The apartment industry is about to have its first test of its resiliency. How many residents will still be able to pay their rent on time will be a first indicator of how severe the U.S. economic dislocation may be in the wake of COVID-19.
With 3.3 million workers applying for unemployment benefits in late March, the federal government stepped up in monumental ways to provide historical levels of support for taxpayers who are enduring coronavirus-related financial hardship as businesses are forced to shut down . The apartment industry is expecting that a good number of residents may be some of those affected by furloughs or job loss. Given that there could be some lag before some of the federal stimulus package kicks in, the apartment industry also has proactively moved to work with support its residents in unprecedented ways.
For those who haven’t, a short window of time to help still exists. Rent is coming due this week, but there’s still time to talk with your residents and find alternative payment arrangements to mitigate their financial stress and protect your apartment assets.
A Rundown of Federal Support
Last week, Congress passed a massive $2 trillion relief package. The new law includes a number of supports for taxpayers that are likely to also benefit apartment renters. (Click for the full list of benefits.)
For example, the new law provides a major expansion of unemployment assistance. Eligible unemployed Americans can earn an extra $600 per week benefit for up to four months, on top of state unemployment benefits, to make up for 100 percent of lost wages. Moreover, the expansion extends eligibility to non-traditional workers like the self-employed and independent contractors.
The new law also authorizes $1,200 in direct payments to taxpayers with incomes up to $75,000 per year. These benefits phase out as incomes increase and end altogether for those earning more than $99,000. Families are to receive an additional $500 per child, among other benefits.
These benefits create a critical safety net, allowing the broad swath of people financially affected by COVID-19 to preserve their incomes, in some cases fully, in the near term. That’s a huge positive for the apartment industry. Our residents are stressed to the max with health and financial concerns. At the same time, most rental properties are owned by individuals and small businesses that have financial obligations, including mortgages, utilities, payroll, insurance and taxes. Moreover, NMHC continues to advocate for additional resources for residents, as well as apartment firms, as Congress works on additional stimulus packages.
To help apartment firms better communicate some of these federal resources available to residents to help them meet their financial obligations, NMHC has developed a new, customizable resource document that outlines the main benefits available and provides instruction on how to apply. It also encourages those who can pay to do so to ensure that the industry can continue to provide safe and clean housing to all residents who call an apartment home.
The Industry’s Response
While all this is good news for the apartment industry because it means that many renters will get the income supplements they need, we expect that there could be a temporary dislocation while that aid works its way into communities. Moreover, it’s difficult to say how long before businesses will be allowed to operate again, putting people back to work. If the crisis is protracted, the federal benefits may not be enough.
In light of these uncertainties, many apartment operators are looking for additional relief options for their residents. NMHC has a recommended list of principles for apartment firms that can provide much-needed support for residents and stem a potential cascade of financial hardship. Key recommendations include putting a temporary halt on rent increases; waiving late fees; sharing government and community resources for food, financial assistance and healthcare; and creating flexible payment plans.
Flexible payment options are a good strategy to provide not only financial relief for residents but create a pathway for them to ultimately stay in their homes. The programs can take a wide variety of forms, but these programs typically fall into several main categories.
For example, we see many apartment operators offering shorter payment schedules. Recognizing that it may be helpful to better match payment schedules to income flows, many operators are allowing people to pay twice a month rather than once. This allows households to better manage their expenses relative to income.
Others are moving to deferredpayments. The specifics may vary, but the basic model is that firms are allowing residents to defer a payment (or more), if they extend their lease term. The deferred rent amount is then parsed out as additional rent to be paid monthly later in the lease.
And still others are setting up mechanisms where they will permit residents in good standing to convert their deposit accounts into payment accounts, allowing them to access those funds for full or partial rent payment.
While we see these options emerging as some of the main flex payment models, it’s not an exhaustive list. Apartment operators continue to be creative in responding to their residents’ financial needs and develop unique plans to responsibly reduce rent burdens.
Resources to Rethink Your Strategy
While April 1 is on our doorstep, we encourage apartment operators to continue working with their residents to find alternative payment arrangements that can be helpful in getting through what we hope is a short-term transition period.
To assist in that effort, NMHC has developed talking points that property owners and managers can use to help guide discussions or communications with residents who have been impacted, including a reminder to unaffected residents that their rent is still due. Apartment firms should customize their communications with residents based on their situation and policies and consult with legal counsel for compliance with applicable laws and regulations.
In addition to the talking points, NMHC has created a template for signage property operators can post on site. We encourage firms to customize this downloadable template with your specific policies, for instance if you are voluntarily halting evictions or freezing rents.
However, operators should put parameters in place to protect themselves from fraudulent behavior. At a minimum, most apartment operators ask residents to provide documentation such as a letter from their employer stating they have been terminated, laid off or hours reduced as a result of the COVID-19 pandemic. Moreover, many firms are requiring residents sign a written agreement that outlines clear expectations for both resident and operator.
To guide them through these issues, most firms are working quickly with legal counsel to ensure these structures are in compliance with applicable laws and regulations and that they have measures in place to protect their rights should the resident violates the terms.
A Short-Term Strategy with Long-Term Effects
These are exceptional times. The evolving economic situation could have a massive effect on many apartment renters’ financial stability. We appreciate Congress’s action on the COVID-19 stimulus package recently signed into law, as it includes important provisions intended to stave off economic collapse in the wake of the coronavirus crisis. It also contains a number of measures that we believe will benefit our residents, many of whom have been financially devastated.
We also applaud the apartment firms that are proactively working with their affected residents to find alternative payment arrangements that can help them through what we hope is a short-term gap before a number of the new stimulus measures kick in. We strongly urge firms that have not yet taken these steps to do so quickly not only help provide temporary financial relief for residents but also create a pathway for them to ultimately stay in their apartment homes.