As the number of employees who are working from home has risen exponentially, people are reconsidering their current rentals and expecting lower prices as the coronavirus pandemic has prompted social distancing, shut down large gatherings, extended quarantining and impacted rental housing trends.
Consumers are spending more time at home — they may no longer want to sign up for a new apartment lease in person and may seek more amenities that are close to their homes. As the number of unemployed Americans rises to more than 44 million, the demand for affordable housing increases since a recovery in the number of jobs could extend into 2021.
Cities that have traditionally attracted a large number of people because of tech jobs such as Austin, San Francisco and Raleigh, could see a slowdown in the number of people relocating there as companies reassess if many of those roles can be conducted from home.
The coronavirus pandemic could change the behavior and expectations of renters for at least the next year or even longer. Here are five rental housing trends we expect will soon become the "new normal" for property managers and renters.
Of all the renter housing trends that we're expecting, this one is already happening. However, this trend will continue to become more popular over the next year. As uncertainty about how the coronavirus is spread continues, potential renters may be loath to visit an apartment in person and increase their risk of becoming ill.
Signing for an apartment lease online will likely become the new norm. The apartment rental industry has already conducted virtual tours of their current units and amenities like gyms, swimming pools and outdoor space. Other companies have launched more personal tours by using social media tools such as FaceTime.
Greystar at Steel Works and Cobalt Lofts in Harrison, N.J., two 286-unit luxury buildings (developed by a partnership between Advance Realty Investors & DeBartolo Development) began offering virtual tours of their units via FaceTime and other apps in order to comply with lockdown rules and social distancing requirements, said Oscar Morales, a regional property manager for the buildings.
"The pandemic has forced us to reinvent not only our leasing process at Steel Works and Cobalt Lofts, but almost everything about our operations and property management practices," he said. “Soon after that, we also began offering self-touring options for prospects who still wanted to see the buildings in person."
As cities began enforcing shutdowns and large gatherings of people, many real estate companies worked to bring together renters by launching virtual workout classes and other gatherings.
At the two New Jersey buildings, renters could choose from mixology classes, wine tastings, a weekly DJ session and a building-wide patio decorating party to stave off boredom, Morales said. The fitness facilities and other commons areas reopened, but people had to make a reservation ahead of time to enforce guidelines for smaller groups and cleaning protocols.
These recent efforts led to the apartment buildings being able to “attract a steady flow of new renters throughout the last three months," he said.
Nearly every aspect of the operations of apartment buildings, from how they're toured and leased to how residents interact with their buildings and fellow residents, has changed because of the coronavirus, said Devin Wirt, CEO of TFLiving, a Pawleys Island, S.C.-based, tech-enabled amenities platform that serves more than 100,000 units of apartment, condo and senior living buildings.
Over the last three months, TFLiving assisted about 70 percent of its clients that operate apartment buildings in converting to virtual programming. Now residents can access streaming fitness classes, but also more virtual group activities, such as trivia nights, wine tasting and cooking classes.
“While the long-term effects of the pandemic are uncertain, many of these changes are here to stay for the foreseeable future. Virtual amenities are likely to be a permanent solution, and we believe most buildings will eventually adopt a more hybrid approach, with a mix of in-person amenities and virtual options for residents depending on their individual comfort level." – Devin Wirt, CEO of TFLiving
Online applications have been available for many years at apartments owned by Morgan Properties, a King of Prussia, Pennsylvania-based owner and operator of more than 300 apartment communities in the Mid-Atlantic, Northeastern U.S. and Nashville, said Ann Kanz, a regional marketing manager.
People could also tour apartments through one-on-one video walkthroughs and YouTube, self-guided tours of models and vacant homes and by conducting personalized tours through FaceTime and Zoom. Virtual open houses also took place via Facebook Live.
Technological advances even allow potential renters to see what their furniture might look like inside the apartment by using virtual 3-D viewing platforms, said Jeff Pepperney, president of Real Property Management, a Salt Lake City property management company. Renters, especially millennials, want a virtual, contactless and frictionless experience.
Once renters move in, they're seeking the same experience where they can pay their rent and retrieve any documents online also, he said.
“This has become an expectation of potential renters in common practice — especially for younger consumers," Pepperney said. “This includes features like virtual property inspections and evaluations to document the condition of the property and the option to text your property manager/landlord as the primary form of communication."
Cities that attracted a large number of new residents typically have been tech hubs such as Seattle, Denver, Raleigh, Austin and San Francisco. As more companies are allowing employees to work remotely through this fall and even into early 2021, moving for a job has become less of a priority for hiring managers. Many companies have adopted weekly Zoom or Skype calls to encourage teamwork and to build a sense of community.
Cities that have a large number of employees that work for tech companies have already seen rental prices decline as some employees have moved in with their friends or family members, while other people have moved because they have been laid off and have not been able to obtain another job yet.
Even in cities where rent has typically been more expensive, such as Mountain View, CA, where demand remains relatively stable, prices have declined. Apartment Guide's data shows that rental prices have declined on average to $4,229 for a two-bedroom apartment and $3,285 for a one-bedroom unit as of May 2020. That's a decrease of 19 percent and 12 percent, respectively, compared to May 2019.
In addition, the apartment vacancy rate in San Francisco, home to many Silicon Valley companies, has nearly doubled to 6.2 percent in May, compared to 3.9 percent three months ago, according to RealPage, a Richardson, TX-based apartment data company.
A large number of companies have furloughed or laid off employees, prompting more people to seek more affordable housing such as cheaper rent.
The supply of affordable housing remains constrained in the U.S. and the number of available apartments or rental homes is “nowhere near where we once were in 2009 following the recession," Pepperney said.
In some high-priced markets, such as Manhattan or San Francisco, there's an expected shift to increase the supply of affordable rents.
“In these markets, the supply of affordable housing is constricted and the pressure is on to offer less expensive options, especially as we move forward and the need to accommodate for a remote workforce becomes more of a reality," he said. “As far as the trickle down to middle America, it's early to say, but it's possible."
Even owners of luxury apartment buildings, ones that offer valet parking or a doorman, will have to pivot to the rental housing trends caused by the pandemic and offer more incentives to draw more people in, such as free parking, a free month of rent and additional amenities.
The number of homes sold in May declined, the third month of consecutive decline since the pandemic in March, according to data from the National Association of Realtors. The number of homes sold declined by 10 percent compared to April and a whopping 27 percent from 2019 as potential homeowners are wary about the future of the economy and how fast employers will start hiring employees again.
The decline in home sales compared to 2019 is the largest dip since 1982 when mortgage rates were historically high at 17 percent or higher. In May, only 3.9 million homes in the U.S. were sold, the slowest month since 2010.
As consumers remain unemployed for more than 90 days, some have used their savings that could have been used as a down payment for a home to pay for rent, food and other necessities, as the federal stimulus payments and state unemployment funds were insufficient to cover their monthly bills.
The demand for renting, however, has not subsided and vacancies have remained steady with pre-pandemic levels. “The need and desire to rent aren't going anywhere anytime soon," Pepperney said.
A new rental housing trend that's likely to emerge is how renters use the space in their apartments and homes. Creating an office in a bedroom or dining or living room often is not the “most productive option" because of noise and other factors, according to Pepperney.
As people's leases are set to expire, many renters are likely to look for an apartment or house with more space, such as a second bedroom since working at cafes or libraries remains a rare option for the majority of U.S. cities.
“This could mean renting a larger home or a two-bedroom apartment where the second bedroom doubles as a guest room and an office room."
As the impact of the pandemic lingers, the number of people who believe it's a good idea to purchase a house in a weak economy has declined. A Gallup poll conducted April 1-14 showed that only 50 percent of people believe it's a good time to buy a home, compared to 61 percent who agreed with the sentiment during a survey conducted in April 2019 (actual dates: April 1-9).
Homebuilding in May declined compared to expectations, as many companies halted or lowered the amount of construction, even though this sector was deemed an essential service. In May, housing starts increased to 4.3 percent to a seasonally adjusted annual rate of 974,000 units last month, according to the Commerce Department, but declined by 23.2 percent on a year-on-year basis.
Housing starts dipped the most in April by 26.4 percent and by 19.0 percent in March.
However, applications for mortgages rose to almost an 11.5 year high in June as employers hired back 2.5 million workers in May.
Economists and other experts said a recovery in the housing industry could take several years and even up to a decade.
Both single-family and multi-family housing starts have fallen significantly from cyclical highs prior to the pandemic and total housing starts are now at levels last seen in late 2014/early 2015, said Brad Dillman, chief economist at Cortland, an Atlanta-based multifamily investment and management firm.
Since mortgage rates remain historically low and with an estimated shortage of housing, activity for housing starts activity will likely “resume to the degree builders are confident in a labor market recovery," he said.
The number of people moving tends to slow down when labor markets weaken or the economy is in recession, Dillman said.
“However, with housing shortages and a potential labor market rebound, it's difficult to say how much the pandemic will affect migration trends … There is evidence that the pandemic has contributed to marginal migrations out of COVID-19 hot spots, but how long-lived these will be is also open to question, especially as the cost of living adjusts." – Brad Dillman, chief economist at Cortland
Since it's less important for employees to live close to their offices, the number of people moving in 2020 or 2021 could decline.
“The idea of a remote workforce is becoming more common and studies have shown the trend is expected to continue rising post-pandemic, even at companies that did not offer remote work pre-pandemic," Pepperney said.
As the economy remains on shaky footing, consumers are likely to remain renters because of the flexibility of the leases and the likelihood that rental prices will continue to dip. This is likely true not just in large cities that tend to attract tech and younger workers, but throughout the U.S., landlords and property managers will probably not only lower monthly rents on their more expensive units but will also provide other incentives to people to prevent them from moving to another location to nab a deal.
Employees remain concerned about the future of their jobs, whether companies will start another round of layoffs in the fall and if they might have to dip into their savings. Even historically low mortgage rates are not enough to attract people to buy their first home since getting approved for a mortgage could be challenging, especially in states like California and New York, where higher prices for homes require individuals to obtain jumbo loans.
The impact of the coronavirus on the rental market and recession will be long-lasting and could push down rental prices past 2021 as consumers remain concerned about their future employment and financial futures. This will make renting an apartment an attractive option for people considering a housing or lifestyle change.