Financial Strength for Renters Makes Financial Sense for Investors.

How improving the financial health of renters improves the financial performance of multifamily properties.

Want to hear something crazy?

In the United States of America, a person can pay their rent on-time every month and still not have a credit score.?? Think about that.?? There are over 45 million renter households in the United States.? Rent is the largest monthly bill in their budget, and up until recently the only time it impacted their credit score was when they did not pay it on time.

In the last few years, efforts across industry are making it easier for multifamily property owners to help renters build credit by reporting on-time rental payments to the credit bureaus. Since 2021, pilot programs from Freddie and Fannie have helped property owners build and establish credit for more than one million renters.? Esusu, the industry’s leading rent-reporting service provider, now works with property owners across all 50 states and covers more than 5 million renters.?? Together with their industry partners, they have helped more 100,000 renters establish their first credit score and increased the average overall credit score of renters at those properties by 36 points.

Helping renters build credit simply by paying rent highlights the valuable role that the multifamily sector can play in improving the economic health and mobility of low and moderate income households across the United States.

It's not rocket science. When more property owners report the on-time rent payments of their renters to the credit bureaus, more renters build better credit.? Better credit opens the door to better financial opportunities.? And it closes the door to payday lenders and other sources of predatory capital.? ??

WHY DOES ECONOMIC HEALTH AND MOBILITY MATTER?

When renters are financially strong, the properties and communities in which they live are financially strong as well. And multifamily properties are the perfect vehicle through which services that help build financial strength can be provided.

In addition to positive rent reporting, there are a variety of services that impact-driven multifamily property owners can use to help renters improve their economic health and mobility:

• Education and Childcare Support: Providing access to more affordable childcare and educational resources allows parents to pursue employment and educational opportunities and reduce the high costs of childcare. ?This support is essential for families seeking to improve their economic standing.
• Tax Preparation Services:? Improving participation rates in the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) programs significantly improves the economic health of low and moderate-income renters by boosting disposable income, reducing poverty, and enhancing financial stability. By increasing after-tax income, the EITC and CTC makes it easier for renters to meet their basic needs and pay rent, which prevents evictions and reduces housing instability.
• Financial Literacy and Education: Resident services that provide financial education workshops, budgeting tools, and credit counseling helps renters build and develop essential financial skills that empowers them to manage their finances more effectively, reduce debt, and avoid predatory lending practices.
• Access to Emergency Funds and Savings Programs: Programs that offer matched savings accounts, emergency funds, and other financial assistance help renters build a financial safety net. This reduces the likelihood of eviction due to unexpected expenses and provides a cushion during times of economic hardship.
• Job Training and Employment Services: Multifamily properties that offer job training, resume building, and employment placement services enable residents to enhance their skills and secure better-paying jobs. This support is critical for improving long-term economic health and mobility.
• Access to Non-Predatory Financial Products and Services: Partnerships with financial institutions to provide low-cost banking services, such as checking accounts and affordable credit products, help residents avoid high fees and build credit. This access to mainstream financial services is crucial for long-term asset building.

IS ECONOMIC HEALTH AND MOBILITY GOOD FOR INVESTORS?

Providing these services can also pay dividends for investors by improving the property’s net operating income through lower operating expenses that include:

• Reduced Turnover and Vacancy Related Costs: When services are provided that support the economic health and mobility of renters, retention rates and lengths of stay go up and contribute to a more consistent revenue stream for property owners.? Furthermore, when renters are economically stable and able to make on-time payments consistently, turnover and vacancy related costs go down. ?
• Lower Eviction-Related Costs: ?When the financial health of renters goes up, more renters pay their rent on time, and evictions go down.? Consequently, properties who invest in the financial health of their renters can see significant savings from lower eviction-related costs.
• Reduced Bad Debt and Collection Costs: As the chart below indicates, when renters know that their rent payments will be reported to the credit bureaus, they are more likely to pay rent on time.? This helps reduce the costs associated with bad debt and collections.?

• Long Term Value Growth: ?Investors and potential buyers often look at a property’s renter stability and collection rates as indicators of value. ??Financially stable renters who pay rent on time play an important role in creating financially stable properties that increase in value over time.

HOW DO YOU MEASURE ECONOMIC HEALTH AND MOBILITY AT A MULTIFAMILY PROPERTY?

To quantify and assess the impact and outcomes of their financial health and mobility initiatives, the Multifamily Impact Framework? recommends that investors and property owners include the following reporting metrics in their impact reporting and due diligence.

1) Credit Reporting:? To assess the financial and social impact of on-time rent reporting, property owners should report the ?# and % of renters at the property or portfolio who have their on-time rent payments reported to credit bureaus.

2) Property Location:? Quantifying the # and % of properties located in an Opportunity Zone (OZ) or designated High Opportunity Areas (HOA) gives stakeholders more context in assessing the social impact opportunity, community benefit, and the availability of additional public subsidy.

3) Resident Services:? Property owners should also report on the types of resident services that are provided at the property or portfolio level that support improved economic health outcomes:? These may include:

• Programs that reduce the monthly budget burden of low and moderate-income households such as rent rebates, utility savings, renter equity programs,
• Financial empowerment and economic mobility programs such as: credit counseling, job training, tax preparation services, free Wi-Fi, tutoring, college advising, after-school / child-care services, pooled savings, banking access, or scholarship programs, or
• Other resident service programs that increase economic health and mobility

WHAT IS THE MINIMUM THRESHOLD FOR IMPACT?

Establishing a consistent industry minimum standard for economic health and mobility helps property owners set clear impact-driven goals across their portfolio and makes it easier for investors to assess affordable multifamily housing investment opportunities.

The Multifamily Impact Framework? minimum impact threshold for economic health and mobility requires that property owners and investment managers adopt impact plan(s) and/or investment strategies that include specific activities to help renters be more resilient to unexpected financial events, improve their standard of living, and enhance their economic future.?

This can be achieved by offering a broad array of services and programming at rental properties that improve credit scores, expand access to educational and job training opportunities, enable greater participation in the Earned Income and Child Care Tax Credit programs, reduce utility costs, and provide access to affordable alternatives to daily expenses, such as childcare, after school and summer-school programs, transportation costs, etc.

It is important to remember that this represents the minimum threshold for impact. Many property owners exceed this threshold, and the Framework includes specific reporting guidance to help these organizations communicate their additional impact to investors.? If you are interested in learning more about economic health and mobility and other multifamily impact investing standards, please feel free to download the Multifamily Impact Framework?. ?

Since its introduction last year, the framework has been downloaded by more than 350 organizations across the United States and is updated on an annual basis to reflect the input of MIC members and the broader multifamily sector. ?To learn more about the Multifamily Impact Council, provide feedback, and learn more about the seven principles of multifamily impact investing, please visit the MIC website .

Bob Simpson is a nationally recognized expert in affordable, green and healthy housing with more than 25 years of experience working at the highest levels of housing finance and public policy. He is the CEO and Founder of the Multifamily Impact Council, a non-profit organization focused on creating industry standards for impact investing that help increase the flow of capital to support affordable and sustainable multifamily rental housing properties in the United States.

List of References:

• Sherraden, M. (2014). Asset-Building Policy and Programs for the Poor. Center for Social Development, Washington University in St. Louis.
• McKernan, S. M., Ratcliffe, C., & Kuehn, D. (2013). Prohibitive Costs: The Impact of Predatory Lending on Low-Income Families. Urban Institute.
• Smith, T. J. (2012). Workforce Development in Affordable Housing: Strategies for Improving Economic Mobility. Enterprise Community Partners.
• Aspen Institute. (2015). Expanding Business Ownership Opportunities for Underserved Communities.
• Reid, C. (2018). Affordable Housing and Homeownership: A Pathway to Equity. Terner Center for Housing Innovation, UC Berkeley.
• Brady, D., Fullerton, A. S., & Cross, J. M. (2013). Poverty and Child Care in the United States. Social Problems.
• Experian. (2020). How Rent Reporting Can Benefit Renters.
• Urban Institute. (2017). The Power of Rent Reporting.
• TransUnion. (2019). Rent Payment Reporting and Its Impact on Credit.
• National Multifamily Housing Council. (2021). Understanding Rent Payment Reporting.
• Freddie Mac. (2021). Rent Payments and the Road to Homeownership.
• Esusu. (2021). Improving Tenant Financial Health through Rent Reporting.
• National Apartment Association. (2020). Rent Reporting: A Win-Win for Residents and Property Managers.
• National Consumer Law Center. (2020). Credit Invisibility and Rent Reporting.
• Joint Center for Housing Studies of Harvard University. “America’s Rental Housing: Evolving Markets and Needs.”
• National Multifamily Housing Council. “Rent Payment Tracker and Multifamily Market Impact.”
• Urban Institute. “The Effect of Economic Mobility on Housing Market Performance.”
• Eviction Lab at Princeton University. “The High Cost of Eviction and its Impact on Landlords and Tenants.”
• Institute of Real Estate Management. “The Financial Benefits of Stable Tenant Communities in Multifamily Housing.”
• Center on Budget and Policy Priorities (CBPP). “Policy Basics: The Earned Income Tax Credit.”
• Columbia University’s Center on Poverty and Social Policy. “The Impact of the Expanded Child Tax Credit on Child Poverty in 2021.”
• Economic Policy Institute (EPI). “The Earned Income Tax Credit and Child Tax Credit: History, Purpose, Goals, and Effectiveness.”

?

?