6 ways COVID-19 changed rent payments

October 22, 2020 11:10 AM

For the 44.6 million households who rent, based on U.S. Census Bureau data from 2019, coming into the crisis almost 27% were already paying half or more of their monthly income on housing. That meant they had little ability to save for an emergency, let alone a pandemic that would cause record job losses.

According to the PEW Research Center, fewer families that rented in 2015 were becoming homeowners, compared to those that made that transition in 2001. Additionally, PEW Research Center also found in 2017 that more U.S. households were renting than at any point since 1965. This could be a signal of bigger financial issues, since home ownership is often viewed as a key milestone in financial wellness.

The following data sets illustrate the dynamics of the U.S. rental market and what’s happened since COVID-19 burst onto the scene in March.

Prior to COVID-19, about 80% of rent payments were paid using paper-based instruments such as checks, cash and money orders which is significant when compared to mortgages which were only 30% paper payment-based, according to the Federal Reserve Bank of Boston. The Fed study also found that just 9.9% of renters used automatic payments.

Income, with the exception of the lowest group, had little effect on usage of paper-based payment methods. Rather it only changed what paper method was used. For example, consumers earning less than $25,000 in household income (HHI) paid 91% of their rent payments using paper methods, with cash representing 44% of that amount.

Paper-based payment methods for the other three categories accounted for 82% of the $25-49,000 HHI group, 72% of the $50-99,000 HHI group and 72% of the $100,000+ HHI group. In the highest income category, cash accounted for 6% of paper-based payments while checks accounted for 92% of paper payments.

Credit card usage for rent payments was up by 13% in April, according to data from Entrata and The Wall Street Journal. On Enrata's digital property management platform, credit card market share has gone from 12% in September 2019 to 18% in September 2020.

The rental environment in the U.S. has become more difficult for the average renter to survive financially, according to the Joint Center for Housing Studies (JCHS) of Harvard University in its America’s Rental Housing 2020 Report.

Citing Census Bureau data, the report revealed that in 2018 about 25% of U.S. renters spent 50% or more of their monthly HHI on paying rent and that an additional 22.5% spent between 30-49% of their monthly income. The JCHS considers renters who spend 50% or more of their income on rent to be severely burdened, and those who spend between 30-49% to be moderately burdened.

The total combined percentage of severely and moderately burdened renters has gone from 40.8% in 2001 to 47.5% in 2018. One of the main reasons cited behind the rise in prices is that the rental market is becoming more focused on the high-income renters. The JCHS reported that the number of rental units charging $1,000 or more went up by 5 million units between 2012 and 2017, while units charging $600-$999 fell by 450,000 and those below $600 fell by 3.1 million.

One of the leading causes for the loss of low income housing is the gentrification of low-income, city census tracts, particularly in downtown areas where developers are buying older homes and buildings to create new, more expensive units for affluent families, according to the U.S. Department of Housing and Urban Development (HUD).

Some 86.8% of apartment households made full or partial rent payment as of October 13, 2020 which is a 2.4 percentage point decline from a year earlier when it stood at 89.2%, according to the National Multifamily Housing Council’s (NHMC) Rent Payment Tracker.

NMHC’s Rent Payment Tracker is a weekly survey of between 11.1 – 11.5 million apartment units. Most apartment unit managers consider rent late when it remains unpaid as of the close of business on the fifth day of each month.

For September 2020, the last full month of data, 94.6% of apartment renters paid by the end of the month, compared to 95.5% one year earlier. It appears from the data that the monthly rent is being paid at just slightly lower levels today than it was in 2019, however, it appears that rent is being paid later in the month by two or three percent of renters.

Apartments account for 65% of all rental units in the U.S., mainly in high-rise buildings, but only 14% of rental buildings. The other 86% of rental buildings and 35% of rental units are single-family homes, according to the U.S. Census Rental Housing Finance Survey.

A movement called “Cancel the Rent” emerged amid the COVID-19 crisis, shedding light on the challenges faced by today’s renters, many of whom have lost jobs or have had their hours reduced, making them unable to pay rent, according to Bloomberg reports.

A widespread boycott of rent payments would have a ripple effect on the U.S. economy, due to the fact that a large majority of the 17.1 million single family rental homes are owned by individual investors – 72.5% – and not corporations with diversified revenue streams.

Another 3.6% are owned by family trusts. In the homes and small buildings with two to four units, individual investor ownership is slightly higher, at 74.6%, according to the U.S. Census Bureau’s Rental Housing Finance Survey.

About 39% of the single-family homes carry a mortgage, according to Census data, and thus canceling rent would most likely put the property's owner in default.

A third (33%) of renters had missed or deferred rent payments since March compared to just 19% of homeowners who had missed or deferred a mortgage payment, according to a Clever Real Estate September survey of 1,500 adults. The survey also found that 72% of renters were living paycheck-to-paycheck compared to 55% of homeowners.

An earlier Clever Real Estate survey in April found at the time just 50% of renters were living paycheck-to-paycheck, implying that over time the pandemic eroded renters' finances. Twice as many renters reported a lack of stable income as did homeowners, at 30% and 15%, respectively.

For New York — a city with a significant entertainment draw — COVID-19 has been particularly devastating. Broadway canceled its 2020 season, the Metropolitan Opera is closed until September 2021, and museums have only recently reopened at a 25% capacity level.

Before the national emergency, real estate company Douglas Elliman reported that the New York rental market was strong, with higher rents being paid and landlords giving fewer concessions to prospective renters. However, after the crisis hit, the Douglas Elliman monthly market reports told a completely different story of the Manhattan and Brooklyn apartment rental markets.

The number of available rentals in Manhattan stood at 15,923 at the end of September 2020, triple the amount of both March 2020 (4,258 units) and September 2019 (5,299). The same story has played out in Brooklyn as well where available units were 4,235 in September 2020 compared to just 1,216 units in March 2020 and 1,506 units in September 2020. The Manhattan vacancy rate of rental units has reached 5.75% in September up from 2.01% in February and 1.96% for the same month one year ago.