Urban Wire Three Reasons Mom-and-Pop Landlords Stayed Resilient during the Pandemic
Jung Hyun Choi, Thomas Malone
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At the start of the COVID-19 pandemic, many people were concerned that mom-and-pop landlords—who are more likely to own smaller properties leased to Black and Latino renters and renters with lower incomes—would leave the market amid a decline in rental income. Because these landlords own a higher share of affordable rental properties and are slower to raise rents, many people worried these landlords’ exit would further reduce the supply of affordable rental housing, which was already facing shortages.

Instead, the data show the opposite: the presence of mom-and-pop landlords (those owning fewer than 10 properties) expanded during the pandemic, and they still account for a relatively higher share of home purchases despite last year’s sudden spike in interest rates.

CoreLogic data show that small investors made 13 percent of all single-family home purchases in December 2022 (link added 4/14/23).This translates to 29,000 total purchases, which is a 13 percent decline from December 2019 but is far less than the 25 percent decrease in sales overall over the same period. So, though mom-and-pop landlords were making fewer home purchases than they were at their peak in mid-2021, they experienced a smaller decline than other homebuyers, and their total number of home purchases that month was similar to prepandemic numbers.

These data largely align with the newest survey results from Avail, a Realtor.com–owned rental platform that helps mom-and-pop landlords manage their rental properties. According to Avail’s November 2022 survey, 23 percent of mom-and-pop landlords were planning to buy new properties, whereas only 8 percent were planning to sell.

Below, we explore three reasons mom-and-pop landlords have stayed strong in the rental market through the pandemic.

1. Mom-and-pop landlords lost less rental income than expected

The government’s swift actions to keep renters housed, including the distribution of stimulus checks, unemployment benefits, and emergency rental assistance, helped tenants continue making rental payments on time.

Avail administrative monthly rental payment data demonstrate that the monthly share of on-time rental payments has stayed stable between 86 and 87 percent in the past three years, showing almost no change from the prepandemic period. This indicates that the decline in rental income for mom-and-pop landlords has been smaller than expected, despite the surge in unemployment in the first year of the pandemic.

2. Rising rents offset the rising costs of ownership

When rent prices fell during the pandemic, mom-and-pop landlords appeared to pull back; their purchase share first dropped in April and May 2020, and it remained below 8 percent until November. But rent started to climb in late 2020 and increased sharply in 2021. For the first time, the US median asking rent exceeded $2,000 in May 2022, a 15 percent increase from a year before. This increased profitability induced many mom-and-pop landlords back into the market.

In addition, the tight housing supply resulted in higher home prices, which raised property taxes for landlords, and the sharp rise in interest rates in 2022 increased mortgage payments for new purchases. In both the July and November 2022 Avail landlords surveys, more than 80 percent of landlords said they experienced ownership cost increases. But landlords may be able to transfer these costs to tenants by raising rents. In both surveys, more than 70 percent of landlords said they plan to increase rent within the next 12 months, and higher ownership costs and market rent increases were their top two reasons for doing so.

3. Landlords are less sensitive to interest rate increases than individual homebuyers

Combined with the record home price appreciation from 2020 to 2022, interest rate increases in 2022 caused the average mortgage payment for a homebuyer to soar. Investors—even small ones—have more resources than owner-occupied buyers, so interest rate increases have a smaller impact on their potential budgets. This can be seen both in the share of cash purchases small investors make, as well as the average down payment they make if they do take out a loan.

In December 2022, CoreLogic data show that small investors paid cash in about 41 percent of their transactions, whereas owner-occupied buyers paid cash 35 percent of the time. Further, even if homebuyers are using a loan, investors make larger down payments. In 2022, small investors made a down payment of more than 20 percent on 54 percent of their transactions, a rate 8 percentage points higher than that among owner-occupied buyers.

The data show that the shares of cash buyers among owner-occupied buyers and small investors converged when mortgage rates fell to a historic low in 2021, but the gap started to grow again as mortgage rates increased in 2022. The uptick in the share of owner-occupied buyers paying with cash in recent months reflects the changing profile of owner-occupier buyers, many of whom have enough cash to stay in the market. Small investors likely also have a steady flow of funds from other properties for which they can raise the rent. And if they do have a mortgage, it was likely refinanced to a much lower rate in the past two years.

Will this trend continue?

The stage seems set for investors to maintain their large presence in the market: affordability is at an all-time low, creating high rental demand, and investors are well positioned to take advantage of this situation (link added 4/14/23). With pandemic-era low interest rates locked in, recent rent increases will lead to higher profits for landlords that can likely fund mortgage payments on another property that might have a higher interest rate, if they use a mortgage to purchase at all. Small investors, in particular, seem to be continuing their home purchasing patterns, while larger investors and individual homebuyers are scaling back.

Much attention and research has focused on large institutional investors’ effects on the marketplace, typically concerning eviction and rent increases. But research about the experiences of renters under mom-and-pop investors is scant. Though Urban Institute research has found that mom-and-pop landlords tend to increase rents less aggressively, they still follow market trends. This indicates that even the properties mom-and-pop landlords own may become out of reach for households with low and moderate incomes.

Given that mom-and-pop landlords’ significant market presence seems maintainable in sharply changing market environments, more research is needed to understand their market behaviors. Better understanding the market behavior of mom-and-pop landlords—who are a vital source of affordable rental housing—can inform policies that better support renters as they face increased burdens from rising rents.

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Research Areas Housing finance
Tags Homeownership Housing affordability Housing and the economy Impact of crises on housing Rental housing
Policy Centers Housing Finance Policy Center
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