“The stability of the entire rental housing sector is thrown into question.”
Those are not my words, but I concur.
Doug Bibby, president of the National Multifamily Housing Council, wonders how his industry will survive after a week that saw California and President Donald Trump temporarily ban evictions, pushing off a landlord’s ability to toss out non-paying tenants until next year.
The coronavirus has made the landlord business difficult in numerous ways — and it’s getting worse with no simple solutions to fixing it. The big risk is that a collapsing rental industry could take down the recovering homebuying business, too.
It all starts with the pandemic, which devastated employment prospects for the renter class. Paying the rent became especially difficult after a weekly $600 jobless stipend evaporated.
Nobody seems to have a sensible and durable solution on how to save renters from being tossed to the streets or forced to cram in with pals or loved ones. Neither option is a good choice in the social-distancing era.
Thus, we have eviction moratoriums.
It’s hard for me, a product of the New York City rent-controlled apartment community, to say “I feel for landlords.” But I do.
It’s a totally reasonable question to ask: How do landlords pay their bills when collecting rent is made even more problematic by these much-needed state and federal edicts?
I’m guessing landlords must look at peers in the mortgage business with envy. Home lending got various pandemic bailouts from generous payment forbearance; to the Federal Reserve buying $1 trillion in mortgages; to historically low interest rates.
Also hurting landlords is that pandemic fears changed the thinking of tenants. Renters with means chose to buy homes, gaining more space and housing stability.
Yes, amid this crisis, many landlords lost some of their best customers.
How much are landlords hurting?
Well, after a post-Great Recession rebound that ballooned rents and inflated property values one could say today’s troubles are a comeuppance. Still, these are tough times:
• Empty units will grow. REIS forecasts the national vacancy rate, at 4.8% in the spring, will jump to “at or close to 7% by early to mid-2021.”
• Rising skipped payments. The apartment council found 7.9% of tenants made no August payment vs. 6% a year earlier. That non-payment gap averaged 1.4 percentage points the previous four months.
• Rents are moving in the wrong direction. The asking rents of big Southern California landlords dipped for the time in a decade. The Consumer Price Index shows local rent spending growing at the slowest pace in five years.
• Incentives double. In six California markets tracked by Zillow, 32% of rental listings on average showed some discounting in July vs. 15% five months earlier.
• It adds up to ugly. One rent-paying metric from Rentec Direct found landlord collections nationwide were down 29% from March to August.
The home-selling business appears to be on its way, for now, to a nice pandemic rebound thanks to what may prove to be overly generous government largesse.
But housing can’t be considered “recovered” with a rental market on the brink of collapse. It’s especially tough on smaller landlords who don’t have big banks or Wall Street to help them out.
Yes, some of the same mortgage forbearances offered to homeowners might be useful for “mom and pop” landlords with mortgages. But they’ve got other bills, too — property taxes, insurance, upkeep, etc. And what about property owners who have no loans?
Using the logic of how the mortgage and home-selling world has been propped up by federal assistance, somebody smart has to figure out how the government can “buy” and “insure” rental agreements of folks truly impacted by the pandemic. That would keep a roof over tenants’ heads and their landlords paid.
If not, we may see a home-selling market flooded with rental units for sale — a wave of motivated sellers that could swamp a burgeoning homebuying upswing. And even if there’s enough pent-up demand for ownership (wink-wink!) … where will the renters living in these units go?
If the landlords want to think mass evictions are the answer, they’re fooling themselves.
I’m sure some property owners might find a good tenant or two. But simple math tells you that barring an economic rebound miracle, the renter class will be filled with financial challenges for the foreseeable future.