Back in March and April, many assumed that by summer – or at least by fall – the worst of the pandemic would be behind us. Multifamily owners were confident that unemployment benefits and additional stimulus funds would help renters keep up with their payments for a few months until they were able to get back to work. Now, six months after the pandemic began, an estimated 14.5 million Americans are unemployed, and many of them are renters. A federal eviction moratorium, along with state and local eviction moratoriums, prevents landlords from removing tenants even if they are months behind on the rent.
But the picture isn’t all bleak. In fact, many multifamily owners have been pleasantly surprised by the rate of rent payments.
Rent payments and the pandemic
The National Multifamily Housing Council (NMHC) Rent Payment Tracker, which provides data on 11.1 to 11.5 million professionally managed apartment buildings, shows that full or partial rent payments have mostly been lower from April through September than those same months in 2019. However, the numbers are not quite as low as might have been expected given the enormity of the pandemic’s impact on the economy.
Percentage of Full or Partial Payments by the 20th of Each Month
April 89.0 93.0
May 90.8 93.0
June 92.2 92.2
July 91.3 93.4
August 90.0 92.1
September 90.1 91.8
While the gap in percentage points is perhaps less dire than anticipated, NMHC points out that nearly 200,000 more households couldn’t pay their rent this September compared to September 2019.
According to the most recent release of the Census Bureau’s Household Pulse Survey, which reported on information collected between August 19 and August 31, 84.7% of renters were up to date on their rent, while another 15.3% were behind.
Differences by property type and location
The impact of the pandemic and the economic shutdown varied by geography and demographics, hitting lower income households harder than other groups. Rent collection rates vary as well according to the type of property. RealPage statistics show that 92% of rents were collected by September 20th in both Class A and Class B apartments, while just 85.6% of rents were collected by the 20th in Class C apartments.
An analysis by the Hamilton Project, which is an economic policy research team at the Brookings Institution, found that small landlords who derive more of their income from rents have been hit harder by the pandemic than other landlords. About one-third of individual landlords who own residential property have incomes under $90,000 per year. Among those landlords, rental income makes up 19% of household income for those making less than $50,000 and 15% for those making between $50,000 and $89,000, according to the analysis. Landlords with an annual household income of $200,000 earn about 5% of their income from rents.
Landlords who rely more heavily on rental income are likely to be hurt the most by the eviction moratorium and the lack of a solution for repayment of back rent and fees. In addition, according to the study, these landlords are more likely to be out of work themselves since unemployment rates are higher among lower income households.
Regional differences in the impact on rent collections are also tied to employment, with the lowest collection rates in cities heavily dependent on tourism. RealPage’s analysis of rents collected by September 20th found that just 84.7% of rents had been paid in New Orleans, a drop of 5.9 percentage points compared to September 2019. In Las Vegas, 87.4% of rents were collected, a drop of 7.5 percentage points compared to September 2019. Payments levels were approximately 91% in New York City, Indianapolis and Seattle. Cities with high housing costs, including Seattle, Los Angeles, San Jose and New York, had collection rates decline in September 2020 by 4% to 5% compared to September 2019.
Among the cities with 96% or higher collection rates in September, according to RealPage, were Providence, R.I., Virginia Beach, Miami and Salt Lake City, with Tampa coming in just below a 96% collection rate.
Rent collection, while just one measurement of the strength of the multifamily market, is typically the most important metric to landlords. The data suggests that tenants in professionally managed Class A and Class B buildings, who usually have also undergone an extensive background screening check, are more likely to be able to continue to pay rent even during an economic downturn. In addition, regional variations make it clear that local market knowledge and an analysis of the strength of an area’s job market can provide investors with important insight.