It’s been one of the ongoing head-scratchers of the pandemic: How are apartment rent collections holding up so well despite all the unemployment and predictions of doom?
After all, it’s hard to imagine a scenario designed more effectively to crush rent collection. As tens of millions of Americans lost their jobs, warnings about mass rental defaults began almost immediately this spring.
But the $600-per-week enhanced federal unemployment benefits kicked in, and that relief was credited with saving the collection rate. Between that, tapping savings and paying with credit cards, most renters kept their heads above water. But apartment industry experts predicted a landslide come late July when those benefits expired.
And expire they did. Congress has been unable to extend those enhanced benefits, which landlords have described as a lifeline for the sector.
Across the country, landlords held their breath as Aug. 1 approached. And then a funny thing happened: Renters, by and large, paid up.
The National Multifamily Housing Council has been tracking rent collections at 11.4 million apartments nationwide. Their numbers showed the bottom did not fall out in August when the benefits expired. Some 80% of renters paid, at least partially, the first week. And that jumped to 86.9% by Aug. 13, off just 2% from last year, when the economy was booming.
“The whole thing is weird,” said Bob Hart. Hart, the CEO of TruAmerica Multifamily in Los Angeles, oversees a portfolio of close to 50,000 apartments around the country, and he, too, is surprised at the high rate of rent collections.
“We all have to remember that close to 90% of the country is still working. And the average Joe really is making an effort to pay rent.”
That said, experts point to a handful of factors aiding that high rent payment rate.
1. Vulnerable Renters Overlooked
Elena Popp is the founder and executive director of the Los Angeles Eviction Defense Network. The group counsels renters facing eviction and provides legal services for those already in the court system.
She thinks the hardest-hit renters are not being seen by industry watchers such as the National Multifamily Housing Council, which tracks tenants in properties owned by the nation’s biggest landlords such as Aimco, Equity Residential and AvalonBay Communities.
“So, I don’t think the pandemic is hitting that part of population as hard as it is for hospitality workers, domestic workers, low-wage earners,” she said. “It’s the hairdressers, waitresses; those are people getting hit. … They are more vulnerable to the loss of a job. They don’t have as much savings. The Aimcos of the world house the accountants and the lawyers, that could be part of the reason.”
There is evidence to show that.
MRI Real Estate Software, one of the five companies that contributes data to NMHC’s collection survey, this week reported it’s seeing a significant decline in rent payment at affordable housing properties. Only about 76% of the tenants that paid in July 2019 at affordable properties paid up in July 2020, according to MRI.
2. Increase in Household Savings
Renters who lost their jobs but received the $600-per-week federal enhanced benefit check have been credited with keeping local businesses alive during the massive economic shutdown by spending on food, clothes and other essentials with that money.
But they also have been saving.
Joseph Biasi, an economist at CoStar, has been tracking the federal household savings rate since the pandemic and recession began.
In February, before the economic disruption really took hold, households were saving an average of 8.3% of their income.
In April, when the pandemic started to force widespread shutdowns, that rate jumped to a whopping 33%.
“The savings rate is incredibly high,” said Biasi. He noted that, in the Great Recession, the savings rate was a razor-thin 3%. Today’s high rates provide many households with a cushion even if they lose their jobs. “That has to be the reason [apartment rent collections are so high]. People have money in the bank.”
Biasi noted the savings rate is higher in higher-income households — the type captured by NMHC numbers, for instance. And the rate is steadily falling. In June, the most recent month numbers are available, the rate slid to 19%, and most economists think it will drop further in July and August, as those enhanced unemployment benefits expired.
“The problem is people are burning through those savings,” Biasi said.
3. People Want to Pay
Hart, at TruAmerica, said the apartment sector shouldn’t underestimate renters’ efforts to make rents.
With local eviction bans in many big cities, landlords have feared even residents who are able to pay rent wouldn’t.
But, for many landlords, that number has been insignificant.
Like many large operators, TruAmerica has instituted myriad ways to help tenants keep up: waiving late fees, waiving credit card payment fees and offering payment plans to allow back rent to be paid over time.
But Hart found that fewer than 3% of tenants availed themselves of those payment plans.
“The average hard-working Joe is looking to pay their rent, and looking for any way to do so,” said Hart.
4. Moving Out, Doubling Up
Renters are moving out, especially in the most expensive markets and newest properties. Their empty apartments contribute to a higher vacancy rate but are no longer recorded as units where rent isn’t being collected.
Apartment vacancy has jumped at a historic rate, according to CoStar data. At 6.8%, the national vacancy average is up a full percentage point from this time last year. The most pronounced rise has been in downtown areas.
“Overall, U.S. apartment vacancy is approaching its highest level since 2010,” according to CoStar’s most recent national apartment forecast. “The forecast calls for the number of empty units to rise by another full percentage point as more than 400,000 new units deliver. Most of these new units are urban, expensive and small — precisely the type of housing millions of renters are hoping to leave.”
Renters are in a bind: While many professionals are dealing with a new work-from-home lifestyle that favors larger, cheaper suburban apartments, those tenants in older properties may be doubling up with roommates or moving home.
“The markets posting the largest declines, on the other hand, tend to be expensive [downtown] markets, led by San Jose and San Francisco,” said John Affleck, CoStar’s vice president of market analytics in a recent apartment webinar. “The urban amenities that attracted high-earning professionals to these locations remain largely closed, and working from home has made proximity to the office or transit irrelevant. Instead, these renters may be seeking more space and freedom from roommates in the suburbs — all while saving at much as a $1,000 a month.”
5. State, City Benefits
The numbers may be small compared to the tens of billions of dollars delivered through the federal enhanced unemployment benefits, but state and local governments have helped tenants cover rent the past five months.
In Boston, the city set up an $8 million rent relief program, aimed mostly at lower-income renters. In New York, the state dedicated $100 million for apartment rent assistance. Houston’s fund was $20 million, and New Jersey set aside $25 million for landlords who forgive back rent. Los Angeles dedicated $100 million for rent relief.
The country’s largest landlords have made educating tenants about what assistance is available to them a priority.
But many of those funds have tapped out quickly, and rent of course, is due every month.
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