Independent landlords may have little choice but to be patient with tenants who can’t pay rent because of the coronavirus crisis.
Millions of Americans are suddenly out of work because of government-imposed economic shutdowns to stop the spread of the potentially fatal disease. The shutdowns have particularly hit service, retail and transportation workers, a group that often rents, according to Whitney Airgood-Obrycki, a research associate at the Harvard Joint Center for Housing Studies.
By analyzing federal data, she found that 12.8 million households relied on such “at-risk jobs” for all their wages. Another 12 million households relied on such jobs for part of their income.
“Workers who are unable to do their jobs remotely have lost crucial wages as businesses close or reduce their operations to slow the spread of the virus,” Airgood-Obrycki reported.
States already are stepping in. New York Gov. Andrew Cuomo announced a 90-day moratorium on tenant evictions, and California Gov. Gavin Newsom passed an executive order allowing local governments to stop landlords from kicking out tenants who miss their rent payments.
Nonpaying tenants are suddenly a huge issue for the entire apartment industry, including real estate investment trusts like Equity Residential and AvalonBay Communities, which own huge complexes across the country. But the development is particularly bad news for small landlords, who still own nearly half the roughly 48 million rental units in the U.S.
Many small investors depend on the monthly income from their rental units for their livelihood, and they will have a tougher time waiting out a crisis than a giant apartment REIT.
Yet this may be an instance where landlords can’t get blood out of a turnip. If they press ahead with eviction for nonpayment, where it is being permitted, they will bear all the expense of turning over a unit, and there is no guarantee they will find new tenants until the crisis eases. Many areas of the country are under stay-at-home orders, making it difficult for prospective tenants to move anyway.
What’s more, the replacement tenants a landlord would expect to attract in a normal market may be just as hard pressed as the current nonpaying tenant. Many renters already were living paycheck to paycheck, without an emergency fund.
A better approach for landlords might be showing forbearance with current tenants and hoping they quickly go back to work this summer after the economic shutdowns ease. It would be a microcosm of what the federal government is doing on a grand scale as it gives financial support to businesses so they lay off fewer workers.
The apartment industry itself recognizes that the soft approach with tenants may be best. The National Multifamily Housing Council, a trade group, is recommending that landlords impose a 90-day halt in evictions for tenants affected by the coronavirus, and a 90-day halt in rent increases. It is also urging landlords to create a repayment plan for affected tenants.
The trade group has published talking points for landlords to use with their tenants. “We are all in this together, so we are halting rent increases for the next 90 days to help residents weather the crisis,” says one talking point.
Still, landlords are told by the trade group that they should remind “unaffected residents that their rent is still due.”
Equity Residential, the apartment REIT, already has endorsed the National Multifamily Housing Council approach. Smaller landlords might be wise to follow suit.
Compounding the problem: Many at-risk workers, because they work in industries that pay less, were being squeezed to pay the rent each month even before the crisis, the Harvard study found.
As an example, an earlier Harvard study found that more than half of renters fully employed in food preparation services spend more than 30% of their incomes on rent and utilities.
Normally, spending in service industries holds up pretty well during recessions. This time is the exception, which could require an exceptional response from landlords.
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