In November, rent collections in more than 21,000 affordable properties tracked by MRI Software dipped back below 80% of the prior year’s collections for the same month. At first glance, this stat is discouraging. But when viewed in conjunction with data from previous months, it’s not so negative.
Let’s take a closer look at the trends. The rate first dropped below 80% in July, and it remained there through August and September before rebounding to 82% in October. When you consider that many residents in affordable housing work in the service sector, which was significantly impacted by lockdowns and widespread layoffs, it’s actually rather astonishing that the percentages were so high. As for the summer dip, that coincided with the end of the extra unemployment insurance. Furthermore, residents’ stimulus money was probably running out by that point.
It’s useful to compare collections in affordable housing to those in market-rate and public housing. The NMHC’s Rent Payment Tracker recently reported that December rent collections in market-rate, professionally managed properties reached just over 92% of December 2019’s rent collections. Although that percentage is much higher than the year-over-year percentage in affordable housing, it’s important to consider that many residents of market-rate apartments presumably have white-collar jobs that allow them to work remotely.
Rent collections in public housing remained high year over year—reaching 96% in November. But even though many residents in public housing, like those in affordable housing, have jobs in the service sector, the public housing residents benefit from deeper rental subsidies. This critical distinction makes it even clearer that affordable housing residents are making every effort to pay rent.
Another notable trend the data revealed was extremely high occupancy rates. Move-outs in affordable housing throughout most of 2020 decreased by 20% year over year. This trend comes as no great surprise, given the practical limitations of lockdowns in combination with the enactment of eviction moratoriums. But the situation will change shortly when the eviction moratoriums expire.
Let’s recap: We’re ending 2020 with high occupancy rates and reductions in collections, but at the same time, it’s evident that residents are doing their best. As we enter 2021, how can landlords make morally sound decisions while keeping their properties afloat? They can employ some obvious strategies, such as applying pressure on legislators to enact relief packages at the federal, state, or local levels. Perhaps, they can arrange tours of properties for local legislators; such tours would help the legislators understand the importance of these properties in combating homelessness and the dangers foreclosures pose to the local economy.
Some owners are trying to support residents by offering rent deferrals. This strategy is well intentioned, but it simply kicks the can down the road. At some point, low-income residents will have to pay up. A more effective alternative is to aid residents in applying for local or state rent subsidies. Additional support could be in the form of financial counseling or assistance with job searches.
A strategic approach I recommend might make some overburdened owners of affordable housing hesitate: They may feel like it’s too difficult to employ at this time. But my advice is to fully adopt industry-standard asset management—often witnessed on the conventional side. It might be difficult to accept or adopt such a strategy, which, on the surface, seems antithetical to the missions of affordable housing providers. It’s not. If affordable housing providers go out of business, they won’t be able to house anyone in the long run.
This doesn’t mean that providers should evict all tenants who haven’t paid rent when the eviction moratoriums expire. It means they need to assess their situations carefully with an eye toward the future. In other words, they should strike a careful balance between focusing on day-to-day operations and on asset management. Asset management entails detailed financial analysis, implementing smarter and modernized approaches to operations, and leveraging all of the real estate tools for property management, compliance monitoring, and accounting that are available today. It’s time to stop viewing economics and missions as mutually exclusive. They can work hand in hand.
The next few months, which we might consider the second half of the tunnel, won’t be easy. But let’s not overlook the successes to date, which have resulted from creative cooperation between landlords and residents and the clear commitment of residents to pay rent. With vaccines on the way, there is an end to the tunnel in sight. Even today, there is already enough light—dim though it may be—to show us the way out.
