As a landlord who did a post-mortem pandemic review, I’ve come to realize renters also won big once the lockdowns began.
I’m not talking about the renters who decided to stop paying rent even though they continued to be gainfully employed. Many mom-and-pop landlords got hurt by these non-paying renters since the landlord’s expenses still needed to be paid.
I’m also not talking about the renters who were able to get their rents reduced or find cheaper places during the pandemic. Obviously, these renters also benefited from lower prices.
Rather, I’m talking about the majority of renters who kept on paying the same rent which included normal rent scheduled increases from March 2020 until May 2023, when the pandemic was officially declared over.
If you missed out on the pandemic real estate boom, this post should make you feel better. Renters were able to get 14% – 50% more for the rent they paid for over three years.
Increased Utilization For The Same Rent Price
One of the things a landlord is concerned about is wear and tear. The more occupants staying in a rental property, the greater the wear and tear. The greater the utilization rate, defined as the time a tenant spends inside the rental, the greater the wear and tear as well.
The most common wear and tear issues include:
- Damaged walls
- Damaged appliances
- Chipped countertops
- Indented floors and damaged carpet
- Failed plumbing
- Scratches on doors
- Faded paint
- Failed HVAC
In addition to more wear and tear, there might be more frequent liability issues. For example, tenants who are home more might increase the chances of starting a damaging fire given they may be cooking or smoking more. A tenant who stays home longer might also have more people over as well.
Before the pandemic began, most people would wake up by 8 am, go to work by 9 am, and get back by 6 pm. Roughly 14 hours were spent at home and 10 hours were spent outside. Therefore, the pre-pandemic utilization rate was about 58% (14 hours / 24 hours).
In other words, the rent a tenant paid got roughly 14 hours a day of shelter pre-pandemic. Post-pandemic, the average tenant spent more hours a day at home on average. As a result, the average tenant got greater shelter value for the rent they paid.
Conversely, the average landlord received a lower return for the rent they received due to more wear and tear. The only way the landlord could have maintained their profit margin is if they had regularly raised the rent to cover the increased costs.
A Surge In The Utilization Rate By Tenants
Once the pandemic began, the utilization rate for most tenants jumped to 87.5%+ (21 out of 24 hours at home) for the entirety of 2020. With lockdowns, there was nowhere to go for at least three months. Some people never left their houses at all!
It was not until the spring of 2021, a full year later, that there was access to a COVID-19 vaccine. However, even though there was a vaccine, most people couldn’t get it. Even then, however, most companies that instituted work-from-home policies in 2020 continued their policies in 2021. The utilization rate for tenants who could work from home likely continued to hover around 83% (20 out of 24 hours).
As boosters were introduced in late 2021, gradually, more people had the confidence to go back to work. However, until this day, many companies still have a work-from-home or hybrid policy. Therefore, the utilization rate for tenants likely stayed above 65% (8.4 hours a day out of the house) in 2021.
In other words, for the same amount of rent a tenant paid, tenants got more value for their money. How much more value do you ask? We can do some simple calculations below.
Estimated Rental Property Utilization Rates By Year
Of course how long every person spends at home is different. However, in general, more people spent more time at home in 2020, 2021, 2022, and 2023 compared to pre-2020.
I’m going to make these rental property utilization rate assumptions based on people who could work-from-home. For those who had to work in the office, the utilization rates were likely still higher, but not as high.
2020: The average utilization rate likely jumped from roughly 14 hours pre-pandemic to 21+ hours a day. Therefore, a typical renter got 50%+ more value for the rent they paid in 2020.
2021: The average utilization rate likely remained elevated at around 20 hours a day compared to 14 hours pre-pandemic. Were you really spending more than 4 hours a day outside the house? Therefore, a renter got 43% more value for the rent they paid in 2021.
2022: The average utilization rate likely declined to roughly 18 hours a day on average compared to 14 hours pre-pandemic. Therefore, a renter got 28% more value for the rent they paid in 2022.
2023: The average utilization rate likely continued to decline to roughly 16 hours a day on average. Therefore, renters are getting 14.2% more value for the rent they are paying in 2023.
In other words, for more than three years, renters were able to get 14.2% to 50% more value for the price they paid for rent. A 14.2% to 50% increase is equivalent to the range in home price appreciation percentages across the country during this time period.
What Is Your Home Utilization Rate?
To get some more concrete data, please estimate what your estimated utilization rate was in 2020/2021 and in 2023. Have a hard think I think you’ll be surprised by the results. It will be interesting to see how the utilization rate changed, if any.
As a writer with two kids, my utilization rate in 2020 was around 83% (20 hours a day at home). I’d take the kids to the playground for two hours and I’d go play tennis or softball for another two hours. We cooked our own food or ordered delivery 100% of the time in 2020 and 2021.
In 2023, my utilization rate is closer to 75% (18 hours at home), so not a dramatic difference. I still write and record my podcasts mostly from home because I don’t have a day job. The same goes for exercising outdoors year round due to the moderate San Francisco weather.
However, I now spend up to two hours a day shuttling my kids to school, doctors appointments, playdates, and extracurricular activities. Some of that time is just sitting idle as my wife chaperons. But now there are more social events and trips to the mall. On weekends, we are regularly out for three-to-four hours at a time.
Pre-2020, my utilization rate was closer to 71% (17 hours at home) due to more meetups and conferences. I suspect by 2024, I will revert back to my pre-pandemic utilization rate.
Renters Saved And Invested The Difference
In addition to getting more value for the shelter a tenant pays for more than three years, a financially savvy tenant would have regularly invested their cash flow into the stock market, real estate stocks, private real estate funds, and alternative investments.
If the tenant did regularly invest through the pandemic, then they would have also benefited from risk asset price appreciation. Despite a bear market in 2022, risk assets are mostly up since the beginning of 2020.
Although the data shows most Americans only save about 5% of their household income, thereby investing an even lower percentage, I believe the typical Financial Samurai renter saved much more.
Every single renter who is anti-housing has told me he or she saves and invests the difference. I have no reason not to believe them, despite data saying the average homeowner is 40-44X wealthier than the average renter. Long term, everybody rationally makes decisions to better their situation.
Both Homeowners And Renters Won During The Pandemic
It is rare to have a situation where both homeowners and renters win, but that’s exactly what happened for most during the pandemic.
Of course, some renters faced eviction and above-average rent increases. Some homeowners lost their homes or suffered expensive damages. But for the millions who were able to keep renting their same place at a similar price, they benefitted greatly.
Renting is not throwing money away. The money is used to pay for shelter. There just isn’t a financial return on rent as compared with owning. With owning, you have the potential to make money on your own, but there are no guarantees. Please discern the difference.
With a higher utilization rate, the value renters got in exchange for rent went way up for multiple years. And for the millions of employees who are able to continue working from home or have a hybrid setup, renting will continue to provide better value at least temporarily.
Long-term, rents will likely increase to cover the additional costs of wear and tear. However, market forces might take years to play out, especially if you rent from a mom-and-pop landlord. If you are a renter, feel good knowing you got a better deal all those years!
As a homeowner, there is likely a permanent shift up in demand for homes given work-from-home and hybrid work is here to stay. Therefore, homeowners should continue to benefit from home price appreciation long term.
Reader Questions and Suggestions
Any renters out there feel good about getting more shelter for the rent that you pay? Any landlords out there notice a significant increase in wear and tear during the pandemic? If so, how do you plan to cover these extra costs going forward?
One way to keep up with real estate prices as a renter is by investing in real estate. Instead of buying a primary residence, you can invest in private real estate funds through Fundrise. Fundrise primarily invests in residential real estate in the Sunbelt, where valuations are cheaper and rental yields are higher.
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