Unemployment continues to climb across the U.S. and while rent payments have yet to fully recover, renters fared surprisingly well in April and May. Thanks to federal relief cheques, bolstered unemployment benefits and flexibility from multifamily operators, renter were able to prioritize making full or partial rental payments.
According to a new report by LeaseLock, first day rent payments in June saw a 2% drop in total rent collected compared to May and April, and a 6% drop compared to the pre-COVID average. While this isn’t the traumatic drop that many were expecting, this slight slip is proving that a lot of assistance that renters received are drying up.
“This decline is a foreshadowing of what’s to come if we don’t see some more government intervention,” said Rochelle Bailis, vice president of marketing at LeaseLock. “This issue will progress without more comprehensive relief.”
A lot of what’s to come for the multifamily sector is reliant on the HEROES Act. Despite being passed by the House of Representatives last month, it’s expected to face some fierce opposition in the Senate. The act would guarantee another one-time payment of $1200 to U.S. citizens and another $1200 for each dependent, with a total cost of the bill at about $3 trillion.
“We’ve seen an outpouring of support and empathy from the multifamily industry, who for the most part is doing everything possible to keep residents in their homes, but at a certain point, we are going to need federal relief that is consistent and comprehensive,” said Ed Wolff, chief revenue officer at LeaseLock.
According to the report, rent payments at Class C properties continue to decrease, which Bailis warns could trigger a ripple effect. Traditionally, Class C properties house working class residents, who were more greatly impacted by recent service industry lay-offs and after slipping downward for the last two months, Class C properties saw another 3% drop in first-of-the-month rent payments.
“When service workers get laid off, the industry suffers and executives begin losing their jobs as well, affecting Class B and Class A residents as well,” she said. “If renters can't pay their rent, then owners can't pay their mortgage, that affects the banks and that's really what the multifamily industry is trying to stop. We are trying to prevent those dominoes from falling.”
While residents are prioritizing rent and mortgage payments now, Wolff says the longer the crisis goes on, the less likely that’s going to be possible.
“We are at a tipping point, and no one can predict the lingering effect of this pandemic. With 42 million people unemployed, we are fooling ourselves to think we can turn the light switch on and go back to pre-coronavirus levels of unemployment.”
The pandemic has renewed a focus on renter affordability, and Bailis is predicting that it will be top of mind for operators, law makers, and renters going forward. She says there’s been a noticeable uptick in interest in LeaseLock services as the first and only nationwide A-rated lease insurance provider that eliminates security deposits, surety bonds and guarantors in rental housing.
While there’s still a lot of unknowns, Wolff says that multifamily has always managed to weather the storm, and this time will be no different. He encourages multifamily operators to continue working with residents, in hopes the government will step in soon.
“We are cautiously optimistic the HEROES Act will get passed in the Senate that will provide the necessary relief for these residents that they desperately need right now, until we begin to see blue sky again.”