LWS Rental Market Update No. 3 (COVID-19): The Industry Takes on Oversupply and Rent Collection Issues
Reading time: 6 min 30 sec
For anyone in the rental housing industry, April 1, 2020 was an unprecedented day in rent collections for many owners and operators. In this article we'll be sharing some industry best practices as we look towards an uncertain future, which we hope will guide your processes and policies moving forward.
But first, we'll broach a topic impacting many of our clients: lead volume and the threat of over supply in the marketplace. As we monitor lead volume week over week, there are some notable changes impacting the supply and demand side of the rental industry.
So, without further delay, let's get into it.
1) Are Airbnb's Creating an Oversupply in the Long-term Rental Market?
As a mass exodus unravels due to COVID-19, hosts are left scrambling to fill their now vacant units with long-term renters. According to a column posted on VICE last week, a McGill study found that Airbnb likely removed 31,000 homes from the Canadian rental market and that Canadian hosts made $1.8 billion in 2018—a 40 percent jump from the previous year. Now, many of those same hosts can't fill a single unit; the coronavirus flushed them out.
What does this mean for the supply and demand side of the rental housing industry? As rentals flood the market due to empty Airbnbs, how will property owners and operators compete in this market?
As our lead data continues to show that renters are still very much searching and in the market (we've seen 6 days of steady growth in lead volume after a brief decline of 3.2% from February to March), it's possible that some of the reduction in lead volume is being pulled by Airbnb. Therefore, properties not firing their advertising on all cyclers, could be missing an opportunity to reach renters that are now finding long-term rentals in low-cost Airbnbs.
Here are 4 tactics rental properties can deploy tomorrow to stay relevant and continue filling units as oversupply threatens their vacancy rate:
1) Add Virtual Touring Options
Evidence suggests that prospects are more willing to rent from you if they have a clear understanding of what your property has to offer. In fact, websites using virtual tools report 46% more bookings than those without it; and 18-34 year olds are 130% more likely to book based on a virtual tour. Since in-person tours are currently halted, providing potential residents with the clarity a virtual tour provides, is crucial to filling vacancies right now.
2) Consider Featured Ads on ILS'
In order to get more eyes on your ads, it's important to consider advertising on high traffic ILS that provide an ample source of quality leads, based on your needs right now. In addition, consider using promoted or featured ads to help you stand out. As more and more rentals flood the market, highlighted listings will be a competitive differentiator and convert more leads for your units.
3) Promotions and Incentives
As everyone tackles this crisis together, it's important to tailor your promotions to match what's happening in the world right now. Property owners that show sympathy and understanding for the times we find ourselves in will find themselves ahead of those whose values are more self-serving. One way to effectively position yourself positively, while attracting new leads, is through your incentives and promotions.
For instance, our client, Avenue Living, was proactive in making considerations for prospects in their current promotions. For example, their "Prairie Relief" promotion hopes to ease renter's minds in today's market by offering 500 specially priced rental suites, available across a variety of markets at a heavily reduced rate, partnered with weekly bundled payment options. The key is to create promotions that are considerate of COVID-19 while still attracting new prospects.
4) Ramp up customer service
Right now properties are being inundated with calls from renters looking for help during this time of crisis. This means that leads may be given less priority than usual during time. Apartments are seeing an increase in call abandonment rates, which means properties may be missing interested leads due to fielding concerns from current tenants. The result of this is less tours booked even when leads are steady as it's impossible to convert prospects.
Something we've seen from our clients is to create a separate team to deal with the former in response. Although resources are tight, this is one way property management companies can help to streamline their inquiries from a "tenant helpline" to "sales".
On that note, we understand just how fragile this period is for the tenant/landlord relationship. So, let's switch gears and dig into how April 1st rent collections went amid COVID-19, and review some helpful insights for landlords to consider during this time.
2) Handling Rent Collections Amid COVID-19
In the last week, the anxiety of the pandemic coupled with substantial income loss for many people has led to campaigns for rent freezes, assistance from the government, and deferred rents. As April 1 came and went, it's still unclear from the government, how landlords should handle rent collections.
This is a confusing time, and no one wants to be apathetic, or taken advantage of. To gain some perspective, we wanted to find out what the industry insiders and experts are saying.
"We're in this together…"
Many of Canada's biggest residential landlords say they're committed to working with tenants who have lost their job because of the novel coronavirus pandemic.
According to a report released by The Canadian Press this week, there seems to be some consensus that the rental housing industry is strongly opposed to evicting people that find themselves in a place of distress right now. As Mark Kenny, CEO of Canadian Apartment Properties Real Estate Investment Trust, explained in an interview with CTV News:
"We're going to do what we've always done, we're going to work with them and look at things on a case-by-case basis. And if we come out with an agreement, we're going to honour that agreement for as long as it takes."
Most major rental companies including Northview Apartment REIT, Greenwin Corp., MetCap Living, and Boardwalk REIT have issued notices to tenants, asking them to reach out if they are in financial distress and have committed to various degrees of support.
But what about the roughly 80 percent of landlords in Canada who are small-scale owners of units and who won't have the same flexibility? Or those who rely on rent as their primary source of income, or they are not eligible for a mortgage deferral that some banks have offered homeowners?
Mark Kenny advises, "Whether you're big or small...if we are all mindful of the impacts, all that people can do is the best they can do given the circumstances, and we'll get through this together if we just talk and are compassionate."
Greg Maitinsky, CEO of Go Beyond Collection Agency Inc., shared his feedback with us on how April 1 rent collections played out and what he's seeing across the industry.
"One thing I can recommend is to be considerate with your communications to tenants right now. Take it case-by-case and day-by-day."
From a metrics point of view, it's difficult to put an exact number on it, but Maitinsky predicts that approximately 5-10% of renters could have missed rent payments or require deferrals this month. In a survey of 150 landlords by SVN Rock Advisors, found that on a very preliminary basis, defaults were lower than expected.
The overall data shows that those with higher rents are more likely to pay because they are likely still employed, while those who are on a fixed income, have likely been laid off during this time and require rent deferrals.
However, if this continues for another 3 months, that number could increase. Therefore, as the government of Canada rolls out its emergency benefit fund starting April 6, owners and operators should begin promoting and guiding renters through the process of getting government assistance. If landlords are ensuring that tenants have the immediate funds necessary to pay rent, they are doing their part.
The bottom line: There is no "easy" answer right now. Every single landlord-tenant relationship is unique and each landlord and tenant are unique themselves. If the tenant is still working and/or being paid full wages, the message should be to pay rent, as outlined in the rental agreement.
The message is clear, we are all trying to navigate this crisis with patience and tact. Owners, operators, and renters are all vulnerable right now, however, as an industry, the rental market is positioned to overcome an economic crisis if it responds and communicates effectively.
To quote Mark Kenny once again,
"In the long run rentals do very well during bad economic times, people tend to rent and not buy, so for the industry it will be great. In the interim, we have to work together. Stay calm, and communicate...people need to be compassionate on both sides of the fence."
By employing the correct policies and strategies, and updating your communications accordingly will maintain the health and stability of the industry as we forge ahead.
P.S. For more updates and resources check out LWS.com/covid-19.