Across the country, rents are dropping, according to virtually all major analytic firms. How much depends on the locale, and how spooked landlords are about filling the next vacancy.
Given the economic fallout from the pandemic, that is not a surprise. Nor is it a surprise that the hardest hit landlords are those with high-end city properties.
It’s no secret that renters pay a premium to be downtown where the action is. When those tenants no longer need to be close to work or entertainment, there’s no longer a reason to pay top dollar, especially if renters are paying for amenities they can’t use.
The move to work-at-home has had an impact on the rental market, as more and more renters get a taste of what it’s like to stay at home and avoid the cost and hassle of commuting. Others are teaming up with friends or family and sharing space while they weather the financial uncertainty.
But it may be another factor that is prompting landlords to drop rental prices. According to experts at Zillow, the rental market stands to lose an estimated $725 million from the youngest renters. Zillow reports that 32 million Gen Zers — renters 18-25 — moved back in with family as unemployment numbers soared and college campuses closed their doors. That’s the highest number of relocations on record, and the ripple effects from this demographic alone could have far-reaching consequences for the market.
While it’s common for college students to return home in the summer, it appears that some college students made that move earlier this year as campuses closed, contributing to the jump seen in April. There were far more young people living with parents in April than during a typical summer peak, indicating the usual seasonal shift was super-charged by soaring unemployment. Recently unemployed young people moved back home at roughly the same rate as usual — about 60% of them typically live with parents — but that renter pool is bigger this year.
These renters may not be in a position to return for some time, as many are poised to remain at home with family and save money. Naturally, the cities with the highest populations of young renters — including Austin, Kansas City, Cincinnati and Pittsburgh — may face the most income loss while areas with more millennials and older renters, including Miami, New York and Los Angeles, are in a better position, according to Zillow.
How long-lasting this impact will be may depend on unemployment rates. If jobs return quickly, this could be a blip. But if some jobs disappear, that could free up rental units and drive down rents.
Another major factor is timing. As rents escalated in recent years, new apartment construction also spiked. Now, new apartments are coming online just as unemployment is hitting record highs, creating competition.
Zillow points out that many of these younger renters already were struggling with high rents before their industries were hit hard by pandemic-related layoffs. That has experts pondering whether this demographic will enjoy the comfort of staying with parents and use the opportunity to save for down payments to purchase rather than return to the rental market.
The current trend could impact the level of amenities the remaining tenants are seeking during summer leasing. For instance, the quest for fitness centers and pools may give way to internet connectivity, private outdoor space, and in-suite laundry.
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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.