Demand Expected to Slow in U.S. Rental Market

"While it is too early to know how COVID-19 will affect rental markets, early signs suggest another slowdown in demand is coming," according to an article by Whitney Airgood-Obrycki.

Data from the past three years informs the prediction that rental demand. In terms of historic demand, in 2017 and 2018, demand receded, according to Airgood-Obrycki, and only increased slightly in 2019 (and at a much slower pace than demand increased in every year from 2004 to 2016). But in a drastic difference from the last three years, the new wave of decreasing rental demand is likely to be caused by unemployment. 

The situation is also clearly distinct from the last recession, when homeownership collapsed, pushing demand toward rental markets. Foreclosures could increase in the future, however, changing the equation as the economic crisis deepens and lengthens. "Even so, it currently looks unlikely that transitions from homeownership to renting would match the scale of the previous recession," according to Airgood-Obrycki.

Future construction could also change the whole equation, according to Airgood-Obrycki. New data from the U.S. Department of Commerce indicates that construction slowed drastically in the past month. Single-family home construction in March fell 17.5% from February, while multi-family housing starts fell 32.1% between February and March. The industry is laying off workers in large numbers as well, preparing for worse.

Airgood-Obrycki's summary of the situation, after surveying all the indicators, is that rent will only get cheaper at the high-end of the market. "Cooling demand could soften rents at the high end of the market, but those benefits are unlikely to translate to lower rents at the bottom end as households compete for an already limited low-rent supply." Airgood-Obrycki assessment's thus resembles a recent prediction by analysts from the Brooking Institution—that the coronavirus is likely to deepen social and economic inequality in the country.