The COVID-19 pandemic has affected every aspect of life. Home and work situations, in particular, have been thrown into total disarray with restrictions in mobility and extended suspensions of offices forcing businesses to adopt remote work setups or enforce job cuts. The rollercoaster of rental market trends during the height of the pandemic reflected the greater economic upheaval suffered by every country worldwide. As the dust settles on this global scare, what does the future look like for the rental market?
Rental Market Trends in Numbers
More and more people can see the light at the end of the tunnel, with the deployment of vaccines slowly ushering a return to normal. So what can renters and landlords expect regarding rent prices in the years immediately following the end of the pandemic?
2020 Rental Market Trends in Numbers
- Significant price declines in major cities, particularly in the 1-bedroom median price in the northeastern states, led to state-level decreases from the previous year:
- New York: -20.2%
- Massachusetts: -12.4%
- Connecticut: -1.9%
- Maryland: -8.2%
- Maine: -17.0%
- Virginia: -4.8%
- The highest state-wide increases were experienced by:
- Montana: 36.7%
- Alabama: 16.4%
- Idaho: 13.8%
- New Mexico: 13.3%
- Louisiana: 11.8%
- Pennsylvania: 10.7%
These price shifts were the result of the mass migration of renters. Rental market trends during the height of the pandemic reveal that notable price decreases occurred in expensive markets. Those markets saw many renters moving out, and notable increases occurred in more moderately priced markets, where renters opted to move.
Early 2021 Rental Market Trends in Numbers
- Upward trends were recorded by the end of May for the following cities:
- San Jose, CA: a 6.3% growth in one-bedroom rent (but still down by 9.9% compared to last year)
- Des Moines, IA: 5.5%
- Baltimore, MD; Bakersfield, CA; and Spokane, WA: 5.4% (also saw substantial growth throughout the pandemic)
- Detroit, MI, and Laredo, TX: 5.3%
- Chandler, AZ: 5.2%
- Downward trends were observed over May in the following cities:
- Milwaukee, WI: 5.2%
- Newark, NJ; Durham, NC; Richmond, VA; and Colorado Springs, CO: 4.8% (after experiencing an increase in rates in 2020)
- Anchorage, AK: 3.9% (but up by 7.7% compared to last year)
- Philadelphia, PA, and Houston, TX: 3.7%
- Indianapolis, IN: 3.2%
Rental Market on the Rebound
Keep in mind that homeownership and the rental market weathered the pandemic differently. This is consistent with the last great recession, where recovery was also experienced differently.
Housing prices and homeownership rates measure the health of housing markets, but to measure the financial stress of renter households, experts look at housing cost burden. Housing cost burden is the percentage of monthly income renters spend on their housing costs. According to the Department of Housing and Urban Development, when this metric tips over 30%, renters cut back on food and other necessities, leading to a lower quality of life and less stability in the rental market.
The housing burden resulting from the Great Recession in 2008 resulted from a lack of policy responses that addressed hardship and renter households. While the rental market bounced back, it took some time to recover and integrate more and better policies around both rentals and homeownership. As the rental market rebounds from the 2020 COVID pandemic, policies developed to respond to the 2008 recession are already in place, which is expected to allow the rental market to recover a bit faster. Recovery will, in many ways, mirror that of the recession but quicker.
For example, rental supply was unable to meet demand in 2008, leading to a decrease in rental rates. However, in 2021, even though rentals are in high demand and inventory is low, many families are consolidating, a trend that was less popular in 2008. In addition, the shift to remote work means many people can move out of cities and consolidate in suburbs and rural environments, reducing the total demand for urban rentals nationwide. There’s still a shortage, but renters have more options, indicating a faster rebound is ahead.
Rent Rates and Remote Work
On a national level, the rental rates grew at a rate of about 1 percent for most of 2020. But May 2021 numbers are showing the beginnings of a market rebound; there is a gradual rise in rent in expensive coastal cities while rent in cheaper markets remains flat. As more businesses are attempting to resume normal operations, will the rental market also continue to see a steady growth rate?
Remote work may have a lot to do with it. Whether or not remote work is here to stay and how widely it will be adopted may determine if the pandemic’s mass migration of renters will reverse, which could in turn, cause another significant shift in rental market prices.
A late 2020 PWC survey revealed that 87% of employees still valued working in the office, especially when it comes to team collaboration and relationship building, and 75% of executives anticipated a return to the office of at least half of their employees by July 2021. According to another 2020 report, many major companies were planning on offering remote work as a permanent option for some employees.
Factors that Will Affect Future Rental Market Trends
Experts note the difficulty of providing precise forecasts based on previous epidemic-related economic downturns. As the COVID pandemic progressed and continues to affect markets, the progress of these markets interacted with pre-existing recession risks and policy responses in place from the Great Recession and other pandemics. Given a cumulative set of policies, the rental market is forecasted to rebound more quickly and develop more policies that will better protect both renters and rental property owners against future epidemic or pandemic-related recessions.
During the 1918 influenza and 2003 SARS outbreaks, economic activity fell sharply but also snapped back quickly. The typical response to a non-health-related recession is a year-long slow-down in economic activity followed by a slow recovery. If nothing else, the outbreak pattern supports the forecast that economic recovery from COVID will trend upward; it’s just a matter of when.
Mortgage Policy Changes
Record-low mortgage rates brought about by the pandemic increased home prices in many areas as many renters became first-time homebuyers and the number of homes for sale dwindled. These homes purchased at peak values will most likely rent at higher than average prices in the future, should their owners decide to take this route.
Mortgage deferral programs may also prompt some landlords to raise their rents when their mortgage payments resume. On the other hand, those who took advantage of the low mortgage rates to refinance their mortgages may opt to lower their rent for tenants.
Rental Income Loss
Moratoriums on evictions and the freezing of rental prices meant that landlords lost billions of dollars during the pandemic. These landlords may look to recoup their losses by increasing their rental prices as soon as they can do so. Landlords also sold many rental properties to homebuyers; unless these buyers decide to rent out their properties after the pandemic, the supply of rentals may be significantly reduced.
Rental Protection Policies
Eviction moratoriums and rental freezes only give temporary protection to renters suffering from income loss. When these protection policies end, accumulated unpaid rents could lead to the eviction of millions of renters. This, on the other hand, could increase the supply of rentals and reduce rental prices.
Income instability, remote work, mass migrations, increased home buying, low mortgage rates and rental protection policies have had a vast and lasting effect within the rental space. Even as more normalcy is regained, more people get vaccinated and the economy continues to recover, rental market trends remain challenging to predict on a large scale. That is to say, stability isn’t expected any time soon.
Zumper – Zumper 2020 Year in Review
Zumper – Zumper National Rent Report
New York Times – Where Have All The Houses Gone?
United States Census Bureau – Housing Cost and Housing Quality Fact Sheet
Board of Governors of the Federal Reserve System – Assessing the Severity of Rent Burden on Low Income Families