More Pain Ahead for the Rental Housing Industry Says Multifamily Outlook

Yardi Matrix multifamily outlook for the summer of 2020 shows more pain ahead for the rental housing industry

With the pandemic continuing to spread and additional federal funds to help uncertain, the second half of the year could mean pain ahead for rental housing and a challenging time for apartments, Yardi Matrix says in their summer multifamily outlook.

Rents are falling as COVID-19 weighs on the multifamily rental housing industry, and “more pain” is coming, the report says.

While the pandemic ended the long run of multifamily rent growth, expectations of widespread non-payment of rent did not materialize immediately. Federal unemployment and stimulus payments helped tenants make rent payments. The second half of the year, however, is more of an unknown.

Some summary points Yardi Matrix makes in the summer multifamily outlook report:

  • Tenants were subsidized by emergency unemployment aid, which ended in July with an unknown future. At the same time, initial hopes for a “V-shaped” recovery were too optimistic, and the effects of the pandemic will linger until the population is confident about health measures.
  • Rents turned negative in the second quarter for the first time since the aftermath of the global financial crisis. Property owners concerned with maintaining occupancy renewed leases with no rent increases. New luxury units are taking longer to lease up, as demand is concentrated on less expensive product. Rents are likely to drop further in the second half of 2020 before rebounding in 2021.
  • Multifamily capital remains abundant, but deal flow has slowed as underwriting future growth has become more difficult. Fannie Mae and Freddie Mac remain active, though with more conservative terms and higher reserve requirements. Investment activity dropped sharply, but opportunistic capital is circling, waiting for signs of distressed assets.
  • The pandemic will weaken the supply pipeline and delay projects that have not yet started construction.
The Yardi Matrix multifamily outlook for summer 2020 shows more pain ahead for the industry
Chart courtesy of Yardi Matrix

“The rent situation is uneven at the metro level. Those that have had the largest decreases in rent growth include large coastal markets such as New York, Los Angeles, San Francisco and Silicon Valley, where rents were extremely high to begin with. Some residents are leaving (temporarily, for now) to avoid crowds and to get more space,” the report says.

“Other markets with rent declines in the second quarter include fast-growing locations such as Austin, Seattle, Miami and Denver. Those markets have had large amounts of deliveries of luxury product in recent years, and thousands of new units are coming online just as demand was diminishing due to the pandemic.

“With millions furloughed and employment less certain, demand is being concentrated in lower-cost apartments, which is showing up clearly in the rent numbers. At the end of the first half, rents of luxury lifestyle units fell 1.8 percent year-over-year, while working-class Renter-by-Necessity units were up 1.4 percent,“ Yardi Matrix says.

“Uncertain is the policy support that has allowed rents to remain fairly level to date. If the federal aid ends while unemployment is still elevated, that would be bad news for apartment rents,” the company says.

About Yardi Matrix

Yardi Matrix is a leading source for originating, pre-underwriting and managing assets for profitable loans and investments. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering over 90% of the U.S. population.

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