The August Rental Market: Struggling Tenants and Rising Vacancies
From UHERO, October 5, 2020 (excerpts)
Last month, UHERO partnered with real estate groups across the state to launch a monthly survey of Hawaii’s rental property owners and managers. Our primary goal is to understand how the rental market is fairing during the extended COVID-19 crisis. Are tenants increasingly struggling to make rent? Are rental property owners seeing increased vacancy rates? What is the health of the rental market overall?…
Most Tenants Are Paying Rent, But Signs Point to Increased Hardship
Prior to the epidemic, 95% of tenants would have paid their rent by the 15th of the month and fewer than 3% would have 30- or 60- day rent delinquencies. But on August 15th, the number of tenants fully caught up on their rent dropped to 85% and severe delinquencies rose to over 8% of rental households….
This trend is troubling. While 5% of tenants with a 60-day delinquency may seem small, that figure represents over 9,000 households. Additionally, while 85% of tenants are current, the job figures suggest that a substantial portions of those households have experienced at least one job loss, forcing them to sacrifice well-being to pay their rent.
This “invisible” struggle is echoed by our respondents. Landlords and property managers can’t know everything about what their tenants are going through, but their assessment of their tenant’s financial situation is sobering. Our respondents estimate that 60% of their tenants have suffered a financial hardship, although two thirds of those tenants are still current on their rent….
Landlords and property managers, for the most part, expressed willingness to work with their tenants during the crisis. Almost three quarters are willing to hash out payment plans, 40 percent are willing to lower rent, and 30 percent are willing to waive at least a portion of the rent if necessary to keep a tenant housed….
Landlords Report Increased Vacancy Rate and Higher Than Expected Turnover
Prior to COVID-19, our respondents reported a roughly 4% vacancy rate on their properties (note: this number is lower than Census figures, which are notoriously inflated by seasonal homes and STVRs). In August, however, this number jumped to 9%, presenting a meaningful threat to rental property cash flows….
The explanation for this increase is certainly multifaceted, including increased financial strains pushing families to double-up with friends and family, out-migration, and epidemiological motives. Our respondents report that nearly half of the turnover in August was unplanned, meaning it did not occur at the end of the lease, but was instigated by the crisis. Moreover, about half of the families who left their units did not remain in Hawaii, but instead decamped for the mainland.
(9% August turnover: Half unplanned = 4.5% Half go to mainland = 2.25%)
In terms of a broad assessment, about half of the landlords and property managers suggested they were maintaining profitability. Troublingly, 40% said they were struggling, and 10% note that they (or the owners) are considering selling….
On an optimistic note, this first survey wave was fielded to capture data prior to the launch of the state’s rental relief fund, a program that is specifically designed to address the issues identified in this survey. For both struggling tenants and their landlords, this program has the potential to provide an essential lifeline.
However, should these patterns continue, the preservation of rental housing may become an increasingly pressing issue. This is particularly salient given that relief funds are scheduled to end on January 1st, long before UHERO forecasts any meaningful economic recovery. But even in a best case scenario, with additional federal assistance allowing for robust UI and rent support through 2021, an increase in vacancy rate alone presents a threat to our rental housing stock, as more landlords may elect to sell their properties during what promises to be a long road to recovery. For those with single family rentals, there is no guarantee that these properties will remain as rentals. Indeed, given historically low mortgage interest rates, it seems unlikely that they will….
read … Full Report
Best Comment: “this group represents 64% who receive less than median rent”
HNN: Survey: 9,000 households in Hawaii are 2 months behind in rent or more
CB: Report: Tenants and Landlords Alike Are Struggling
SA: 11,000 Hawaii families behind on rent, UHERO survey says
UH News: Renters hit hard by COVID-19, jeopardizing landlord cash flows
TGI: Survey predicts struggle for tenants, no relief in sight