Is COVID-19 Killing the Home Rental Sector?

The economic impact of the COVID-19 pandemic may leave many people struggling to maintain a home. Before the start of the outbreak, housing costs were already eating up at least 30% of the income of individuals paying rent or buying their home on a mortgage. With the pandemic, many lost their jobs or businesses, potentially endangering their capacity to pay, whether for a mortgage, rental, or new home purchase.

There are three possible results of this:

  1. Renters will fall behind on their payments and face the risk of eviction.
  2. Homeowners on a mortgage will give up their homes or refinance them.
  3. Homeowners will sell their current home and buy a smaller one — or rent to save on maintenance costs.

 Not like 2008

The Atlantic reports that contrary to what most people assume, the present situation in the housing sector is different from the Great Recession of 2008. While the burst of the housing bubble ten years ago left an oversupply of unoccupied properties due to foreclosures, this year’s problem is the opposite. The supply market for single-family and multifamily homes is lower than the buying demand.

It is attributed to the slow construction of homes after the recession, exacerbated by a standstill in homebuilding activities during the lockdown. Homeowners about to sell their homes also parked their plans when the pandemic worsened. They opted instead to shelter in place in these properties. The moratorium on foreclosures also contributed to fewer foreclosed houses for sale than usual.

With the relatively smaller housing supply, the sale of newly built homes increased faster in June than any of the previous months since 2005, the report says.  Low mortgage rates and renters-turned-homeowners are cited as likely reasons.

Weakened Rental Sector

new house

Meanwhile, the rental industry is suffering. A Bloomberg article says this is most evident in cities with a high cost of living, such as Los Angeles, San Francisco, Seattle, and NYC. One explanation for this is that most renters in these places are knowledge workers who are high-income earners. The nature of their jobs allows them to work remotely anywhere — which means they need not do it in a rented apartment near the office.

Most of these workers are also young and single, who love the urban entertainment scene as much as their jobs. They were the main consumers of luxurious apartments and condos built smack in the center of commercial complexes. However, with the pandemic, the bar and restaurant scene has lost its appeal as well.  ;

These renters found it practical not to renew their contract once it expires, and to move back in with their family or some friends. They can work from home, practice social distancing without being distant, and save money or share household expenses.  ;

The second reason for the declining number of renters is job loss. A survey by Apartment List shows that 36% of renters, most of whom work in industries affected by COVID-19, failed to settle their housing bills in July. One payment delay often creates a snowball effect. With fewer renters and late monthly payments, apartment owners or landlords will have trouble settling their own mortgage or bond payments.

The federal moratorium on evictions will also be lifted at the end of August, which means renters must be ready with their payment by September. Unfortunately, more than 20 million renters will be facing eviction by then unless they settle their accounts, The Atlantic report says.

With high demand driving house prices up and struggling apartment owners and landlords facing possible foreclosures, the industry is facing a future that can only be reversed by a more promising solution to the pandemic.

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