Beyond its unprecedented health and social implications, COVID-19 has had catastrophic effects on the global economy.
Between January and March 2020, the world economy contracted by 12 per cent. In response to this economic crisis, G20 governments have pledged more than $5 trillion in relief and stability initiatives. Either directly or indirectly, every country, institution, industry, sector, business, individual — and all aspects of the global economy — are negatively impacted by COVID-19.
Economic effects in Canada
As of April 14, 2020, there were more than 26,000 cases and more than 800 COVID-19-related deaths in Canada. Millions of people have filed for Employment Insurance and applied for the Canadian Emergency Response Benefit.
Similar to other G20 countries, the Canadian government unveiled an initial aid package of $82 billion. The package includes $27 billion in emergency aid designed to help Canadians pay for essentials such as rent and food. With more than four million Canadian individuals and families living in rental properties, the government of Canada recognized the importance of including explicit funding to meet the needs of renters.
In addition to this funding, a few provinces, including British Columbia and Prince Edward Island, have enacted rent support programming. However, all governments have indicated that tenants will be required to pay back any and all rent in full.
Governments have instructed landlords and tenants to engage in discussions of meaningful payment plans. Irrespective of province or territory, rent support programs or rent repayment plans, experts urge tenants and landlords to be in regular communication.
If the dialogue has not been started between landlord and tenant, now is the time. The federal and provincial message has come through loud and clear, suggesting that no one is “off the hook” for paying their rent.
Needs versus wants
COVID-19 has brought about unprecedented unemployment and financial insecurity, but it’s not the first time people have faced challenges fulfilling some of their most basic needs.
In times of crisis, it is essential for individuals to differentiate needs versus wants. According to Abraham Maslow, one of the most prominent psychologists of the 20th century, the most basic needs are physiological. Physiological needs are defined as a requirement of human survival, including health, food, water and shelter. These needs are primary, essential and non-negotiable.
Consumer behaviour changes drastically in times of crisis, including recessions. Consumer spending on food, shelter and health care generally rises during economic downturns. That’s because those both employed and unemployed are typically concerned with covering the basics such as rent, mortgage payments, groceries, utilities and medications. As such, recessions provoke need-centric spending.
Consumers have historically been strategic by focusing on spending their limited financial resources on the essentials. Specifically, people eat at home more, purchase fewer larger items and focus on paying their rent or mortgages during recessions. This supports Maslow’s theory that suggests consumers look to fulfil their primary needs above all else.
A similar study of 27,740 households in the United States showed that despite exhausting their unemployment benefits, Americans attempted to spend the same amount of money on essential goods, insurance, utilities, etc. In general, and rightfully so, consumers are more cautious spenders in recessions. Consumers also consider the long-term implications of their spending and allocate funds to their physiological needs.
The path forward
COVID-19 is likely to be the catalyst of a sustained global financial crisis. Although governments are supporting individuals, families, businesses and communities, consumers will be accountable for their actions in these unprecedented times. Governments have recognized their role as a support system for those who cannot fulfil their basic needs.
Early on, landlords like Boardwalk have assured tenants that they won’t be subject to rent increases during this crisis. Avenue Living Communities (which owns and operates multi-family housing across the Prairies), have even given their essential staff raises, indefinitely, to ensure their properties and tenants are adequately served. Landlords must continue to provide, safe, clean and peaceful spaces.
Consumers should be doing their part as well, making careful spending decisions and distinguishing between needs and wants. As historical empirical evidence suggests, consumers have been smart and made long-term strategic decisions about their spending during previous economic crises.
As the old psychology adage says: “The best predictor of future behaviour is past behaviour.” We’d be wise to emulate our past decisions moving forward.