Covid-19: Rents, and Evictions

News media and social media often create drama from small events that have little bases in true numbers. The reports that followed the small rent strike groups and proposed that no one was going to make their rent payments on the 1st of the month are one of these covered events that we have seen repeatedly for April, May, June and July. Now as eviction bans are nearing their end, politicians and news media are warning of the “eviction tsunami” that is about to take place.

The following data summarizes actual numbers as collected by the National Multifamily Housing Council’s Rent Payment Tracker, which collects numbers from five technology firms whose software is used nationally by professional property management companies. More than 11 million market rent apartment units are represented in this data.

87.6% of rents have been collected as of July 13, 2020. This has decreased slightly from one year ago when 90.1% of rent obligations were collected by July 13, 2019. But, it remains in line with the collections of the prior three months, 85.0% in April, 87.7% in May, and 89.0% in June.

Many argue that collections will decrease as the enhanced unemployment benefit is scheduled to conclude at the end of this month. However, that additional financial benefit provided more monthly income, to many receiving it, than they were earning in their previous employment. This should allow another few months of essentials, like housing, to be planned for. Let’s also take into account the first stimulus check that would have covered rent for a month or two, if not more, on its own. At this point we are almost certain that another stimulus check will also be distributed, though details of how much and to whom are not yet decided.

Through communications with many multifamily syndicators over the past 4 months, I have found these numbers to be lower than they are observing at their properties. They are also consistently stating that very few people are coming forward to report needing assistance with rent dues. All have gone to great lengths to inform their residents of local, state, and federal programs that can assist them if they need and that they are willing to work one-on-one with residents in financial hardship. The holding of mainly B class assets of these syndicators may be the reason for the above reported numbers seen by my contacts.

Data is showing that different classes of multifamily complexes are experiencing different levels of rent collection. For July’s collections, as of July 13, 90.1% of rent dues were collected from A class properties, and 89.8% from class B assets. Class C properties, that tend to house more hourly workers who have been the hardest hit financially by the corona virus crisis than class A or B, collected the least amount of rent income at 82.7%. Collections for class C did decrease at a larger rate in July than was seen in previous months when compared to last year's collections.

Location of the property also plays a role in the percentage of rent collected. Some areas of the country have seen higher defaults on rent than others. As of mid July, most of these locations are found in major markets with high populations. So far the news media's portrayal of countless households unable to pay rent has statistically not come to pass. But, our country has many months before the effects of Covid-19 are lessened for the economy and financial well being of the citizens. Time will tell.

Many of the numbers used to claim an “eviction tsunami” is about to take place leaving millions homeless, have been taken out of context or not compared to actual data. An example of this is the commonly used Aspen Institute study that predicts 19 to 23 million renter households will be evicted by September 2020. These numbers are based on an unemployment rate of 25-30%. Actually unemployment in June was 11.1% and trending downward. This prediction also fails to take into account dual income households which would further reduce the likelihood of missing rent owed leading to eviction.

A federal study of the late 2000s crisis found that a one point increase in unemployment caused an increase in approximately 21,500 people into homelessness. When you look at the difference in unemployment from February to June, this could add up to nearly 165,000 people becoming homeless. That is many, but not the millions doomsayers are presenting.

Other evidences against an “eviction tsunami” are:

One of the main causes of eviction is failing to pay rent. As stated above, rent is being collected at near normal levels.

The federal government, with the CARES Act, was not the only governance providing assistance to troubled renters. Most states and local governments stepped up with large programs of their own.

While national halts on evictions are set to lift at the end of July, many states and local governments have also put restrictions on evictions that have not reached their expiration time.

The local court systems that process evictions are, for the most part, not functioning at full capacity yet. Also, many have stated reluctance in progressing with evictions due to Covid-19.

Fannie Mae and Freddie Mac, the two largest lenders for multifamily mortgages, though covered under the CARES Act, have offered distressed property owners options regarding their mortgage payments. The majority of owners taking advantage of these are those with small balances on smaller unit properties whose absence of even a single rent revenue can cause financial trouble for the property.

Property owners and property managers are offering flexible payment plans for those having trouble paying rent. These plans were almost non-existent at the first of the year and are now commonplace to be used if needed.

Most property owners do not want to evict right now and are not even if they are able to. In the seven cities that are continued allowing evictions, six of them are trending downward in the number of evictions taking place.

Overall, the US economy and citizens are better off than the news media is portraying. Guard your mind from the drama they hype up to entertain you and boost their ratings.