Those who scoff at the linkage between the rise of short-term rentals and the affordable housing crisis are denying the obvious, although the dynamics are complex.
A U.S. Federal Reserve regional bank CEO cited the role of short-term rentals in escalating housing prices, and challenged municipalities in popular tourism areas to further regulate short-term rentals so workers can find local housing.
The recent essay by Federal Reserve Bank Philadelphia President and CEO Patrick Harker may provide further intellectual rationale for affordable housing advocates to pressure local authorities to adopt tighter regulation of Airbnb, Vrbo, Booking.com, and a bevy of other local short-term rental booking sites.
“Areas dominated by tourism like the Jersey Shore [in New Jersey] are starved of housing for workers,” Harker wrote last month. “Incentivizing workforce housing could begin to ease these supply shortages. And in those same tourist-heavy regions, local governments could look to limit the number of short-term rentals to ensure that local residents have places to live.”
Affordable housing advocates and municipal officials often tie the expansion of short-term rentals to rising rents and home prices but it is rare for a Federal Reserve top executive or the federal government to do so. The Federal Reserve is not part of the U.S. federal government, but Congress established the Federal Reserve banking system.
Harker’s essay, “Unpacking Shelter Inflation,” dug into soaring home sale prices, which climbed 51 percent to $731,000 in the second quarter of 2022 in his native New Jersey, and he correlated much of it to “New Jersey’s high-median incomes and proximity to high-wage work.”
Of course, the pandemic led to skyrocketing home prices in suburban areas.
But then Harker added another factor, namely investors turning homes into short-term rentals, and constraining the supply of long-term rentals, as a contributor to the affordable housing shortage.
“But other factors are less salutary” than high incomes and workers living near higher-paying jobs, Harder said. “Short-term rentals have gobbled up a significant portion of the housing supply, particularly at the Shore, for instance. Airbnb recently announced that Ocean City, New Jersey, was its most booked American destination.” Actually, Airbnb cited Ocean City, New Jersey as its top trending locale in the U.S. for fall travel according to nights booked.
“As the piece notes, experts agree the affordable housing issue in the U.S. can be boiled down to the country simply not building enough housing — that’s why the cost of housing is up everywhere, for everyone,” an Airbnb spokesperson said. “The reality is that home sharing has been an important part of the fabric of vacation destinations for decades, and most Airbnb hosts today share just one home as a way to make their home affordable and deal with rising costs of living. The focus needs to be on building more housing for people and Airbnb wants to be part of that solution.”
Airbnb cited such regulations as a risk factor in its 2021 annual report.
“The number of listings on Airbnb may decline as a result of a number of other factors affecting Hosts, including: the Covid-19 pandemic; enforcement or threatened enforcement of laws and regulations, including short-term occupancy and tax laws; private groups,such as homeowners, landlords, and condominium and neighborhood associations, adopting and enforcing contracts that prohibit or restrict home sharing; leases, mortgages and other agreements, or regulations that purport to ban or otherwise restrict home sharing,” Airbnb stated.
Reacting to the essay from the Philly Fed CEO, Expedia Group spokesperson Dave McNamee said: “Expedia Group has a track record of working alongside communities on solutions to the challenges they face. The share of Ocean City’s total housing stock represented by short-term rentals has grown by 1.3 percent over the last three years. While low, we will remain focused on our collaboration with jurisdictions across the state to explore policies that address local concerns.”
McNamee cited the benefits of vacation rentals for tourists, local homeowners, property managers and small businesses. “When regulated fairly and effectively, vacation rentals can serve the long-term goals of a community and its residents,” he said.
No, We’re Not Responsible
Officials at vacation rental companies tend to dismiss the link between the properties they sell, and the affordable housing crisis.
“I think the affordability piece of it is a complete red herring,” said Jon Gray, the CEO of RVshare and a former HomeAway official, at the Skift Future of Lodging Forum in May [see the video here]. “People who are on the street looking for housing are not people who are buying a million-dollar home that’s going to be rented out.”
He said the average property values of homes listed on Airbnb and Vrbo are much higher than the sale prices of entry-level long-term rental properties.
“We [HomeAway] initially kind of listened to this theory of it hurting affordable housing and then we commissioned studies on this, and, I mean, we are talking two, three standard deviations away in property value.“
Merilee Karr, founder and CEO of UndertheDoorMat Group, also speaking at that May conference, said it’s easier for politicians to cast stones at the short-term rental industry than to take action to build affordable housing.
Karr, who also serves as the chairperson of the UK Short-Term Accommodation Association, said it’s up to the vacation rental industry to show that there’s not a direct correlation between a lack of affordable housing and the rise of short-term rentals.
Karr conceded, though, that the issue is complex, and there may be some impact, especially as untethered workers want more flexibility in their workplaces and homes.
Gray said that the abundance of unused office space that the pandemic created provides an opportunity to refurbish these properties for affordable housing. “That’s something municipalities would be better using their time on than trying to make vacation rentals affordable rental units,” Gray said.
Airbnb and Vrbo have reached regulatory agreements, often under pressure, with many municipalities around the world, and face bans and other limitations elsewhere.
Airbnb cited regulation as a risk factor in its 2021 annual report.
“The number of listings on Airbnb may decline as a result of a number of other factors affecting Hosts, including: the COVID-19 pandemic; enforcement or threatened enforcement of laws and regulations, including short-term occupancy and tax laws; private groups, such as homeowners, landlords, and condominium and neighborhood associations, adopting and enforcing contracts that prohibit or restrict home sharing; leases, mortgages and other agreements, or regulations that purport to ban or otherwise restrict home sharing.”
You Bought a Home, Now What?
Many people and companies buying or owning a property these days face the question: Should they turn it into a vacation rental or rent it out on a long-term lease to make the most money. This dynamic undoubtably contributes to the lack of affordable housing for long-term renters.
- “Smaller units are better suited as long-term rentals in most cities. However, as bedroom count increases, units become more lucrative to list as vacation rentals. By the time a property increases to four bedrooms, listing it as a vacation rental is more profitable in 90 percent of cities.
- “In cities with high tourism demand, vacation rentals are more profitable than long-term rentals at lower bedroom counts.
- “Unsurprisingly, long-term rentals are more favorable in cities with higher long-term rent prices, regardless of bedroom count. This occurs in cities such as NYC, Miami, Los Angeles, and Oakland.”
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Photo credit: A Federal Reserve official called for increased regulation of short-term rentals. Pictured is an ad for Airbnb on Layfayette Street in New York City. Skift