Flooding resulting from Hurricane Harvey in Houston, Texas.
Harriet Taylor | CNBC
Nothing can compare to the crushing economic tsunami created by the coronavirus pandemic, but in the housing market, there are some parallels to natural disasters.
Lessons learned from those devastating events are helping the industry cope now.
In 2017, after Hurricane Harvey swamped Houston, thousands of homes were damaged or destroyed. Many were single-family rental homes owned by one of the nation’s largest rental REITs, American Homes 4 Rent.
With about half of its 3,200 homes damaged, several hundred severely, and some staff members unable to get to their offices, the company had to mobilize quickly, remotely.
Thanks to its national scale and online platforms for payment and maintenance, the company was able to relocate tenants and modify rental agreements for those who could no longer make their monthly payments.
“The fact that we have gone through Harvey and other hurricanes, having to close our home office meant that the ability to work from home and provide service to residents was something we already had a blueprint for,” CEO David Singelyn said.
The coronavirus pandemic is of course hitting on a much larger, national scale, but some of the same rules apply. The rental REIT, along with others like Invitation Homes, which owns thousands of single-family rental homes across the nation, is working with tenants on an individual basis, offering repayment plans and changing lease terms.
“We’re not going to evict anyone,” said Singelyn.
In April, his company received about 95% of it normal rental payments, but Singelyn expects the numbers to fall more sharply in coming months, as more tenants experience financial hardship.
The same is true at Invitation Homes, the largest single-family rental REIT, with 80,000 properties across 16 major housing markets. It is also taking lessons learned in the past and applying them to today.
Fires and hurricanes
“We’ve done this across hurricanes in Texas and Florida, fires in Northern California, so we have a process to work with residents,” said Invitation Homes CEO Dallas Tanner. “We’ve established these programs over time that can help families in times of need.”
In the multifamily market, rent payments in mid-April were still made at 93% the rate of the previous month, according to the National Multifamily Housing Council.
For single- and multifamily nationwide, rent payments received by property managers and landlords as of April 8 were 17% lower than the same period in March, according to Rentec Direct, a property management software company.
Consumers are starting to receive checks from the government’s stimulus program, but they may not be using that money to pay the rent. Fewer than half of U.S. adults (45%) plan to prioritize housing as an expense to continue paying during the coronavirus crisis, according to a survey conducted by The Harris Poll in April and commissioned by Tally, an automated debt management app. Groceries and utilities ranked higher on the priority list.
Camden Property Trust, a Houston-based multifamily REIT that also weathered Hurricane Harvey on many of its properties, established a $5 million resident relief fund for those experiencing financial losses from the Covid-19 pandemic. It provides up to $2,000 per apartment for financial assistance for living expenses such as food, utilities, medical expenses, insurance, child care or transportation.
“We believe it is still too early to quantify the impact of the Covid-19 pandemic to our financial performance,” said Camden CEO Richard J. Campo. “Currently our portfolio’s occupancy remains strong at over 96%. We are seeing high levels of resident retention but also reduced foot traffic and new lease applications from prospective residents given the current environment.”
The program received more than 2,500 applications in the first 16 minutes it went live. It then had to shut down the site after reaching the $5 million mark, according to a company spokesman. They cut checks for more than 500 tenants the first day.
The numbers will get worse
There is no question the numbers will only get worse for the rental market over the coming months. That’s why Tanner and Singelyn are part of a daily industry effort lobbying Congress and the administration for help.
“We need to make sure that we’re helping our residents in time of need, and at the same time we have to be careful,” said Tanner. “If we put too much pressure on landlords, we have obligations as well, such as credit facilities and property taxes, that we pay back into the system, so it’s a delicate balance. We’ll do our part, but we need the government to step up and also help renters in this time of crisis.”
Tanner said the industry has put forth a proposal to the U.S. Treasury and the Department of Housing and Urban Development for short-term liquidity relief, designed much like a long-term, interest-free loan administered through the tax system.
“Everything is a long-term negotiation. I see progress at times, and I see frustration at times. It is very much a political process,” said Singelyn. “One thing that’s encouraging is that both sides have indicated they want to see rental relief and housing relief.”