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COVID-19 Hits Renters Hardest; Here’s What That Means for Landlords

May 19, 2020 by Aly J. Yale

Once the worst of the COVID-19 pandemic has cleared, we may very well see an uptick in rental demand -- or at least see it hold steady.

According to a new report from the economists at title insurance firm First American (NYSE: FAF), the current health crisis is hitting renters significantly harder than it is homeowners.

As First Am's deputy chief economist Odeta Kushi explains, "Homeowners are less likely to be unemployed overall and, in times of economic distress, the rate of unemployment among homeowners increases less dramatically than the rate among renters."

It's true both historically and today. Since the year 2000, renters have outranked homeowners on the unemployment scale by an average of 4.4 percentage points. The COVID-19 pandemic has likely only worsened that gap.

Why renters?

Data from the Bureau of Labor Statistics shows that 37% of recent job losses were in the leisure and hospitality sector -- an industry largely staffed with renters. Coronavirus-related layoffs have also hit younger Americans harder, as people between 16 and 24 have seen the biggest uptick in unemployment in recent weeks. This is another cohort largely comprised of renters.

Overall, a whopping 16.5 million renter households have at least one resident who's at risk of job loss due to COVID-19.

Naturally, this is going to impact housing arrangements. According to First Am's report, the homeownership rate among these groups is already 54% lower than those of other population segments. With the current economic distress, Kushi says that divide will likely grow -- and homeownership will fall further out of reach for these Americans.

To be clear, though, many of these people weren't looking to buy a home in the first place, so it won't mean a huge drop in homebuying (or a huge uptick in renting either). It might, though, push renters' buying goals back a bit or, at the very least, result in a steady stream of rental demand for the foreseeable future -- especially on more affordably priced properties.

"Our analysis shows that the nature of this service sector-driven recession is unlikely to result in a one-to-one decline in homeownership demand because those being impacted disproportionately by this recession are much less likely to have been house hunting in the first place," Kushi says. "In fact, the data indicates that homeownership demand may be delayed, but it's not dead."

Landlord food for thought

Though a steady stream of renter demand is certainly good news for landlords, the data also offers insight into the added risk that property owners now face. With renters disproportionately impacted by the economic changes of COVID-19, landlords will continue to face higher rates of nonpayment (or late payment) in the coming months and even years.

As a result, they'll need to be on point with tenant communication, and they may need to adopt new technologies (digital rent payments, for example), payment plans, and other alternative strategies in order to weather the storm -- or at least allow renters to.

The bottom line? It seems strong renter demand is here to stay, but that doesn't mean business will be booming. Keep the lines of communication open, and be prepared to work with your tenants. Until the economy has fully reopened, their risk of financial hardship -- and payment problems -- will remain high.

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Aly Yale has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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