25% said they have no confidence they’ll be able to pay next month. More renters are borrowing money from family and friends, and 33% are leaning on credit cards to keep up.
NMHC is also a big lobbyist and has been pushing Congress for some sort of relief in the form of direct aid to tenants, or money to cover lost rent for landlords. If renters don’t get direct payments, the inevitable losses naturally fall to landlords and their lenders, NMHC says.
The lobbying nature of the NMHC also could have had something to do with the worst-case scenario expectations of a collapse being mentioned so prominently in the initial months of the pandemic. Industry representatives were pushing with their strongest arguments to get federal lawmakers to approve more aid to building owners.
“Congress and the administration need to do their job and provide meaningful rental assistance,” said Colin Dunn, vice president of public affairs for NMHC. “Without policymakers taking action, more and more apartment residents will face financial distress and will be unable to meet their housing obligations. At the same time, the nation’s housing finance system will be in increasing jeopardy as owners and operators will not be able to pay their mortgages, taxes, utilities and pay their employees.”
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