In a normal rental market, prices begin rising in the spring in anticipation of the peak rental season, summer. This year, however, COVID-19 has substantially disrupted rental trends and made some notable changes in the rental markets in major cities throughout the United States. While changes in the amount of inventory and prices vary widely across the country, there are some general trends that landlords and tenants should be aware of, namely an increase in vacancies and a decline in rental values.
That said, according to Michael Neal, a senior research associate at the Urban Institute’s Housing Finance Policy Center, “this pandemic is both hurting demand, vis a vis creating unemployment, but it’s also limiting new supply – the turnover supply – because people are required to stay in their home.” The result is that across the country there have been some reductions in growth, but for the most part they have not been too dramatic or led to a complete collapse of rental markets.
Factors Impacting Rental Prices
As you can imagine, unemployment is a major factor impacting rental demand, and it’s important to note that unemployment is hitting renters harder than homeowners. As a whole, renters are more heavily impacted by layoffs and are more likely to be in the industries hardest hit by COVID-19.
As a result, those areas disproportionately affected by the virus and by restrictions put in place to limit the spread of the virus are seeing the biggest decline in rental markets. Additionally, cities that rely heavily on tourism and the hospitality industry are seeing larger impacts from the pandemic. Economist Molly Boesel of Core Logic observes, “some metro areas, especially those that depend on tourism, were hit hardest by job losses. With unemployment rates likely to remain high through the end of the year, we can expect to see further easing in rent growth as the economy struggles.”
Beyond unemployment, an important factor to consider when looking at declines in urban rental markets is an increased desire to live outside of urban areas. Due to a variety of factors including unemployment, pay cuts, wanting to get out of densely populated areas, and a rise in working remotely, many people are leaving large cities and looking for rentals in suburban areas. While experts don’t anticipate that this will be a long-term trend, in the short-term it’s having a notable impact on the rental markets in major cities.
Rental Markets Most Impacted By COVID-19
Obviously, some segments of the rental markets and some cities have been hit harder than others. Higher-end rentals have been more impacted than the low-end market, and cities that rely heavily on tourism, like Orlando, Miami, and Honolulu, have seen the greatest decline in values and demand.
New York City has been one of the hardest-hit rental markets, seeing substantial drops in demand and a decline in rent of around 7%. Douglass Elliman’s July Rental Report evidenced high vacancy rates and the most substantial year over year rental decline since 2011.
San Francisco has also seen substantial drops in rental prices. According to the rental site Zumper, in June, rental prices in San Francisco were down almost 12% from the previous year. Surrounding areas also saw notable declines – with Mountain View and Cupertino’s year to year prices down 15% and San Jose’s year to year down 5.7%.
While rental markets in major cities have not collapsed, many have seen increased vacancies, slowed growth, and a decline in rental prices. As the economy continues to struggle, there’s reason to believe that rental markets will continue to be impacted. CBRE experts anticipate that nationally, multi-family rental rates will decline by about 7% during 2020 and not fully recover until 2022. In looking specifically at the New York City rental market, economist Nancy Wu from Street Easy speculates that “there’s going to be even higher vacancy rates and even more supply coming into the market. I expect that we will be in here for a long time.”
As the economy recovers and uncertainty from COVID-19 looms, there is likely to be continued impacts on rental markets. The good news, however, is that experts don’t anticipate that the impacts will lead to long term changes in rental markets. For questions about how COVID-19 is impacting your area or for advice about how to best deal with the shifts caused by the pandemic, visit ezLandlordForms’ resource library or use ezLandlordForms’ tools to connect with local experts.