When the U.S. Economy shut down in March to prevent the spread of COVID-19, an initial concern was that older and lower-cost apartments catering to service workers faced the highest risks of defaults and distress.
But as time passes, it is starting to look like the newer, high-end apartment buildings that targeted young adults in urban areas face the highest risks for elevated vacancies, according to experts on a webinar Friday hosted by the National Multifamily Housing Council.
Those are the kind of “discretionary” apartments that Denver-area developers built thousands of in the past several years, and which the market was struggling to absorb even before the recession struck.
“Young professionals who are in studios and small one-bedrooms are leaving, they have gone back home,” said Jeff Adler, a vice president with Yardi Matrix, a firm that tracks the apartment market.
If they aren’t going back home, they are looking to rent more affordable Class B and C properties, rather than the costlier Class A spaces.
“Consumers are making changes in their lives. They are making adjustments,” he said.
Compared to the middle of February, rental applications are down in discretionary or Class A apartments, but are on the rise in mid-range and workforce units. Notices to vacate are up sharply for higher-end properties, but flat to down for the more affordable units, Adler said.
More than 36 million displaced workers in the U.S. Have filed for unemployment benefits since mid-March, an unprecedented number. Despite that, tenants have largely found a way to meet the rent, even if they aren’t all paying on time.
The NMHC’s Rent Payment Tracker estimates 87.7% of apartment households made a full or partial rent payment for May as of May 13, based on a survey of 11.4 million professionally-managed apartment units across the country.
That’s only 2.1 percentage points below the share of tenants who had paid the May rent at the same point a year ago. And it is better than the 85% of tenants who had paid April rent as of April 13.
“Once again, despite the economic and health challenges facing so many, we have found that apartment residents who live in professionally managed properties are meeting their obligations,” Doug Bibby, NMHC president, said in comments accompanying the updated numbers.
Colorado apartment tenants are current at an even higher rate, according to a survey of 137,719 apartment homes from the Colorado Apartment Association. The survey found that 88.8% of renters had paid something as of May 5, an improvement from the 83.6% of tenants who had paid April’s rent as of April 6.
“April turned out to be a good month for rent collections and, now, May is off to even a stronger start,” said Mark Williams, executive vice president of the CAA, said in a news release.
So why didn’t more people skip out on rent in April and May given the sudden loss of income so many suffered and calls for a rent strike?
It appears the government stimulus checks and the extra $600 a week that the federal government is providing unemployed workers appear to be making a difference, said Chase Harrington, chief operating officer of Entrata, a property management software company
Harrington said consumers are also spending less elsewhere, which has freed up more money to direct toward the rent, which they are prioritizing.
Many landlords have been proactive in reaching out to tenants and crafting payment plans. The payment counts don’t break out those “partial” payers, who will have to make up any shortfalls in the month ahead or risk eviction.
And it is worth noting that not all the strategies people are using to meet the rent are sustainable. For example, many landlords have waived credit card fees and more tenants are charging their rent, which personal finance experts strongly discourage.
One push property owners and renter advocates alike are making is to include substantial rent assistance in the next round of stimulus that Congress is considering.
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