Logan is the Co-Founder of Landlord Studio, the only complete property management and accounting solution for real estate investors.
This last year has been challenging for many of us. The actions taken in an attempt to control Covid-19 have resulted in a rapid rise in unemployment and increasing levels of financial stress. Undeterred by this, there has been relative stability in the rental market.
The majority of landlords on my company’s property management platform have so far experienced little disruption to their rental businesses. Those who have seen disruption have been able to work with their tenants to find solutions to benefit both parties. I have seen a display of solidarity in spite of many eye-catching headlines from the last several months.
To understand why the residential rental market has retained some of its stability in the face of economic upheaval and rising unemployment requires looking at the raw data alongside a broader contextual analysis. From my company’s own data and broader financial savings data, there appears to be a correlation between missed or incomplete rent payments and economic aid.
Rental Collection Trends
While the number of leases in my company’s data is a fraction of total leases, it provides a window to understand overall trends in the U.S. rental market. From our data (downloard required) aggregated from over 10,000 active leases across the U.S., there are two obviously anomalous months: April and August. In April there was a 3.5% decline month on month of rent collection after 28 days. Additionally, it took five days longer than average for 70% of rent to be collected on the Landlord Studio system, a total of 19 days. In August there was a similar trend with an almost 3% decline in a month on month of rent collection after 28 days. And it took three days longer than average for 70% of rent payments to be completed — a total of 17 days.
This data suggests a hesitancy — inline with economic uncertainty — during these months by tenants as they delayed paying their rents. The reason for tenants waiting longer than usual and the 3%-4% increase in missed rent after 28 days becomes clear when you look at personal savings data. According to Bankrate’s Financial Security Index, 28% of adults in the U.S. have no savings at all — one in four have a rainy day fund that is insufficient to cover three months of living expenses.
A recent report from the National Multifamily Housing Council paints a similar picture using data from more than 10 million leases. Since May 2020, there has been a slow decline in the numbers of renters paying rent, with the exception of a slight bump in June.
Policy Factors Affecting Renters
There are three further obvious factors that have contributed to the increase in late or missed rent collection as well as the market’s otherwise stable footing.
First, is the stratospheric rise in April of unemployment with over 23 million people filing for benefits by the end of the month.
Secondly, is the federal government’s response to Covid-19 and the lockdown measures implemented. The federal government signed the CARES Act — a $2.2 trillion stimulus bill passed in March and implemented over April. The $1,200 stimulus check went a long way to relieving individuals’ immediate concerns which contribute to rent collection numbers returning to normal in May.
Thirdly, an additional $600 was added to unemployment benefits which contribute further to ensuring timely rent payments for the following months.
As a direct result of this, May, June and July saw business as usual for most landlords despite the fact that as of Aug. 1, there were over 28 million Americans claiming unemployment benefits from a state or federal program. An increase over the previous year of more than 26 million.
This business as usual is further shown through unaffected occupancy rates with over 95% of properties managed through Landlord Studio occupied between January and August 2020. On top of this, our partners actually saw an increase in tenant screenings compared to last year, which goes to show that despite many Americans having little in the way of savings, most have found a way to afford rent.
The additional $600 unemployment money, though, ran out at the end of July. It is then unsurprising that we saw another 3% increase in missed rent payments in August. And while many states have confirmed they will continue to supplement unemployment with an additional $300, this cut could have serious knock-on effects in the coming months.
America is positioned to make a fast economic comeback. There are signs of it in the growth at my company and at partner companies — including one that saw a 21% growth year over year. However, the numbers around active leases and other points in the rental market suggest that additional support will be needed. Key policymakers will need to make this support available for both renters and landlords in the coming months as unemployment rates remain high and individuals’ finances are stretched further.
Initially support similar to what has already been enacted could be put in place. However, the first stimulus bill was ultimately akin to applying a big band-aid without any understanding of the injury. The wound is still there and a more precise and tailored stimulus action would have longer-lasting and more efficient effects while potentially costing the American taxpayer less.
As things return to normal, larger organizations will likely rehire to previous levels. However, there are many small businesses — especially in sectors like hospitality — that have been forced to close their doors permanently. Any future policies need to quickly stimulate small business growth in hard-hit sectors to recreate those jobs which have been most affected. Furthermore, as unemployment remains high, additional funds need to remain available to afford meaningful financial relief to those who most need it.
If nothing is done or measures are implemented ineffectively, we could see an increase in tenants unable to pay rent. This could result in many independent landlords defaulting on mortgages with the possibility of a worst-case scenario that includes another housing crash and climbing levels of homelessness. However, if implemented correctly, these measures could help to rebuild the American middle class and reduce current wealth disparities — creating a wave of new businesses and innovation paired with highly employable individuals.
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