On-Time Rental Payment Rates Underperform in Sun Belt Markets
Research suggests that Sun Belt markets are re-pricing more quickly than some residents can handle.
The on-time collection rate for the Sun Belt, a region that’s increasingly viewed as a multifamily investor darling in the wake of COVID-19, has underperformed the rate in units outside the region for five straight months, according to the most recent Independent Landlord Rental Performance Report from Chandan Economics.
Cities like Austin and Dallas, as well as locations throughout the South and Florida, have continued to reap the benefits of in-migration patterns from workers leaving higher-cost, typically coastal states over the past few years. But “with the Sun Belt’s growing success, there is some concern that markets are re-pricing more quickly than some existing local residents can handle, especially low-income renters,” the Chandan report notes. “The inflows of relatively high-earning renters—a trend aided by increased work- from-home adoption—may impact affordability for existing residents.”
Chandan’s August first estimates show on-time collections at 78.4% for Sun Belt cities and at 80.3% for non-Sun Belt markets, with the performance spread widening to 183 bps. Sun Belt markets are also seeing the highest rent increases across the US, with cities like Phoenix, Tampa, Atlanta and Miami posting double-digit annual rent inflation numbers through June, according to Trepp.
Conversely, as of the August 2022 first estimate, independently operated units in the gateway markets of New York, Los Angeles, San Francisco, Washington, DC, Houston, Dallas, Chicago, and Boston — cities that many renters fled during the pandemic — outperformed units outside of those regions for the eighth consecutive month. The on-time payment rate for such units in gateway cities in August stands at 81.5% and 79.5% in non-gateway units.
“The August improvement marks a slight reversal of recent declines. In three-of-four prior months, on-time payment rates fell in gateway markets, dipping 252 bps along the way,” the report notes. “Through August 15th, 1.0% of gateway units have paid rent late, and 17.5% of units have yet to make full payments.”
The firm predicts the late-payment rate for gateway units in August will rise to 8.0% over time, bringing the full-payment rate to 89.5%, while the late-payment rate for units in non-gateway cities in August will rise to 9.6% over time, with the full- payment rate settling at 89%.