In late August 2021, eviction moratoriums came to an end, eliminating certain protections for tenants who may be behind on rent relating to COVID-19. Labor Day also ushered in the end of unemployment benefits, leaving even more tenants -- many who may be unemployed -- without a financial cushion to help them through these challenging economic times.
And that makes September a very likely start to a massive eviction wave that could impact as many as 750,000 households by year's end, according to a recent Goldman Sachs study. Here's what investors need to know.
September is issuing in a new era of mass evictions
According to a study produced by the Research Institute for Housing America (RIHA), 8.6% of all renters missed their June 2021 rental payments. This was a notable improvement from previous months and a sign that struggling renters may be on the path to recovery.
But due to the late-summer increase in delta variant case numbers, coupled with the ending of the federally funded unemployment support and protection programs, tenants are falling behind again -- and in big numbers.
According to the National Multifamily Housing Council (NMHC)'s Rent Payment Tracker, as of Sept. 6, 2021, 72% of renters had made their rental payments. That's a big fall from Aug. 6, 2021's rental collection rate of 80.2% -- and is the lowest collection rate since the start of the pandemic.
The RIHA estimates just over 8 million households have missed one or more rental payments since March 2020. And while many have been able to "catch back up" through emergency rental assistance programs made possible by the CARES Act and other federally funded programs, there could still be as many as 750,000 evictions taking place over the next four months.
That's a staggering number, especially considering 1 million evictions, on average, take place per year.
Higher rents are leaving tenants high and dry
Tenants aren't the only ones in a tough spot. Landlords, who are responsible for maintaining property-related expenses whether the tenant pays or not, also need relief. If a tenant isn't paying, landlords can work with them to get them back on track with their payments or find a new tenant who can pay to move into their place.
The motivation to get a new, paying tenant is particularly exasperating when the landlord can likely collect a lot more than they were charging the previous tenant.
Over the past year and a half, rental rates across the nation have increased 9.2%. Some real estate markets have seen rents grow at even higher rates, likely leaving a large gap between the contracted rental rates in existing leases and what market rents demand today.
Unfortunately, it seems lower- and middle-income households are the most affected, with lease rates and collection rates among higher-income rental properties remaining healthy and growing.
That means mass evictions for landlords and leaves tenants in the lower to medium rental ranges in tricky positions over the next few months. Tenants may have trouble finding affordable rental units in the current market, and landlords could face an abundance of rental units but a lack of qualified tenants, leaving rental rates to drop or vacancy rates to increase.
The Millionacres bottom line
Evictions at this scale will impact the real estate market and beyond. Increased homelessness or transitional housing increases the risk of transmission of COVID-19, which could prolong the recovery from the pandemic and put a number of households at risk. No one really wins in this scenario.
Investors are definitely sympathetic to the situation, but it's also extremely difficult to own and operate a rental property -- let alone multiple rental properties -- when tenants aren't paying. And the gap in the support being offered means evictions are a likely outcome. Investors should carefully choose how they approach the situation and determine the best way to help meet the needs of their tenants while maintaining a profitable investment property.