As we head into year two of coping with the global pandemic, it’s a good time to look back on what we’ve overcome and take a look forward to future challenges and opportunities. The year 2020 was unprecedented and filled with uncertainty. Covid-19 has affected everyone and the state of the rental industry is no exception.
Last year we saw a drastic exodus of city centers. Undoubtedly the increase in remote work options and fear of the coronavirus have driven this migration. The most desirable locations have shifted to different neighborhoods.
Tenant demographics have also changed. With wealthier tenants in the market, the types of units renters are looking for are no longer the same. Location, size, and features of properties being sought after have experienced a rapid shift.
There is greater pressure on low income households. This segment of the renters pool is experiencing financial upheaval. In turn this is having an affect on this group’s ability to pay their bills on time.
How Has the Pandemic Affected Supply and Demand?
Affordable housing continues to be in high demand. The supply of units available to low and medium income renters has always struggled to keep up. The rental industry continues to see relatively low vacancies even in the midst of the pandemic.
For the last few years the rental market has been at a plateau with unremarkable growth in the number of people occupying rental units. In 2019 this began to change with an influx of about 350,000 new renters coming into the market. This trend continued into 2020 in the midst of the pandemic.
As the economy began to slow down due to covid-19 concerns, new construction projects were delayed creating a greater shortage in supply. This was somewhat offset by the halt in immigration in 2020. However the changes to the state of the rental industry did not affect the renter pool evenly.
Who is Renting?
Today’s average renter is wealthier than a year ago. The renters at the top of the rental pool are showing a tendency to continue renting instead of making the jump to home ownership. This may be in part due to buyer uncertainty causing people to delay the purchase of their first home.
As people are leaving cities, some homeowners may be selling their metropolitan homes and opting to rent in rural areas while they are able to work remotely. The uncertainty of their future working conditions and ability to continue remote work may be a driving factor in preventing them from settling down. These owners turned renters are looking for larger and more high end units.
While higher income households are driving much of the growth, those at the bottom of the rental pool are struggling more and earning less. In the midst of a slow economy cost burdens for low and middle income families are increasing. Those at the very bottom are the most vulnerable and sadly homelessness is on the rise.
In the midst of a struggling economy and increased cost of living many people are feeling the effect on their financial security. It’s a time of uncertainty and hardship for many. How are these challenges affecting the ability of individuals to pay their bills?
How is the Pandemic Affecting Rent Payments?
Most property owners rely on rent payments to pay their own bills and operate their business. The number of their tenants able to pay their rent on time is a reasonable concern. How has the pandemic affected the ability of renters to pay?
In 2020 the percentage of landlords receiving full rent payments has been on the decline. Tenants are worried about their ability to pay their rent in full and on time. In August 4% of surveyed renters reported that they were unsure how they would be able to make their next rent payment. By November that number was up to 10%.
Not surprisingly, December was the hardest month with the largest number of landlords reporting that they haven’t received their rent payments. Only 54% of property owners said that they received all of their rent. A staggering 37% said that they received no rent payments at all.
Suburban areas were not as hard hit as urban communities. This finding is in line with the migration of people out of city centers. Those who can afford to make the move to more desirable locations do, while those who can’t afford it stay behind.
What Do Landlords Need to Focus On?
The current state of the rental industry emphasizes the need of property owners to work more closely with tenants to find solutions. Communication is key. Software options such as an integrated communications hub can help landlords manage their correspondence more easily and a tenant portal can offer tenants self-serve options.
Making it easy for tenants to pay can be the difference between steady cash flow and loss of income. Offering people the ability to pay their rent in their preferred payment method can help renters pay their bills. With options such as credit card payments people can temporarily lean on their borrowing options.
In this challenging landscape, there will undoubtedly be times when tenants are unable to make their full payments as they are due. This will surely put a strain on bookkeeping and accounting practices. Comprehensive accounting software can help keep clear and accurate records and allow property managers to track the movement of money.
The last year has seen some drastic changes in the rental market. Supply and demand as well as renter demographics and preferences have altered the landscape of the industry. The impacts of these changes are certain to continue being a force in property management and landlords need to be prepared.
The state of the rental industry is continuing to undergo changes. Financial pressures on tenants and uncertainties for individuals and businesses alike create a greater need for innovative solutions. Now more than ever property owners need to keep one eye on the horizon and the other on the options available to them.