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How COVID-19 has affected the price of rent in the Twin Cities

apartments
MinnPost photo by Corey Anderson
While COVID-19 seems to have blunted the growth of rent prices somewhat, its longer-term effects remain unclear.

For a good part of the last decade, the cost to rent housing units listed in the Twin Cities was on a pretty steady rise, though faster in the middle part of the decade than the latter part.

In January of 2014, the typical rent was about $1,368. By January this year, it was $1,552 (both in 2020 dollars), according to data from Zillow. (Zillow calculates typical rent by taking the average (mean) of the middle fifth of rents.)

Then, something happened.

In April and May, a time when rents in the Twin Cities metro area’s seasonal market usually gain steam, they saw slight declines, from $1,573 in March to $1,572 in April and $1,567 in May, mirroring a national slowdown in rents — the largest in at least five years.

That something was COVID-19, which really started to affect life in Minnesota in mid-March.

But while COVID-19 seems to have blunted the growth of rent prices somewhat, its longer-term effects on rent — and renters — remain unclear.

Market uncertainty

In mid-March of this year, Gov. Tim Walz limited the size of gatherings and ordered the closure of bars and restaurants; by late March his stay-at-home order went into effect.

Within weeks, hundreds of thousands of Minnesotans were out of work. Since the pandemic came to Minnesota, more than 780,000 people have filed for unemployment. Some may be temporarily unemployed while others may see longer-term job losses.

Because many of the layoffs were concentrated in food and beverage, retail and health care support, these job losses disproportionately affected renters, many of whom already have trouble affording rent. More than 40 percent of Minnesota renters spend more than thirty percent of their income on housing, according to the Minnesota Housing Partnership — which means they are considered cost-burdened.

Under normal circumstances, the loss of a job might lead to trouble paying rent in the near-term. But federal stimulus checks, expanded unemployment eligibility and an extra $600 a week in additional unemployment funds from the federal CARES Act have buoyed many renters, at least in the short-term, making immediate impacts on the rental market murky.

Data from the Minnesota Multi Housing Association, which represents apartment owners and operators, shows modest declines in rental collections in recent months, from about 92 percent in June 2019 to 88 percent in June 2020 in “Class C” units, which tend to be older and more affordable.

Because of the stimulus program and unemployment, even the short-term effects of COVID-19 on rental housing may lag in the data.

“The big fiscal cliff in my mind is the end of July, when those unemployment benefits start to end,” said Zillow Economist Joshua Clark.

Supply and demand

The price of rent is driven by two factors: the supply of housing — whether there are enough units to house the people that want to live in a city — and demand — how many people want to live in the city.

In recent years, that equation has looked like this: Supply was short, as the Twin Cities recovered from a slowdown in building in the wake of the Great Recession, while demand was high, as the economy prospered and the Twin Cities grew.

COVID-19 could change that, and there’s some evidence that uncertainty is already being felt in the market.

In April, Zillow found that 2.7 million U.S. adults moved back in with their parents during March and April, more than 80 percent of them in Gen Z, or under 25 years of age. How permanent that trend is remains to be seen.

In recent months, Clark also said he’s non-traditional leases, including sublets or those less than six months in length, skyrocket. There also seems to be an increase in furnished listings, which could indicate sublets or units that had previously been offered as short-term rentals on platforms like Airbnb or Vrbo being offered for longer terms. All of this hints at an element of uncertainty.

“If you are unsure what your employment status is going to be in the next year, you’re not going to be signing up for a 12-month lease,” Clark said.

The larger effects of COVID-19 on the rental housing market remain in question, and those hinge on how fast the economy recovers, said Issi Romem, the founder of MetroSight, a research consultancy firm focused on urban economics.

Tens of millions of people in the U.S. are currently unemployed.

“The majority of those right now report that they’re temporarily unemployed, which means they either believe or were told they will get their jobs back,” Romem said. “Whether that comes to bear, we will see.”

If a sustained decrease in economic activity puts us in a long-term recession, or even a depression, “I think people will have a problem paying their rents and you will see rents probably decline if we are in that scenario,” he said.

From moving in with family members, staying in less-expensive units and delaying buying homes, there are other ways the pandemic could theoretically affect the rental housing market more long-term if the economy remains in recession.

The fact that a pandemic makes the prospect of cramming into a bus or train car, sharing limited green space and living in small apartments with roommates or kids less attractive has caused some to speculate Americans’ love affair with the urban core will end as a result of the coronavirus, shifting demand to the suburbs.

But Romem says he thinks any impact there will be temporary. These factors may affect people’s decisions for the next year or two, but probably not the next 10 to 20 years.

What could matter more is a greater shift toward working from home, for those who are able.

“I do think there’ll be a mix of firms that take different tactics on this, and there could be a mix within firms, staggered schedules or more flexibility about working from home,” Romem said. Driving in only a couple days a week could reduce the headache of a long commute to and from the suburbs substantially.

Aid to renters

Another layer of uncertainty here is what, if anything, policymakers will do to help those who find themselves struggling to pay rent.

At the federal level, the $3 trillion HEROES Act bill, with billions of rental assistance and more stimulus checks, passed the House last month. Senate Republicans, who balked at the size of the Democrats’ plan, have expressed support for some kind of stimulus. Senate Majority Leader Mitch McConnell has said the Senate will write its own version of the bill.

The Minnesota Legislature, now in special session, has not reached a deal on rental assistance. If they do not come to an agreement, Gov. Tim Walz has said $100 million in rental assistance will likely be administered by executive order from the state’s allocation of federal CARES money.

Housing advocates see temporary fixes like supplemental unemployment benefits and eviction moratoriums ending in the coming months and worry that relief won’t come soon enough.

“It’s sort of a false sense that things aren’t wrong. It gives you sort of an excuse not to act, instead of the urgency that we really needed,” said Elizabeth Glidden, director of strategic initiatives and policy at the Minnesota Housing Partnership.

Comments (7)

  1. Submitted by Kyle Anderson on 06/18/2020 - 03:00 pm.

    I am unsure whether COVID will favor city or suburban living. Right now it seems pointless to live in the heart of the urban metro when there there is no entertainment and it is not safe to go out in big groups. However, if my wife and I moved to the suburbs we might have to buy a second car if we actually have to go back to the office again. I think the best plan for most people is going to be to stay put for a while assuming that they can continue to make house or rent payments.

  2. Submitted by Susan Maricle on 06/19/2020 - 08:05 pm.

    Rochester has seen a slowdown in rent, apparently. My son just rented a studio apt that had no takers because of COVID. Normally $500 a month, the landlord rented it for $450.

  3. Submitted by Paul Udstrand on 06/20/2020 - 07:55 am.

    For the gazillionth time, if the past decade has proven anything, it’s proven that supply and demand models simply do not describe or predict housing prices. It’s very disappointed to see so much reliance on a defunct model in an article trying to explain the affordable housing crises this late in the game.

    S&D is a very limited principle that only functions a limited number of scenarios, it is NOT the bedrock of economics that so many people cling to, it’s just the most familiar. S&D is simple and familiar, but if really want to understand the housing market and pricing it’s far more complex.

    • Submitted by Pat Terry on 06/22/2020 - 08:55 am.

      For the gazillionth time, of course it is. Arguing that supply and demand doesn’t determine prices is like arguing that gravity doesn’t exist. Its a basic principle needed to understand the pricing of housing or any other commodity. It is quite literally is the bedrock of economics.

      • Submitted by Paul Udstrand on 06/27/2020 - 01:05 pm.

        Pat, one of the problems with neoliblerals is that they conflate natural phenomena with manufactured phenomena. The comparison of supply and demand with gravity is a perfect example.

        Economies are discovered natural entities, they’re crated sociopolitical regimes, and there have many different kinds of economies throughout human history.

        The worship of supply and demand as some kind of natural law is just another form of magical thinking. Economics and economies are far too complex and artificial to be governed by such simplistic assumptions, and in fact S&D rarely predicts prices, it hasn’t predicted housing prices for at least two decades. No matter how much we build (and we’ve added tens of thousands of units) the solution is to just build more… that’s just doubling down on the magic, it’s not serious economic analysis.

  4. Submitted by Julie Stroeve on 06/21/2020 - 04:20 pm.

    are there any corporate-owned apartments that we can follow pricing with? LLCs and smaller investors won’t disclose their financials, but it’s certainly a public-interest matter to follow rent rise trends.

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