How Coronavirus will Impact Landlords and Real Estate Prices in Massachusetts

It’s not a question of if or when, the COVID-19 pandemic is impacting landlords in Massachusetts like few other events we’ve seen. The only question is: how is this unprecedented event going to impact you?

If there’s one thing we know, it’s that the effects will be immediate, and for anyone in Massachusetts with a rental property, one thing is clear: COVID-19 means rent money is drying up.

As property owners and landlords, it's important to navigate these tough times with understanding and compassion. We must realize that nobody is at fault here. The coronavirus has changed everyone's lives and the only way to get through this, is together.

But while we’re still waiting to sort out the economic impacts, there are practical changes that every landlord will need to keep an eye on. Here are some of the changes Massachusetts landlords can expect:

Changes in Eviction Policies

There will be no eviction proceedings—at least, most of the normal eviction proceedings that don’t involve emergencies—until April 22nd. It could possibly go longer if the stay-at-home order is extended. Last month, many landlords in the Boston area reached an agreement to avoid evicting most tenants for ninety days. This suggests a “landing spot” of June. One thing is clear: most evictions are essentially frozen, and this period could last months.

“All nonpayment cases are continued until May 4 at the earliest,” notes MassLandlords.net. Emergency cases will still be heard—such as evictions for crimes.

Changes in Showings Policy

In early March, the White House released social distancing guidelines. This includes avoiding “social gatherings of more than 10 people.” As you might imagine, this makes showing a rental property…difficult. To say the least.

As of March 23rd, showings are still legal. However, as MassLandlords.net notes, it’s easier to “accept vacancy as a cost of doing business” for the time being. The reason: liability lawsuits for bringing in strangers who may have COVID-19. This can expose you to further financial problems down the line.

Delays for Inspections

If you own enough rental properties, inspections can be a way of life. No longer. With COVID-19, it may be best to defer maintenance jobs including inspections for at least 30 days—except in the case of necessity, as MassLandlords.net recommends. They also noted that some municipalities in Massachusetts (such as Worcester) have temporarily stopped sanitary code enforcement. Contact your local community governments to get up-to-date information.

Late Fees and Nonpayment Filings

Given the shocking job statistics—millions more unemployed by the week—landlords shouldn’t be surprised to see late rent payments. Pay particular attention to the Federal CARES Act, more commonly known as the federal stimulus package. This act could put a moratorium on late fees and filings for non-payment through summer. Although the text of the bill can be hard to digest, it may involve more than federally-covered properties and extend to any properties that have anything to do with federal intervention or involvement. More on that in a later section. Additionally, landlords should prepare for longer notice periods for nonpayment, which could extend from 14 days to 30 under the new rules. It's important to communicate with tenants and approach with compassion. Nobody could have foreseen the virus or the economic uncertainty that followed.

FAQs for Massachusetts Landlords

Question: Can I still raise rent?

Answer: In Massachusetts, “landlords can raise the rent for pretty much any reason” except vengeance, notes Curbed. That includes the ability to raise rent in the era of COVID-19.

Of course, the legality of raising rent and the practicality of raising it can be at odds with each other. There are some limits. You’ll have to provide written notices of rent increases before the end of the lease, giving tenants some flexibility to decide whether they want to move or not. Again, it's important to be understanding of your tenants' financial situation and potential hardship.

For tenants who haven't been financially burdened by the virus, perhaps there's an opportunity to offer discounts for early-payments, lease-extensions, and where legal; multi-month rent advancements.

Question: Can I evict someone because they have COVID-19?

Answer: Nope. Fair housing laws prevent landlords from evicting tenants because of a medical condition, and COVID-19 is no different. (Source) These laws, which differ from state to state, and also prevent you from evicting based on race, gender identity, national origin, military status, and more.

Question: What’s happening with housing hearings?

Answer: In Massachusetts, the housing court is putting a halt to any proceedings deemed “non-emergency” until at least April 22—and the situation can always change. Additionally, eviction hearings on federally financed rental units (that's 1 in 4 in the US) are being put off in an attempt to give some relief to people living in federal housing.

Question: Can I still serve housing notices?

Answer: It’s a good question; what if you need to serve notices even as the pandemic is going? The answer: it depends. If you have a “covered property” (which is regulated by the Federal government), then you will be expected not to serve rent demand notices, for example.

Question: Can I collect rent?

Answer: Yes, but with a caveat: you’ll likely have to give tenants a lot of flexibility during this time. That’s especially true given that eviction proceedings are halting for the time being. It’s best if you send out communications with your tenants about what’s expected, provide them with some flexibility for paying rent, and stick to the laws as mentioned here.

How COVID-19 is Going to Affect Landlords Nationwide

Given that this is a global pandemic, don’t be surprised to see the same issues and similar regulations if you own real estate outside of Massachusetts. Here’s what to expect:

Demographics: How COVID-19 Could Hit Landlords

Unfortunately, the pain will start from the bottom-up. According to Roy Chun of the Kroll Bond Rating Agency, low/moderate-income family housing will likely feel the first effects. “Those tenants are more likely to be living paycheck-to-paycheck in the service sector, and they’re going to have a hard time during a period of economic disruption,” said Chun.

So-called “mom-and-pop landlords” need to pay special attention. These “mom-and-pop” landlords represent about 50% of the entire market. And in recent years, smaller investors constituted larger portions of new rental property purchases.

In other words, COVID-19 picked a bad time for small investors.

How COVID-19 Could Affect Real Estate Prices

Like many other sectors of the economy, the pandemic will affect real estate prices by reducing demand. With nearly 16,000,000 people out of work and rising, the pandemic has reduced would-be buyers ability to borrow and qualify for loans. In a recent NAR survey, 81% of respondents have already noted a decrease in the traffic of would-be homebuyers. 54% of respondents also reported having trouble getting the supplies needed to finish new homes, and 61% reported new loan freezes or more stringent underwriting from their lenders.

A recent Bloomberg article suggests the wave of unemployed will seek to sell their homes or investment properties in an effort to raise cash. This will in turn flood the market with excess supply and drive real estate values down. A large part of this group is proposed to be seniors approaching retirement who may need to tap equity in their homes to stay afloat or make up losses in their retirement accounts.

The NAR (National Association of Realtors) expects a 20% reduction in sales, reflecting this reduced demand. And although many would-be buyers may have to rent temporarily, depending on their situation, the economic slowdown should mean lower demand across the board. Don’t be surprised to see reduced prices in 2020.

There’s also the question of new construction. As of this writing, Boston has shut down everything but “emergency” construction work since mid-March. Many other cities and states throughout the country are following suit.

COVID-19 Is Not the Same as 2008

For those landlords who remember the 2008 financial crisis and market crash firsthand, the temptation is to see COVID-19 as a repeat of that event.

But Flora Arabo of Enterprise Community Partners sees it differently. “I don’t think we really have any baseline for this in modern history,” says Arabo. In particular, the “2008 downturn was really specific to homeowners.” The impact of COVID-19 on renters and evictions could be astronomically different. Every corner of the economy is being impacted by the virus and only time will tell how the coming tsunami of bankruptcies and foreclosures will do to the real estate market.

In 2008, the crash was largely due to irresponsible real estate lending and borrowing practices. Anyone with a pulse qualified for a loan; those loans were then packaged and sold off as AAA rated securities. When unqualified borrowers started defaulting on their loans, investors quickly realized those securities were junk. The stock market crashed, property values crumbled, banks failed, and millions of people lost their jobs. The Coronavirus pandemic was caused by an unforeseen health crisis of which nobody was prepared. It's still too early to tell how and when the economy will rebound.

Silver Lining: Understanding the Paycheck Protection Program

On the bright side, there may be some relief to landlords and tenants, alike. The Paycheck Protection Program, according to the Small Business Administration, is a program wherein the SBA will make loans to companies directly. Then, the “SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities,” according to the SBA website.

Entities affected by COVID-19 are eligible, including small businesses (meeting the SBA’s size standards) and “sole proprietors, independent contractors, and self-employed persons.” This means the SBA is essentially helping small businesses stay afloat during this difficult time, which could increase the likelihood of a bounceback when the shutdown period ends.

A Federal Stimulus Package: Will It Work?

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is major federal legislation aimed at keeping the economy moving even while people isolate themselves. It’s a $2 trillion-plus package that includes:

• Direct payouts to individuals ($1,200 some individuals who earn less than $75k/year and $2,400 for couples, with an additional $500 per child). Folks earning over $100k/year individually or $150k as a couple, will not receive a payout.

• Changes due dates for some tax payments. Most tax filings have been pushed to July.

• Temporarily suspends payments for federal student loans.

• Drawing on IRAs: The CARES Act makes it possible for some individuals to withdraw up to $100,000 without the customary penalty that comes from early withdrawals. This is the case only if you or someone you know (such as a spouse) are diagnosed with COVID-19 or have suffered some form of financial loss as a result of the pandemic.

There’s much more to be found in this stimulus package, but the short of it is that many of your renters will have some relief. One problem: a one-time payment may not be enough to cover their rent, especially with median gross rent across the country at $1,023 in 2018. Many view this as a stopgap measure that won’t necessarily keep renters afloat—which is something to keep in mind as you make your plans for what to do this summer.

Navigating the Uncharted Waters of Real Estate During a Pandemic

If you planned for this, you’re the exception, not the rule. These are uncharted waters for many, especially given how unprecedented the effects of the pandemic are. Economic policy, unemployment, and even our culture will be impacted.

But as a landlord, you don’t have to be as impacted as you otherwise could be. The more you know about the rules, the policies being put in place, and what it means for your rental properties, the better you’ll be able to weather this storm.

If you have any questions or want to discuss the state of the market, we're always available for a call or email.