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By Paul Fiorilla, Director of Research, Yardi Matrix
As the country re-opens from the pandemic, and eviction moratoriums begin to wind down, multifamily fundamentals are red hot. Demand and rent growth are at levels not seen in decades, with the strong performance concentrated in institutionally owned properties.
Year-to-date through July, multifamily asking rents jumped 8.3%, the largest increase in decades, according to Yardi Matrix data. Year-over-year, asking rents are up more than 10% in nearly half of the top 30 metros, while rents are rebounding rapidly in Gateway markets that saw steep drops during the pandemic.
Rent growth is driven by intense demand. In the 12 months through June, 423,000 multifamily units have been absorbed nationally, per Matrix, the highest 12-month total in the last two decades. That has pushed U.S. occupancy rates of stabilized properties to 95.3 in June, up by 60 basis points year-over-year and close to record-high levels, per Matrix.
There are many reasons for the robust performance. One is pent up demand in household formation that was delayed by COVID-19. The recovering economy, government stimulus, and growth in personal savings during the pandemic have helped to create strong household balance sheets. Some renters are staying put due to the surge in single-family home prices.
Another factor is the long-term shortage of housing stock being built. Additionally, the national eviction moratorium put in place last year by the Centers for Disease Control and Prevention (CDC) has kept people in place, boosting overall occupancy and stimulating rent growth.
Eviction Ban Extended
The CDC recently announced the extension of its controversial eviction moratorium through October 31 in areas hard-hit by COVID-19, responding to concerns about a wave of evictions and homelessness. Moody’s Analytics estimates that 6.4 million renter households are behind on payments, owing an average $4,270 in back rent totaling $27.5 billion.
How are multifamily market fundamentals so robust if upwards of 15% of renters are behind on payments? The answer seems tied to the bifurcated nature of the economy and real estate market. Renters in arrears seem to be concentrated in smaller properties that are not captured by the data derived from professionally managed apartment properties that typically cost more to rent than properties owned by small investors, and whose tenant base is wealthier than the average renter.
A survey by the Washington, D.C., based Urban Institute and Avail found that since March 2020, between 87-90% of tenants in properties with less than five units have paid rent each month, which is about 500-600 basis points higher than non-payment than in professionally managed units. Urban Institute also found that mom & pop landlords were less likely to know about (and apply for) the $46 billion of renter assistance passed by Congress.