Coronavirus economy could burst rent bubble in major US cities

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The frozen coronavirus economy could disrupt housing from coast to coast, exploding national apartment rents that have increased 150% in the past decade, experts say.

Still, the situation is unlikely to help ease the housing crisis, as the more than 16 million Americans who have applied for unemployment insurance in the past three weeks will still need roofs over their heads. head, say economists and advocates for affordable housing.

More than half of 600 landlords affected in a conference call Wednesday with the Apartment Association of Greater Los Angeles said they had tenants who had not paid their April rent in full, according to executive director Daniel Yukelson .

“This shows you the impact of the crisis on owners and tenants,” he said by email.

The overheated rents are blamed in part on the increase in homelessness and “deaths in despair,” as well as the need for 13 million Americans to hold more jobs. More than a third of American homes are rented. The median price of a two-bedroom apartment in San Francisco is $ 3,102; in New York, $ 2,565; and in Boston, $ 2,125.

Housing and homeless experts continue to argue over the solution, from building more housing to fighting gentrification, but the disrupted economy may end up being the ultimate force.

“Rents will go down,” said David Shulman, senior economist at Anderson Forecast at UCLA. “But the income will go down. “

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The coming months could lead to a construction slowdown brought on by a finicky luxury market, while homeowners could face their own creaks if tenants default, said Joint Center research associate Whitney Airgood-Obrycki for Housing Studies at Harvard University.

It is also likely that many tenants will move in with family and friends and that homelessness will continue to increase, she said.

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“With this pandemic, what is likely to happen is that people will lose a significant portion of their income, so we will likely see more doubling for housing,” she said. “We will also see a reduction in rents and many rent concessions. “

A construction worker walks among the luxury apartment towers under construction in Los Angeles on October 8, 2019.Frederic J. Brown / AFP – Getty Images file

Airgood-Obrycki recently cited data showing that more than half of tenants in “at risk” sectors, such as retail, travel and leisure, were already overworked, paying 30% or more of their income housing. These types of jobs are often set aside by a failing economy.

“America has a two-pronged problem: a coronavirus recession that will push families onto the streets and a weak social safety net that will not catch them,” said Aaron Carr, founder of the Housing Rights Initiative at New York City. in an email. “If Congress does not provide universal rental assistance, they will do extraordinary service not only to countless families, but to the country they claim to love. “

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California and the City of Los Angeles have imposed limited moratoria on coronavirus evictions, and President Donald Trump has promised to suspend evictions and seizures for 60 days as part of the $ 2 trillion rescue plan. the coronaviruses he signed on March 27.

But experts say the housing bill will come to an end at some point and evictions and foreclosures will follow. In Los Angeles County, where sprawling homeless camps are home to nearly 60,000 people, some advocates are preparing to make the situation worse.

“Since April 1, we have received more than 100 inquiries from tenants saying they are out of work and can’t pay the rent,” said Larry Gross, executive director of the Coalition for Economic Survival in Los Angeles. “Our numbers for the homeless will increase dramatically. “

Rental site Apartment List said on Tuesday that 1 in 4 Americans responsible for rent or mortgage payments was unable to cover the entire April accommodation bill. Similarly, the National Multifamily Housing Council said that more than a third of tenants in the United States had not paid in full until April 5.

Some Airbnb hosts affected by the travel and tourism freeze say they plan to open their units to long-term tenants, which could increase supply and, theoretically, lower rents.

Airbnb spokesman Samuel Randall said the platform represents less than 1% of the housing market “in the vast majority of American cities.” This figure suggests that the short-term rental platform would have minimal impact on rents, but research touted by the Harvard Business Review last year concluded that Airbnb was negatively affecting the rental markets.

In Los Angeles, apartment rents fell this year for the first time since 2010, while the country was still in a recession, according to CoStar Analytics, which provides data to homeowners, developers and property investors.

“We are seeing rents going down across the country,” said John Affleck, vice president of market analysis at CoStar. “I don’t think anyone will soon migrate or move, except to a family home. “

Rents are expected to fall in areas that depend on tourism, restaurants and the service sector, such as Florida, Las Vegas and Honolulu. Developments of luxury apartments with rental units will also be difficult nationwide, he said.

Some experts believe that the impact of the coronavirus on the economy could disrupt housing in the United States, as density pressures in markets like New York, Los Angeles and San Francisco give way to renewed migration to the suburbs.

Low interest rates could prompt tenants in high-income cities to consider buying in the suburbs, people who share rooms and apartments may lose taste after social distancing, and employers may definitely turn to the use of remote workers who would no longer have to live nearby, said Shulman of UCLA.

“People can rethink whether they want to be urban or suburban,” he said.

He thinks the housing market will overcome this latest crisis, but it will take “a long time”.

Yukelson of the Los Angeles Apartments Association called the coronavirus economy “temporary madness.”

“We will overcome this,” he said.

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