Fannie Mae and Esusu team up to create equitable financial opportunities for millions through rent reporting. Read on!

Housing and Economic Insights Reports – September 2022

Esusu's Data Science team • September 30, 2022

A look at consumer trends

Renters have faced several concurrent economic challenges this year. As discussed in our last blog, inflation has remained high all year, eroding the purchasing power of consumers whose wages generally have not been able to keep up with higher prices. Consumer prices in June increased 9.1% compared to a year earlier, the biggest 12-month increase since 1981.  

Although July and August numbers slowed their advance due to lower energy prices, they still climbed at respective rates of 8.5% and 8.3% annually for those two months. The August indexes for essentials continued to show increases, including:

  • Groceries (up 0.7% for the month and up 13.5% for the year)
  • Rent (up 0.7% compared to July and up 6.7% for the year)

To combat inflation, the Federal Open Markets Committee (FOMC) has raised interest rates five times this year, including a 75 basis point hike at its July meeting and another 75 basis increase at its September meeting. The target rate for the fed funds rate is now at 3 – 3.25%, the highest rate since 2008.

 

 

When considering the plans for reductions in its balance sheet, we’re seeing the Federal Reserve tighten credit conditions at the fastest rate since the 1980s. The Fed is committed to lowering inflation even if that means an increase in unemployment or an official recession. Although FOMC minutes have not yet been released from the September meeting, the July minutes indicated that more rate increases will be coming in the future until inflation is under control.  

 

Supporting residents with social impact 

As rates rise and inflation stays high, renters face a looming recession paired with possible unemployment. These things won’t just impact their ability to pay on time; but also property owners’ and operators’ Net Operating Income (NOI) and collections. 

Helping renters during these times of economic uncertainty sets up owners and operators for a win-win-win scenario. What do we mean by that?

  • Win #1 – Good for NOI: Helping residents stay economically stable can mean the difference between collecting rent and dealing with costly delinquencies. When residents are financially secure, so are the properties in which they live.
  • Win #2 – Good for society: It shouldn’t come as a surprise, but when you provide residents with social impact programs that make them more financially resilient, they are more likely to thrive in many areas of their lives, which has additional positive impacts downstream on things like crime and education rates within communities.
  • Win #3 – Good for reputation: It’s not just residents that are paying attention to your social impact initiatives; so are investors and rating systems like GRESB (formerly known as the “Global Real Estate Sustainability Benchmark”). With scores from GRESB due out next month, we’re staying tuned to what trends emerged from this summer’s applications.

 

Strategies for employing social impact initiatives that matter

When properly implemented, your social impact initiatives can play a key role in your larger Environmental, Social, and Governance (ESG) strategy and may help contribute to your GRESB score. When thinking about social impact specifically, we recommend looking at the following criteria: 

  • Does it scale?
    One of the first things to consider is the scalability of a program. When it comes to social impact, something that makes a difference in a resident’s life in suburban Michigan might be completely different from that of a resident in New York City. Without scalability, a social impact initiative cannot majorly impact your larger ESG program or your residents. This also makes execution very difficult and burdensome on your property teams.

    Find programs that can be implemented easily and quickly across your portfolio. Rent reporting, one of Esusu’s main products for multifamily owners and operators, works because everyone in the United States has (or needs to establish) a credit score. Credit-building is a needed service, and through integrations with existing property management software, scalability across portfolios is possible.  Esusu partner Comunidad was able to measure how many residents were impacted across their entire portfolio.

 

  • Can you measure it?
    You can’t manage what you can’t measure– and the “S” in ESG has traditionally been the most challenging to put a metric on. Whether you’re submitting for GRESB or pitching a program for your fund, providing success metrics is a must. Choose easily measurable programs that can help you track your impact over time. Esusu’s rent relief program provides key metrics like “rent relief funds deployed” and the “number of residents who received support” each month. Our rent reporting program shows credit-building’s impact on portfolios on a regional and property level basis. Data points like “number of established credit scores” and “average credit score increase” are all ways owners and operators can measure the success of the program.

 

  • Does it make a difference in residents’ lives?
    While common, tenant engagement events like pizza nights, Halloween parties, and BBQs may drive higher satisfaction rates and a sense of belonging amongst residents, operational ESG transformation initiatives challenge operators to take a fresh look at their amenities and the potential to track impact. . Given the current economic climate, rent reporting presents an opportunity to provide residents with a differentiated and meaningful amenity that has the potential to create positive impacts on both the residents’ and the properties’ financial resiliency.

    As explained in our March blog, residents who establish or increase their credit scores may unlock access that would not have otherwise been available to them. As one example, some employers require the submission of a credit score during the background check process. A better score may mean getting a higher-paying job. As another example, an increased credit score can make a renter eligible for financial products such as credit cards and auto loans at more attractive rates. Those lower rates translate directly into lower monthly payments, providing renters with additional financial stability.

    Our May report also highlighted how rent reporting can be especially beneficial to students with limited credit histories. A longtime Esusu partner, the University of Minnesota, has increased the credit scores of its students by 69 points, above the threshold for students to refinance their student debt.

 

  • Is it easily accessible to all residents?
    Your social impact programs shouldn’t have a barrier to entry. They should be easy to sign up for, and residents should understand what the programs are offering and how they benefit them personally. Reaching an audience of thousands of residents from different backgrounds isn’t easy, which is why having education around the programs you’re starting can make all the difference. 

 

 

What do you look for when choosing your next social impact initiative? We’ll learn a lot more about how GRESB is calculating social impact and emerging trends in ESG at the GRESB Global Results Event: Real Estate on October 18. 

If you want to learn more about incorporating social impact into your ESG programs, reach out to us at sales@esusu.org.