Aug 15

A chilly forewarning from Bloomberg:

While landlords at the priciest, amenity-rich apartments have collected most of their rent payments during the pandemic, owners of older, less fancy units — the backbone of the nation’s affordable housing supply — haven’t fared as well.

The CEO of the National Apartment Association tells Bloomberg in the same article

Further erosion in those rent payments would endanger America’s affordable housing supply and put mom-and-pop landlords at the biggest risk of mortgage default. Should their buildings go into foreclosure, the buyers may not keep them affordable, or even as rentals, said Robert Pinnegar, chief executive officer of the National Apartment Association, a landlord advocacy group. High construction costs make adding any new supply unlikely.

“If we lose this product through the crisis, we’re never going to be able to build it again,” Pinnegar said. “We risk making the affordability crisis much worse on the other side.”

This all makes sense.

Lease Lock and others are reporting a 16% decline in July collections over pre-COVID rates in the below-median rent segment of the market. The National Apartment Association and the US Census put the net operating income of rental properties at 7-9% gross rent, with the NAA showing the higher rate of return.

If collections are down 16% and owners were only receiving 7-9% pre-COVID, it is easy to see how properties will be financially upside down in short order.

If you go back to the US Census research you will find that 73% of the nation’s rental housing is owned by individuals.  That number is probably much higher as many small owners hold title as LLCs.

For a more in-depth view of the economics and potential for a massive housing crisis on the other side of this read, Tenant Rights, Eviction, and Rent Affordability, a published research paper

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