National Insights

Might the pandemic rental slowdown actually be a good thing?

Some neighborhoods might transform from rentals to owner-occupant
By Constantine Valhouli  |  August 7, 2020 5:07 PM

59 Goodenough St. #2 via Coldwell Banker

In almost every major city, some neighborhoods that seem to remain primarily rental rather than owner-occupied. These neighborhoods tend to have some common characteristics: some are anchored by universities, and thus have historically had a stable demand (as well as landlords being able to get away with minimal maintenance). Sometimes they have highly-recognized names, which draw new residents because of the perceived familiarity (like Hollywood in Los Angeles)

These neighborhoods also tend to offer higher-than-average gross rental yields for the city. This is in part because of an intersection of competitive rents with average asking prices. This reflects the fact that there has been more demand to rent here for a year or two, than there is to put down roots here as an owner-occupant. This pricing structure makes these neighborhoods more attractive to owner-investors. Meanwhile, the neighborhoods that are the most desirable to live in often have relatively lower rental yields, because the asking prices are disproportionately higher than the rents.

But the effects of the coronavirus pandemic might transform some of these historically bargain neighborhoods.

In Boston, Allston and Brighton are two such neighborhoods. Located between Boston College and Boston University, as well as the Longwood Medical Area, these neighborhoods offered competitive rents and steady demand from area students and young medical residents. However, the uncertainty (read: likely suspension) of in-person classes for spring 2020 and the entire 2021 school year has created considerable vacancies and a reduction in asking rents and concessions.

That said, selling prices have remained steady. A number of owner-investors are selling their units, in part because the low interest rates make these properties attractive to new buyers – a number of whom, according to area brokers, will be owner-occupants rather than investors. And the larger units, the two- and three-bedroom apartments that had served student populations, are now likely to be used for one or two residents instead.

This has the potential to shift these neighborhoods from primarily rentals to a growing percentage of owner-occupants. When this happens, neighborhood amenities – bars, restaurants, shops, and yoga/fitness studios – tend to improve and multiply.

The pandemic will likely continue to affect neighborhoods, cities, and the entire economy in unexpected ways.