Rental market

WABAC

per Politico:

I read that the stock market isn't the economy, but after a while . . .

More than 22 million rental units, a little over half the rental housing in the country, are in single-family buildings with between one and four units, according to data compiled by the Urban Institute. And most of those buildings have a mortgage — meaning the property owners themselves still need to make their own monthly payments.
“In a four-unit building, if one person can’t pay rent you’ve just lost 25 percent of your income,” Pinnegar said.

Most of the units are owned by mom-and-pop landlords, many of whom invested in property to save for retirement. Now they’re dealing with a dramatic drop in income, facing the prospect of either trying to sell their property or going into debt to meet financial obligations including mortgage and insurance payments, property taxes, utilities and maintenance costs. If enough landlords can no longer make those payments, it would threaten everything from the school budgets funded by property taxes to the stability of the $11 trillion U.S. mortgage market itself.

Six months into the crisis, millions of tenants can no longer meet their rent — and the situation is only getting worse. Tenants already owe some $25 billion in back rent and will owe nearly $70 billion by the end of the year, according to an estimate last month by Moody’s Analytics.

Mark

Ouch.

msf

While I'm not unsympathetic to the plight of mom-and-pop landlords, the thesis of the article is not well supported by the facts presented. The thesis being that it is the ban on evictions that is "threatening the livelihood of millions of landlords".

One in three tenants failed to make their September rent payment on time, according to the latest Apartment List survey. And a little over 25 percent said they had slight or no confidence in their ability to pay their rent this month, according to Census data published Wednesday, with another 22 percent expressing only moderate confidence.

With a large swath of renters being unable to make timely payments, would landlords be better off evicting tenants who may be paying some money in the hope of finding new renters able to pay more during a pandemic? Is it really the eviction ban creating this threat to landlords?

From another, slightly earlier (and somewhat less conclusory) Politico piece:

A ban without assistance, [ National Low Income Housing Coalition CEO and President] Yentel said, is a “half-measure that extends a financial cliff for renters to fall off of when the moratorium expires and back rent is owed.” ...

“Without direct rental assistance, rents cannot be paid, and owners face a financial crisis of their own by not being able to maintain properties and pay their mortgages or property taxes, ”NAA President & CEO Bob Pinnegar said. ...

Mnuchin also supports rental assistance, he told lawmakers: "Our first choice is to have bipartisan legislation that allocates specific rental assistance to people hardest hit."

https://www.politico.com/news/2020/09/01/trump-administration-block-evictions-backlash-407060

BTW, I linked to the "Census data published Wednesday" in my post here.
https://mutualfundobserver.com/discuss/discussion/comment/131148/#Comment_131148

The original article also includes some statements and figures that seem at best a bit flaky:

"single-family buildings with between one and four units".
How do you legally get four units into a single-family building?

"In a four-unit building, if one person can’t pay rent you’ve just lost 25 percent of your income."
That may have seemed obvious to the person quoted, but it's not necessarily correct (the situation can be much worse):

About 40 percent of seniors who live in and own two-to-four-unit buildings have a mortgage. If these older landlords with a mortgage do not receive rental payments, not only are they likely to lose their single source of income, but some may lose their homes.

https://www.urban.org/urban-wire/owners-and-renters-62-million-units-small-buildings-are-particularly-vulnerable-during-pandemic

Small landlords often live in multi-unit buildings they own. So in a four-unit building, if one person doesn't pay rent, they've lost 33% of their rental income. Aside from losing a larger percentage of their rental income than the article says, these owners are themselves at risk of eviction (post-foreclosure).

"And most of those buildings have a mortgage — meaning the property owners themselves still need to make their own monthly payments."

According to the Urban Institute's presentation of RHFS data, 42% of 1-4 unit buildings have a mortgage, not most. The RHFS data itself (click the "apply" button on the linked page for this table) says about 43%. Just 3/7, not "most of these buildings".

As far as "property owners themselves still need[ing] to make their own monthly payments", many will need to, some won't. "[T]though Fannie Mae and Freddie Mac have established multifamily forbearance plans, small-building landlords are less likely to hold federally backed mortgages". Urban Institute, ibid.

"Fannie Mae today [June 29, 2020] announced updated renter protections and forbearance extensions for borrowers."
https://www.fanniemae.com/newsroom/fannie-mae-news/fannie-mae-announces-updated-protections-renters-impacted-covid-19

WABAC

@msf

"single-family buildings with between one and four units".
How do you legally get four units into a single-family building?

Depends on the size of the house. I've seen many homes cut up six ways from Sunday. Typically in college towns. But it probably happens elsewhere too.

I suspect that the reporting will get better on this as more outlets take a whack at it. I don't think of Politico when I think about strong financial reporting.

But even at 42-43% of those four units holding a mortgage there is the potential for some serious pain.

Here's CNBC taking a whack.

Nearly a third of renters who live in single-family or small multifamily properties owned by individual landlords were unable to pay their August rent, according to a survey by Avail, a technology and marketing platform for small landlords. That is up from just under 25% in July. Avail received responses from 2,225 landlords and almost 3,000 renters.

[ellipses]

Individual landlords make up the majority of single-family rental owners. Nearly 23 million units in 17 million properties are owned by individual investors, according to the most recent count by the U.S. Census Bureau. Just under a third of these investors are retirees.

Nearly 54% of the income from a typical rental unit normally goes toward fixed costs associated with property ownership, according to an analysis by Zillow. These expenses include mortgage payments, property taxes, maintenance, insurance and capital improvements. Without the rent, landlords still have to cover shortfall.

“Our data show that 42% of renters and 35% of landlords are digging into their emergency funds and savings to cover everyday expenses,” said Ryan Coon, CEO of Avail.

Here is an opinion piece in The Hill taking on mortgages in general, as well as renters. The opiner calls for more relief. And I wonder where that ends, whether it's to the renters, the landlord, or both.

msf

@WABAC

Depends on the size of the house. I've seen many homes cut up six ways from Sunday. Typically in college towns. But it probably happens elsewhere too.

Interesting interpretation. Though if that's what's meant by the number of units "in single-family buildings with between one and four units", then wouldn't this count exclude buildings that were originally built as small multi-unit dwellings?

Subdividing houses has been going on, if not forever, at least since the 50s. Here's an old (1995) paper on The Subdivision of the Single-Family House in the United States
http://arkitekturforskning.net/na/article/download/687/633

In the 1950's most [maturing original suburban locations] experienced an economic downturn: the new middle classes were moving away from the city, leaving behind an aging population which was slowly being replaced by lower-income owners and even tenants. Houses were subdivided into two or more apartments which could be afforded by the lower economic brackets of the population. Since the 70's [there was gentrification]. In these so-called gentrified areas, subdivided houses have remained so because they respond to a need for smaller units by smaller households ...

To its credit, CNBC notes that "About 12% of landlords surveyed went into this mortgage forbearance program." If you go digging into its source, you find that it's 15% of owners of landlords owning 2-4 units. No other breakdown info.

It looks like these are percentages of all landlords surveyed, not just the ones with mortgages. So one can reasonably infer that the percentage of landlords with mortgages that are able to defer payments is larger than these figures. In any case, this does show that contrary to what Politico wrote, not all landlords with mortgages still have to make payments now.

This fuzziness in the data - what it means, where it comes from, how large the error bars are (except for Census data which is higher quality) - is what makes understanding the numbers, let alone verifying them, so difficult.

Thanks for identifying the "The Hill" piece as opinion. I'm fine with opinion pieces so long as the facts can be verified, and this piece does a fine job in linking to its sources. It's hard to describe as controversial statements like: "All can be protected — at least over the near term — by continued government support". Not when even Mnuchin is supporting some form of government support.

Though I do think the writer is being kind in saying that "the HEROES Act [is] now being debated in Congress." Not when the latest action is dated July 23: "Senate. Committee on Small Business and Entrepreneurship. Hearings held."
https://www.congress.gov/bill/116th-congress/house-bill/6800/all-actions?overview=closed#tabs

WABAC

@msf

Interesting interpretation. Though if that's what's meant by the number of units "in single-family buildings with between one and four units", then wouldn't this count exclude buildings that were originally built as small multi-unit dwellings?

I think it would. Maybe it's a Midwest thing?

I saw plenty of the former, and lived in one of the latter during my school daze in St. Paul. Three long Pullman apartments with two bedrooms in front, and a maid's room in the back. Only one bathroom. They were stacked three high.

The numbers may be a little fuzzy now. But I have a feeling they won't add up to anything good.