What Historic Unemployment Could Mean for Multifamily

Experts discuss what the figures mean for the apartment rental industry.
Image via Wikimedia Commons

Jobless claims in the U.S. have hit record levels since nationwide stay-at-home-orders went into effect and businesses shut their doors in mid-March. As the Bureau of Labor Statistics prepares to release its monthly report on employment figures, multifamily leaders and experts discussed what the numbers could mean for the industry.


READ ALSO: Multifamily Gives Back During Pandemic


According to the weekly unemployment filings, 30 million Americans have filed jobless claims since the coronavirus outbreak took hold several weeks ago. The figure grew to 16.8 million in just three weeks and is expected to rise to surpass 30 million when the Department of Labor releases its report tomorrow.

For the multifamily industry, less people with jobs can mean less demand for apartments.

“There is a very strong correlation between apartment demand and employment,” said Jeanette Rice, head of multifamily research for the Americas at CBRE. Though lifestyle and structural changes over the last decade have led to residents staying in multifamily properties longer, what really affects the metric is household formation.

“When you have strong job growth and a strong economy, household formation is higher,” said Rice. “And that’s what it really comes down to, household formation.”

The good and the bad

The bad news? The March jobs report from last month may not have shown the full scope of the situation. According to New York University Schack Institute of Real Estate Dean Sam Chandan, the report “missed the reference window” for when job losses really took hold in mid to late March.

“While we saw a large number of job losses, it missed the very significant last two weeks of March,” said Chandan. “We expect this month’s report to show the most significant increase in history.”

Low- and moderate-income rental households are disproportionately impacted by job losses and issues surrounding food insecurity and housing insecurity will prove to be challenges for these households on a longer-term basis.

“We see unemployment rates among renters rising more than homeowners,” said Chandan.

“I don’t see how that happens,” said Zandi. “As long as the virus is hanging around I don’t see the economy getting back to anything close to where we were.”

Rice said CBRE’s current outlook is that the falloff in rent and the rise in vacancy won’t be as bad in the second half of the year but will still see deterioration in market performance.

“We don’t think the market will be fully recovered till early 2022, but through 2021, we’ll be recovering,” said Rice.

In an interview on CNN May 6, Moody’s Analytics Chief Economist Mark Zandi said that while some jobs will come back in the coming months, as long as the coronavirus is still present, unemployment numbers can’t get back to pre-pandemic levels.

“I don’t see how that happens,” said Zandi. “As long as the virus is hanging around I don’t see the economy getting back to anything close to where we were.”

The good news? Stimulus payments, unemployment and added unemployment benefits through the recent CARES Act legislation have been received by millions of Americans. The assistance could lead to more on-time rent payments and more spending once restrictions are eased.

“The economy will benefit from stimulus money and pent-up demand,” said Rice. “People have been sitting in houses for two months not spending anything except at their local grocery. We have a lot of catching up to do.”

More legislation needed

Through partnerships with data providers, the National Multifamily Housing Council has been tracking rent payments from millions of renters across the U.S. since the beginning of April. For the organization, which has been advocating for more governmental assistance for renters, the payments are perhaps the biggest indicator of where the industry stands.

“We haven’t done any formal research on unemployment because things have changed so rapidly,” said NMHC Director of Research Chris Bruen. The group’s latest rent payment data will be released on May 8 and will show how many renters made full or partial rent payments. In April, 91.5 percent of renters made payments by April 26.

NMHC and other groups within the industry have called for more action from legislators and the federal government to assist both owners and renters.

Among the issues the groups want to see addressed is help for renters not currently receiving federal rental subsidies but in need due to the coronavirus, aligning the timelines of mortgage forbearance and eviction provisions, expanding the SBA Paycheck Protection Program to include multifamily and student housing firms and providing tax relief for multifamily property owners.

Ohio Senator Sherrod Brown announced earlier this week that he was introducing a bill that would provide $100 billion in emergency rental assistance to help households pay rent during and after the pandemic. The proposed legislation follows similar measures introduced last month by Congresswoman Maxine Waters and Congressman Denny Heck.

“Assistance for renters is I believe going to be essential,” said Chandan. “In thinking about policy response, we need to watch very closely to ensure that while there have certainly been calls for universal rent moratoria, that programs designed to assist renters are focused on those that have actually seen their incomes impacted.”