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'This is the stuff that doesn’t show up in headlines': This real estate expert has 10,000 tenants across America — here's what they're telling him about the US economy

Vishesh Raisinghani

6–7 minutes

2024 is not like 2008

Having observed the 2008 housing and financial crisis, McElroy draws clear comparisons to explain why what's happening in 2024 is different.

"In 2008, we did not have a rent inflation problem because demand did not exceed supply," he says.

Back then, predatory private mortgage lending and unregulated markets created a housing bubble. When it burst, many homeowners were forced to sell and enter the rental market, McElroy explains. There was enough to go around.

This was followed by a period of little construction of new homes, which contributed to the "severe" undersupply of housing we see today. Household formations outpaced housing starts in 2022, according to Realtor.com. The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022. People who cannot afford to buy homes are pouring into the rental market.

He also pointed out other key differences in the economy during the two different periods.

The minimum wage is many states has risen. In the aftermath of the financial crisis, the unemployment rate reached 9.2% by November 2009. In contrast, the unemployment rate now stands at just 3.9%. The labor participation rate, or the percentage of the population employed or looking for work, is also down.

Unconventional solutions to unprecedented problems

McElroy’s data suggests renters are acting out in desperation because of the housing crisis. A surprising trend is the rise of fintech platforms that allow tenants to “finance their rentals,” he says. Flex is a platform he’s seeing more people use in recent years. “We would have never had to use a company like this before, but now it actually helps us,” McElroy claims.

He also notes a downturn in demand for single-bed and studio units in recent years as more renters have turned to cohabitation to afford rent.

People are “living with roommates,” says Shannon, the director of property management at McElroy’s company. “Even couples are living with roommates or moving back in with family.”

A 2021 survey by the NHP Foundation (NHPF), a nonprofit provider of affordable housing, revealed that 44% of American renters had been forced to turn to cohabitation as a result of rent affordability. More than half of these cohabiters were individuals with a total household income of less than $50,000 a year and 50% of that group entered into such situations less than two years prior.

Some renters have multiple jobs to make ends meet. Shannon says there’s a higher number of tenants within their portfolio with multiple jobs and income from gig work. Tenants are “working a lot more,” she says. “Doing their traditional job, and then having a weekend or night job where they're supplementing what they're not making or what they need to make above what they used to have to make because of the changes in the economy.”

Unfortunately, tenants with multiple sources of income are more complicated for McElroy’s due diligence team. He says there’s been a jump in fraud, with some applicants fabricating income and tax documents. The company has turned to third-party services to verify incomes and bank account statements.

The denial rate for applicants has also climbed, as applicants are taking their chances even if they don’t meet all the criteria for approval. “It's very different. It was never that way just a few years ago,” says McElroy. “This is the stuff that doesn’t show up in the headlines. If you look at the headlines, everything is just fine.”

Meanwhile, the eviction rate for existing tenants has also climbed substantially. McElroy’s team claims the monthly eviction rate for their portfolio currently stands at 17%, which is significantly higher than the five-year average rate of 3% or 4%.

“Our standards have not changed,” the economy has, says Shannon.

In summary, it's a difficult for anyone renting a roof over their head.