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The coronavirus pandemic had a swift and negative effect on market rent in major metros throughout 2020, but prices are slowly returning to pre-pandemic levels. Apartment List’s recent National Index (https://www.apartmentlist.com/research/national-rent-data) reports a 0.1% increase in rent prices from December to January.Momentum is shifting across the country, but data shows that the Bay Area won’t be along for the ride.
Yardi Matrix reports that since January 2020, year-over-year multifamily rent growth has dropped 13% in San Jose and 27% in San Francisco. Seattle, New York and Boston are the only other metros to see a similar drop nationwide, but anticipate rent increases by year’s end. The Bay Area is the ONLY market that projects continued rent declines. The most pessimistic report claims San Jose could to see a drop through December 2021, while San Francisco’s decreases last through 2022.
Not all hope is lost. San Francisco appears to be at the bottom of the city’s price correction. In January, rents in San Francisco fell by just 0.4 percent month-over-month compared to an average monthly decline of 3.4 percent from April to December 2020. Although San Francisco rents have yet to increase since the start of the pandemic, the leveling off indicates that the city’s market may soon turn the corner.
Concessions are through the roof as landlords try to reduce vacancies. Landlords are offering months of free rent and other amenities for new and continuing tenants. These discounts average $3,500 in San Jose and $3,600 in San Francisco per apartment.
Remote work continues to be the norm for tech workers and surrounding areas are reaping the benefits. In Sacramento, effective asking rents are up over 8% annually. Zumper reports that East Bay communities like Concord, Dublin, and Livermore continue to see an influx of renters seeking cheaper living and more space. Their rental rates were some of the most stable in 2020.
After weeks of negotiation to end 2020, Governor Gavin Newsom will sign Senate Bill (SB) 91 and extend California’s eviction moratorium through June 30th, 2021. The financial implications of this extension are more significant than any from the previous year.
Landlords can choose whether or not to participate in the rental relief program brought about by the bill. Complying owners will receive 80% of any rent owed from April 1, 2020 to March 31, 2021 by COVID-impacted tenants. In exchange, owners must forgive the remaining 20% entirely. It’s the most support landlord’s have received since the pandemic started, but still may not be enough for mom-and-pop owners to cover expenses after not receiving rent for nearly a year.
If landlords choose to opt-out, it creates much more uncertainty. Low-income tenants can still apply to receive 25% of their rent owed from the state to meet the threshold set by AB 3088. Said tenants cannot make more than 130% of their county’s median income OR $100,000, depending on the county. This number rises with larger households.
An opt-out opens the door to collect unpaid rent recoverable as consumer debt in small claims court once SB 91 is lifted. Whether it’s more or less than 80% of what is owed is unknown. It could provide the opportunity for owners to go after more of what they deserve, but also induces more waiting and relies on the unpredictability of a judge’s ruling.
Other provisions of the law include:
- Owners cannot use a tenant’s security deposit to cover their rental debt
- Late fees cannot be enforced to a tenant who has submitted a declaration of financial distress
- Landlords cannot discriminate in renting to a tenant with prior COVID-19 rental debt
- Landlords must send a notice about changes in the law to any tenant who owes COVID rent by February 28th
- Landlords must show proof of a “good-faith” effort to secure rental assistance for their burdened tenants before attempting to collect any coronavirus-rent owed
California legislature will use the $2.6 billion dollars in federal stimulus from the last COVID rent relief package to accommodate pandemic-burdened owners throughout the state. $1.5 billion will go to the state directly, while the remaining $1.1 billion will go to counties and cities with at least 200,000 residents. Counties will distribute said funds at their own discretion, similar to the CARES Act. It remains to be seen whether this total is enough, and what percentage of landlords will accept the aid. The State Rental Assistance Program will start accepting applications in mid-March.
Check out this FOX KTVU 2 news article for statements from California senators and other housing officials regarding SB 91 and the continuation of the eviction moratorium.
Congress ended 2020 with a promise: $25 billion of rent relief for renters and landlords nationwide.
With states receiving aid proportional to their population, Bay Area residents have drawn the short end of the stick.
The “most” help is going west. Novogradac’s analysis estimates that $2.63 billion of federal aid is heading to California, nearly double that of the next highest states (Florida, New York). However, a huge renter population and high rent prices throughout the Bay Area lessens the impact of relief compared to lower-cost regions. The rents in the greater San Francisco and San Jose areas have dropped 26.7% and 15.2% throughout the pandemic and still have two of the highest national markets. Relief may prove helpful in the area short-term, but will still only represent a portion of backlogged rent.
The new law mandates the relief get distributed by January 26th unless revised. Local jurisdictions will be tasked to distribute the money, similar to the CARES Act. They have until the end of 2021 to allocate funds but will be pressured to do so sooner than later. Utility providers and landlords will receive the bulk of the aid, and low-income households will be the first tenant demographic to qualify. Eligibility requirements for these households can be found on Novogradic’s online Affordable Housing Resource Center.
The California state legislature could use the success of this policy as a reason to push out more housing relief. Both renter and landlord advocacy groups have been pushing for this since the start of the eviction moratorium. Neither group is to blame for the financial difficulties brought by the pandemic, which won’t see radical change from the most recent $600 stimulus package. More significant aid will allow tenants to cover their growing debts and alleviate the economic hardships that landlords have faced.
Check out The Mercury News’s article for more insight on the new rent relief package.
The eviction moratorium and tenant protections included in Assembly Bill (AB) 3088, set to expire on February 1, 2021, may continue through the end of the new year. Two bills would continue to prevent COVID-related evictions, for varying lengths.
Under AB 3088, tenants are not obligated to pay rent due between March 1, 2020 and August 31, 2020 if they are able to provide proof of a COVID-related financial hardship. For the period of September 1, 2020 through January 31, 2021, tenants must pay at least 25% of their total rent owed for this five month period to avoid eviction.
Under AB 15, proposed by Assemblyman David Chiu (D-San Francisco), the 25% rent payment threshold would continue through December 31, 2021. This bill would also waive preempted eviction protections, and allow local jurisdictions to enforce new eviction rules on top of existing state law.
Senate Bill 3, proposed by Sens. Anna Caballero (D-Salinas) and Steven Bradford (D-Gardena), would extend AB 3088 to the end of March 2021. In these two added months, lawmakers would take more time to review legislation and get a sense of how efficiently vaccines will be distributed throughout the state.
Landlords have actively opposed the extension. However, both bill’s authors have stated that their respective bills will provide relief for landlords as well. If done right, this would provide financial aid for COVID-burdened renters and property owners alike. Keep an eye out for which bill passes at the beginning of 2021. The eviction moratorium will be the most pertinent conversation in the California multifamily industry until the pandemic subsides.
Check out this Sacramento Bee article for further information
Considering the ever-changing nature of the economy’s recovery status, those with a stake in the multi-family housing market need to remain adaptable and responsive.
With the help of CoStar/Apartments.com’s most recent State of the Market Report, we hope to provide apartment owners with a comprehensive picture of the status of the Bay Area’s apartment housing market. Thw white paper factually depicts what’s happening, why it’s happening, and where we go from here.IPS White Paper Vol. 1- COVID Impact