Jobless rate jumps and tenants are still making rent — for now

California landlords are in a precarious spot in 2020. Unable to collect rent from tenants impacted by COVID-19, many are left to wonder how long the crisis will last.

Some good news: nationally, 92.2% of renter households made full or partial rent by the third week of June, according to the National Multifamily Housing Council (NMHC). This is up from 90.8% who had made rent by the third week of May, and level with the same share of renters who made rent this time a year earlier.

However, over 16% of California’s labor force was unemployed in May 2020. For reference, a year ago when unemployment was at a healthy level, just 4% of the labor force was jobless, according to California’s Employment Development Department.

Jobs in California are now 14% below the December 2019 peak, amounting to a loss of 2.6 million jobs, an erasure of the past six years of job growth. Most of these lost jobs are in low-paying industries, impacting renters the most.

In April, the NMHC reported many renters were drawing on personal savings to pay for rent despite steep job losses. Regarding the May report, the NMHC president claims support from unemployment benefits, government stimulus payments and understanding from landlords have given most renters the boost needed to stay on track.

But these are all finite factors propping up residential rents, and thus unreliable in the months to come.

A long, bumpy recovery ahead

Expect to see job reports continue to decline as we head deeper into the 2020 recession, which began officially in February.

At times in 2020, ups and downs will occur as jobs gradually return when businesses re-open and are lost when a growing wave of COVID-19 cases shutters businesses once more. This “Lazy W”-shaped recovery from the 2020 recession won’t see jobs return to their 2019 peak for years, closer to 2030 than 2020.

In the meantime, what will happen to the residential rental market?

Much like in the years following the Great Recession, which began in 2008, household formations will decline, and the average household size will grow as family members move back home to consolidate payments.

But — here in California — the impact on residential rental will be low. That’s because the state’s long-term rental shortage means rental vacancy rates were well below healthy levels going into the 2020 recession. With the impact of lost incomes on renter households, the supply-and-demand imbalance that currently exists will begin to level out. But the 2020 recession won’t be enough to tip the scales or push the rental market into excess territory.

Landlords will feel the pinch in the coming months, as laws limiting how and when they may collect rent from impacted renters continue to take shape. But renters will always need a place to live, and right now there still aren’t enough units to house them all. Therefore, the long-term outlook for residential rentals remains strong.

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