It stands to reason that with a major part of Hawaii’s economy shut down because of COVID-19 that Hawaii’s notoriously tight rental housing market would suffer.
But a new report by local economists quantifies the softening market – and suggests some troubling implications for the long-term availability of rental housing.
Titled “The August Rental Market: Struggling Tenants and Rising Vacancies,” the report by the University of Hawaii’s Economic Research Organization found that the vast majority of residential landlords are willing to work with tenants to help them cover their rent. And it found most tenants are making it for now.
But UH Professor Philip Garboden also found signs of concern.
The vacancy rate for residential properties has more than doubled compared with pre-COVID-19 levels, to almost 9.2% in August from 3.9% before the crisis, Garboden reported.
The reasons why are manifold, Garboden found. They include financial strains pushing people to leave Hawaii or move in with friends and families. About half of the August housing turnover was instigated by the crisis, and not at the end of the lease.
And while about half of the landlords and property managers surveyed said they were staying profitable, many were not.
“Troublingly, 40% said they were struggling, and 10% note that they (or the owners) are considering selling,” UHERO reported.
The findings are the result of a monthly survey UHERO launched recently in partnership with real estate groups. The goal is to understand how the rental market is faring during the extended COVID-19 crisis, including determining whether tenants are struggling to make rent.
Responses were solicited by several partner organizations, including the Honolulu Board of Realtors and the Kauai Board of Realtors. In total, 271 landlords and property managers completed the survey providing data on 6,719 rental units in the state. The responses were benchmarked Aug. 15.
The report found, not surprisingly, signs that tenants are struggling. For example, before the pandemic, 95% of tenants would have paid their rent by the 15th of the month and fewer than 3% would have 30- or 60-day rent delinquencies.
“But on August 15th,” UHERO reported, “the number of tenants fully caught up on their rent dropped to 85% and severe delinquencies rose to over 8% of rental households.”
The 5 percentage point increase in delinquencies is more troubling than it might seem, Garboden said.
“While 5% of tenants with a 60-day delinquency may seem small, that figure represents over 9,000 households,” he reported. “Additionally, while 85% of tenants are current, the job figures suggest that a substantial portion of those households have experienced at least one job loss, forcing them to sacrifice well-being to pay their rent.”
The good news is that landlords seem to be willing to work with tenants. Almost 43% reportedly were willing to lower rents, and 73% were willing to defer rents or give payment plans.
The downside of all of this, the report said, is that some residential landlords might decide renting properties in Hawaii isn’t the lucrative business it once was.
“An increase in vacancy rate alone presents a threat to our rental housing stock, as more landlords may elect to sell their properties during what promises to be a long road to recovery,” Garboden said. “For those with single family rentals, there is no guarantee that these properties will remain as rentals. Indeed, given historically low mortgage interest rates, it seems unlikely that they will.”
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