Credit Bureau Report Reveals Pandemic’s Impact on Rental Industry

By the Editors of the Rental Housing Journal

The COVID-19 pandemic has wreaked havoc on our global economies. Some populations, though, including renters, have been particularly hard-hit. TransUnion recently conducted an intensive analysis to better understand the impact of shutdowns, illness, and quarantines on the financial health of renters. The results, published in June 2020, offer valuable insight for rental-property owners and operators on the pandemic’s impact on the rental industry.

 

Understanding Renters

You most likely have a clear knowledge of your rental demographics. However, it’s good to have a more holistic picture, especially when considering national statistics. The National Multifamily Housing Council (NMHC) updated its rental characteristics in December. Here’s a snapshot:

 

  • More renters than homeowners own no vehicles or own only one
  • 27 percent of apartments are rented by single females, with 22 percent rented by single males
  • 11 percent of renters are married, 9 percent are married with children, and 13 percent are single parents
  • The highest percentage of renters (49 percent) are under 30 years old
  • 42 percent of renters telecommute, working from home at least a few times a month
  • Many renters (28 percent) make less than $20,000 per year

 

Paying the Rent

Perhaps the most significant impact of the pandemic impact on the rental industry by COVID-19 is your renters’ ability to pay on time and in full. TransUnion’s May 2020 survey of renters whose income had been impacted supported this concern. It found that 32 percent of respondents were worried about their ability to pay.

However, according to the NMHC’s Rent Tracker, most renters are still making their payments. Only 3.1 percent fewer renters paid rent in April 2020 than paid in April 2019. This gap has decreased in May and June, as well. In May 2019, 96.6 percent of renters made their payments; in May 2020, this number was 95.1 percent, a decrease of 1.5 percent year over year. In June, the gap shrunk to 0.1 percent (96.0 percent in 2019 vs. 95.9 percent in 2020). This ever-improving trend is good news for property owners and managers.

 

CARES Act Impact

The Coronavirus Aid, Relief, and Economic Security (CARES) Act offered several forms of financial aid that may have directly impacted your renters. In addition to one-time stimulus payments and enhanced unemployment benefits, the act provides special credit reporting allowances.

TransUnion’s survey asked consumers how they’d use their government stimulus checks. Thirty-eight percent said they’d use the check to pay current bills or loans, including rent. Some of those reported the check would allow them to pay only partial payments to creditors.

Tools like deferred payments and forbearance have always been options creditors could offer debtors. However, before April 2020, 99.6 percent of trades taking advantage of these tools were student loans. The CARES Act encouraged data furnishers to offer these allowances for other types of debt under the “Natural Disaster” code. Accounts with this designation are effectively ignored when calculating credit scores.

The government issued the CARES Act in late March, and in April, accounts reported with a Natural Disaster code grew by more than 1,100 percent. More than 4 percent of those accounts were non-student loans. TransUnion found that 3.8 percent of renters took advantage of these credit allowances on at least one account.

 

Renters’ Spending Trends

Another key indicator of renters’ financial stability is credit usage. Some experts believed renters would use debt to finance their expenses during the pandemic. This didn’t happen, though. Renters’ total debt balances decreased nearly one percent from January to April. Plus, balances on open credit-card accounts actually went down about 13.7 percent.

Even though personal income went down 2.2 percent in March, expenditures didn’t increase. In fact, personal expenditures decreased by nearly 7 percent in March, and nearly 14 percent in April.

These figures indicate renters are spending more conservatively, saving money where possible. TransUnion’s survey found that 60 percent of renters cut back on discretionary spending, 30 percent canceled subscriptions or memberships, and 23 percent cut back on retirement savings.

 

Pandemic Impact on the Rental Industry and

The Bottom Line for Property Owners

So what does this data mean to you as a property owner or operator? Well, despite the constant doom and gloom in the nightly news reports, things may not be as bad as they seem — at least for renters.

The percentage of renters who are making their payments is increasing every month. They’re spending wisely. Lastly, they’re taking advantage of allowances like forbearance and deferred payments. As a data furnisher, you’re not obligated to offer allowances to your renters. However, if you do, remember to add the Natural Disaster codes to these accounts to help your renters out in the long run.

 

NEW SURVEY – Pandemic Rent Debt Piling

Up as Renters Continue to Struggle

A new survey shows 32 percent of renters had pandemic-rent debt from previous months still due in the first week of September, but that number had dropped to 10 percent by the second week of the month, according to Apartment List.

“Renters continue to struggle to make housing payments. [In September], we found 10 percent of renters failed to make their full August payment by the end of the month, and one in six started September owing about $1,000 in missed rent,” the survey said.

 

“While our first-week non-payment rate came in at 32 percent, most of these are made up with late payments throughout the remainder of the month,” said Chris Salviati, Housing Economist for Apartment List.   He said non-payment of rent is less prevalent in large multifamily buildings.

 

Many Still Struggling to Catch Up On

Pandemic Rent Debt from Prior Months

“Despite the slight improvement in September payments, many renters are still worried about unpaid rent obligations from prior months.

“One-in-three renters started September with outstanding back rent owed, nearly unchanged from August. Among those with unpaid rent bills, close to half owe their landlords less than $1,000, while just five percent of all renters owe more than $2,000.

“These results indicate that another round of stimulus payments of a scale similar to those that went out earlier this year could help a significant share of renters catch up on their rent,” the report said.

 

Rent Struggles Illuminate Racial Disparities

The pandemic has exacerbated long-standing concerns around financial instability and housing insecurity.

“These challenges, however, have not affected all segments of the population evenly. Segmenting our survey data by race illuminates significant variation in the prevalence of unpaid housing bills.

“The share of white renters with unpaid rent is well below the overall rate at 24 percent. Meanwhile, black and Hispanic renters are far more likely to owe unpaid rent, with rates of 48 percent and 41 percent, respectively,” the report says.

With less discretionary spending to cut and fewer savings to draw on, these households are more likely to turn to other sources. Black respondents are most likely to have borrowed money from family or friends (28 percent compared to the overall rate of 18 percent) and Hispanic respondents are most likely to have sold assets (23 percent compared to 16 percent overall).

 

Pandemic Rent Debt Conclusion

“As the COVID-19 pandemic continues to disrupt all aspects of daily life, making housing payments remains a struggle for a startlingly high share of Americans.

Although this month’s data represents a slight improvement, nearly one in three survey respondents started this month with unpaid rent or mortgage owed from a prior month. In order to meet their financial obligations amid heightened economic uncertainty, renters and homeowners alike are making a variety of financial sacrifices as a direct result of the pandemic.

“Although the CDC’s recent pause on evictions has delayed the worst outcomes, missed housing payments remain a major concern in today’s economy,” Apartment List says in the report.

 

 

The RentalHousingJournal.com is an interactive community of multifamily investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.