Are Chicago Apartment Dwellers Struggling To Pay Rent?

Is an economic bubble about to burst creating a domino effect in the nation’s rental apartment market?


With unemployment soaring over the past few months as a result of the COVID-19 virus, analysts say monthly apartment rent payments have remained relatively steady across the city of Chicago and the U.S.


Experts say the rental market’s stability likely is due in no small part to the $600 weekly payments in federal unemployment benefits.


However, expiration of the $600-a-week bonus jobless benefit and the bottleneck in Congress on passing new legislation on vital COVID-19 rescue money could cause millions of people to fall into poverty and spark the return of the Great Depression. Republicans want to limit federal unemployment benefits to $200 a week.


On August 8th, President Donald Trump signed an executive order that requires $400-a-week supplemental federal unemployment benefit payments for millions of Americans who lost their jobs during the pandemic.


More than 54 million Americans have filed claims for unemployment since the beginning of the pandemic, and many are struggling to pay everyday expenses—chief among them rent.


Illinois is one of 19 states extending its unemployment benefits program by 20 weeks, according to the Illinois Dept. of Employment Security, the state agency tasked with handling jobless claims. The extension started August 6th to 16 million people who have already received 26 weeks of state benefits.


As the pandemic drags on, the nation’s 109 million apartment renters are expected to be disproportionately impacted because they work in industries hardest hit by layoffs, according to the National Association of Home Builders (NAHB).


Nationwide, 23 million renters are at risk of being evicted from their homes, reported the Aspen Institute.


As a result, on August 7th the NAHB urged Congress to create an emergency rental assistance program to prevent an inevitable domino effect. “If residents are unable to pay their rent, housing providers will also be unable to pay their mortgage, property taxes and maintenance services as well as meet other financial obligations,” the NAHB said.


Further, landlords will be hard pressed to keep their buildings safe and sanitary.


A prolonged eviction moratorium will exacerbate the problem, as renters struggle to repay back rent and are put at risk of housing security long after financial aid is gone, the NHAB said.


Affordability for rental housing was already a concern prior to the current crisis, with 11 million renters spending more than half of their income on housing, according to “America’s Rental Housing 2020”, a Harvard University Joint Center for Housing Studies report. The severe rent burden is felt more acutely among lower income families, with 43% of the nation’s renters earning only $15,000 to $29,999 annually.


In the first two weeks of July, 12.4% of the nation’s apartment renters failed to pay monthly rental fees, according to Zillow, an online real estate database. The missed-payment rate was 9.9% during the same period in 2019.


However, during the first week of July, 22.6% of U.S. apartment households didn’t pay any rent, up from 19.2% from the first week of June and the highest point since March of this year, 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.


A new survey by Apartment List reported on August 6th that 22% of respondents have not yet made a rent payment for August, and an additional 11% have made only a partial payment.


Rent prices in the U.S. in general have fallen during the pandemic, dropping $5 over the course of spring, down to $1,723 per month.


While not a seemingly significant decline, the margins on rental properties are pretty thin. The average annual return currently sits at 6.4%. In 2015, it was 13.3%. Landlords typically put more than half of their income back into the properties and fixed costs associated with property ownership.


Smaller Ma and Pa landlords, not buttressed by income from multiple units, are expected to bear the brunt of the financial difficulties.


Losing just one tenant who may have lost a job and moved back home or in with a friend can have an enormous impact on a landlord’s cash flow and ability to pay a mortgage.


For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.

“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”

 

Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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