Apartment tenants with outstanding renewals are increasingly opting for short-term or monthly leases instead of long-term leases. This emerges from the latest survey by the National Apartment Association, which found that nearly 35% of landlords reported part of it from tenants extending leases and signing short-term lease structures. The previous monthly report – this last survey was conducted July 20-24 – did not address the short-term lease structure. However, the data shows that tenants' preference for short-term leases has increased since March.
Tenant preferences are changing dramatically, and the trend towards short-term rental terms may just be the beginning. The survey found that apartment owners are gradually losing confidence in the market. This development seems to be accelerating. In the most recent survey, 23% of apartment building owners and operators believe it will take a year or two for operational data to recover and return to pre-pandemic levels. In April, only 17% of respondents made the same claim. Most owners continue to believe the market will recover over the next 12 months, but the numbers seem to be shifting towards a longer recovery period.
At the same time, operating expenses increased during the recession. Almost half of homeowners and owners saw a small increase in operating costs and another 11% saw a significant increase in operating costs. These operating costs are difficult for landlords to bear as rental rates drop and rental collections struggle. Freddie Mac Multifamily Semi-annual report 2020 expects gross income growth to decline from 3.3% to 4.2% for the year, and the National Multifamily Housing Council's Rent Payment Tracker shows rental income rose 2.4% in September through mid-month over the same period in August have fallen.
The NAA survey was conducted before CARES unemployment benefit expired. In the survey, however, respondents were not concerned about the drain on funds. Most respondents said that fewer than 10% of residents would have difficulty paying rent without the added benefit, and only 25% of respondents said that 11-20% of residents would have difficulty paying rent without the benefit to provide the added benefit.
However, respondents were generally concerned about the eviction restrictions under the CARES Act. 92% of respondents said the CARES Act's 30-day notice period was confusing, complicated and contrary to local politics. Additionally, most owners said no eviction restrictions would be required during the pandemic as a limited number of residents would be on eviction for non-payment. More than 90% of owners responded that less than 10% of residents would be subject to eviction if there were no restrictions. This is an increase compared to the June survey.
The NAA survey, sponsored by NAEM in July, was conducted in partnership with IREM and received responses from 82 property owners for a total of 326,292 units.