BLOG POSTS ARE PRELIMINARY MATERIALS CIRCULATED TO STIMULATE DISCUSSION AND CRITICAL COMMENT. THE VIEWS EXPRESSED ARE THOSE OF THE INDIVIDUAL AUTHORS. WHILE BLOG POSTS BENEFIT FROM ACTIVE UHERO DISCUSSION, THEY HAVE NOT UNDERGONE FORMAL ACADEMIC PEER REVIEW.
By Philip Garboden
Last month, UHERO partnered with real estate groups across the state to launch a monthly survey of Hawaii’s rental property owners and managers. Our primary goal is to understand how the rental market is faring during the extended COVID-19 crisis. Are tenants increasingly struggling to make rent? Are rental property owners seeing increased vacancy rates? What is the health of the rental market overall?
We are looking to maximize participation each month. If you own or manage rental property in Hawaii, please fill out our current survey. It doesn’t matter if you didn’t participate last month, your information is essential.
Responses were solicited by a number of partner organizations including core partners at the Honolulu Board of Realtors and the Kauai Board of Realtors. In total, 271 landlords and property managers completed the survey providing us with data on 6,719 rental units in the state. All responses are benchmarked at the 15th of August.
As shown in Table 1, the data are fairly comparable to the market as a whole. Kauai was slightly overrepresented and Maui slightly underrepresented. While the market in Hawaii is roughly split between multifamily and single family rentals, the units is our sample were more likely to be in single family rentals.
Table 1: Characteristics of Survey Respondents Compared to Census Data
| Survey Data | Census Data | |||
| num | per | num | per | |
| Total Units | 6,719 | NA | 185,331 | |
| Units by County | ||||
| Honolulu | 4,831 | 71.90% | 134,922 | 72.80% |
| Kauai | 637 | 9.48% | 7,469 | 4.03% |
| Maui | 479 | 7.13% | 21,455 | 11.58% |
| Hawaii County | 772 | 11.49% | 21,485 | 11.59% |
| Units by Building Type | ||||
| Single Family | 4,554 | 67.78% | 101,984 | 55.03% |
| Multi Family | 2,165 | 32.22% | 83,347 | 44.97% |
| Units by Median Rent | ||||
| Below Median | 3,912 | 63.90% | 92,666 | 50.00% |
| Above Median | 2,210 | 36.10% | 92,666 | 50.00% |
| Units by Subsidy Type | ||||
| No Subsidy | 5,257 | 82.75% | ||
| Voucher | 439 | 6.91% | 10,506 | 5.67% |
| Military | 645 | 10.15% | ||
| Other | 12 | 0.19% | ||
Aside from these observable differences, the landlords and property managers who completed our survey may differ from those that did not in unobservable ways. It is likely that individuals with more intense opinions about an issue would be more likely to take the time to provide data. Thus, we strongly encourage caution when interpreting any particular statistic. Not only do surveys of this kind have large margins of error, but certain segments of the population may not be adequately represented.
Most Tenants Are Paying Rent, But Signs Point to Increased Hardship
Prior to the epidemic, 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, the number of tenants fully caught up on their rent dropped to 85% and severe delinquencies rose to over 8% of rental households.
Table 2: Rent Delinquencies on 15th of Month
| per | |
| Total Units | |
| Units Paid, Pre COVID | 94.56% |
| Units Late, Pre COVID | 2.88% |
| Units >30 Days, Pre COVID | 0.57% |
| Units >60 Days, Pre COVID | 1.99% |
| Units Paid, August 2020 | 85.80% |
| Units Late, August 2020 | 6.02% |
| Units >30 Days, August 2020 | 3.21% |
| Units >60 Days, August 2020 | 4.97% |
This trend is troubling. While 5% of tenants with a 60-day delinquency may seem small, that figure represents over 9,000 households. Additionally, while 85% of tenants are current, the job figures suggest that a substantial portions of those households have experienced at least one job loss, forcing them to sacrifice well-being to pay their rent.
This “invisible” struggle is echoed by our respondents. Landlords and property managers can’t know everything about what their tenants are going through, but their assessment of their tenant’s financial situation is sobering. Our respondents estimate that 60% of their tenants have suffered a financial hardship, although two thirds of those tenants are still current on their rent.
Table 3: Tenant Condition
| per | |
| Total Units | |
| Have suffered an economic hardship but paid rent on time. | 42.75% |
| Have suffered an economic hardship and paid rent late. | 10.17% |
| Have suffered an economic hardship and are currently delinquent on rent. | 6.67% |
| Have not suffered an economic hardship but are currently delinquent on rent. | 2.99% |
| None of the above | 37.43% |
Landlords and property managers, for the most part, expressed willingness to work with their tenants during the crisis. Almost three quarters are willing to hash out payment plans, 40 percent are willing to lower rent, and 30 percent are willing to waive at least a portion of the rent if necessary to keep a tenant housed.
Table 4: Willingness to Negotiate
| per | |
| Total Respondents | |
| Willing to defer rent or give payment plan | 73.28% |
| Willing to lower rent | 42.67% |
| Willing to waive or discount rent | 30.60% |
| None of above | 16.81% |
| Note: Check all that apply. | |
Not surprisingly given the state and federal eviction moratoria, landlords and property managers reported only a handful of eviction filings in August, presumably all for issues other than non-payment of rent.
Landlords Report Increased Vacancy Rate and Higher Than Expected Turnover
Prior to COVID-19, our respondents reported a roughly 4% vacancy rate on their properties (note: this number is lower than Census figures, which are notoriously inflated by seasonal homes and STVRs). In August, however, this number jumped to 9%, presenting a meaningful threat to rental property cash flows.
Table 5: Vacancy and Turnover
| per | |
| Total Units | |
| Vacant Units, Pre-COVID | 3.89% |
| Vacant Units, August 2020 | 9.18% |
| August Turnover | 4.33% |
| August Turnover, Planned | 2.32% |
| August Turnover, Unexpected | 2.01% |
| August Turnover, To Hawaii | 2.04% |
| August Turnover, Elsewhere | 1.71% |
| August Turnover, Don’t Know | 0.58% |
The explanation for this increase is certainly multifaceted, including increased financial strains pushing families to double-up with friends and family, out-migration, and epidemiological motives. Our respondents report that nearly half of the turnover in August was unplanned, meaning it did not occur at the end of the lease, but was instigated by the crisis. Moreover, about half of the families who left their units did not remain in Hawaii, but instead decamped for the mainland.
In terms of a broad assessment, about half of the landlords and property managers suggested they were maintaining profitability. Troublingly, 40% said they were struggling, and 10% note that they (or the owners) are considering selling.
Table 6: Expectations
| per | |
| Total Responses | |
| Anticipate rent… | |
| Staying roughly the same | 51.66% |
| Trending down | 35.79% |
| Trending up | 10.70% |
| No Response / Don’t Know | 1.85% |
| Are you… | |
| Struggling to stay profitable | 38.01% |
| Trying to sell some properties | 10.70% |
| Maintaining Profitability | 49.82% |
| No Response / Don’t Know | 1.48% |
Continued Intervention May Be Necessary to Preserve Household Stability for Families and the Economic Viability of Hawaii’s Rental Housing Stock
With an ever shifting policy field, it would be irresponsible to make too much out of a single survey.
On an optimistic note, this first survey wave was fielded to capture data prior to the launch of the state’s rental relief fund, a program that is specifically designed to address the issues identified in this survey. For both struggling tenants and their landlords, this program has the potential to provide an essential lifeline.
However, should these patterns continue, the preservation of rental housing may become an increasingly pressing issue. This is particularly salient given that relief funds are scheduled to end on January 1st, long before UHERO forecasts any meaningful economic recovery. But even in a best case scenario, with additional federal assistance allowing for robust UI and rent support through 2021, 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. 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.