Zillow: Missed Rent Payments May Balloon as Boosted Aid Expires

Enhanced government unemployment aid expired last week, meaning more apartment renters could miss payments in coming months, said Zillow, Seattle.

Those missed rent payments could “cause a wave of housing insecurity” and have the potential for deep impacts not only for renters, but also for rental property owners who owe common costs of property ownership and other workers in the industry, Zillow reported.

“The rental market has been more affected by the coronavirus pandemic than the for-sale side appears to have been,” said Zillow Economist Joshua Clark. “The steady climb of the past few years has come to an end as rent growth has slowed nationally and prices have outright fallen in a few markets.”

Clark said the “saving grace” so far has been government aid and eviction freezes, which aided those out of work. “But much of that aid has expired, putting many renters and workers who rely on the rental market continuing apace in a vulnerable position,” he said.

During the first week of July, 22.6% of U.S. apartment households did not pay any rent. That’s up from 19.2% from the first week of June and higher than in any month since at least March. By July 13, the share of renters that hadn’t yet paid fell to 12.4%, 2.5 percentage points higher than the same period last year. Two million people continue to apply for unemployment benefits weekly and recent estimates show half of all U.S. households have lost income during the pandemic, making it likely that government aid has played a crucial role in preventing the share of unpaid rent from ballooning even higher.

Rent growth has slowed during the coronavirus pandemic, but likely not enough to provide real relief for renters who are missing paychecks, Zillow said. The typical U.S. apartment rent has fallen $5 this spring to $1,723 a month.

For landlords, most of that potential rental income is absorbed by common costs of property ownership. More than half (53.8%) of the income from a typical rental unit normally goes toward fixed costs associated with property ownership, Zillow said. These expenses include mortgage payments–though many property owners are likely to have reached a temporary forbearance agreement with their lender–property taxes, maintenance, insurance and capital improvements. 

That’s before accounting for other costs of running a rental business such as staff wages or management company costs, business taxes, legal and accounting services, landscaping and more. In total, the average annual return on a rental unit is 6.4%. In 2015, it averaged 13.3%, meaning the margin has fallen by more than half over that time.

Widespread missed payments with many renters facing major financial hardships could have far-reaching effects, Zillow said. That’s especially true for smaller landlords, who may be less able to withstand missed income from a vacant unit or a renter unable to pay because smaller owners don’t have the safety net provided by owning several units.