Short Term Rentals Do Not Affect Affordability Significantly

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In a recent survey, real estate professionals, academics, economists and other experts who follow and study housing trends said the available evidence suggests that short-term rentals do not worsen a city’s affordability, at least not significantly, if at all.

Zillow, the home-listing and real estate data website, asked the affordability question of 111 experts, and 91 percent of them said the meaningful effect of full-time, short-term, whole-home rentals on the supply and affordability of long-term rental units is either limited or nonexistent.

According to an overwhelming number of experts, full-time short-term rentals might contribute marginally to a city’s affordability problems, but are not responsible for them. After all, New York, San Francisco, Portland, Seattle, Austin and other cities have struggled to stay affordable since well before short-term rentals arrived on the scene, mainly because their housing supply has failed to keep pace with population growth — sometimes because they have policies in place that thwart development and add to the cost of building housing. Despite their popularity growth, short-term rentals represent only a tiny number of housing units overall, and their effect on affordability is negligible.

 

Misguided opposition

One of the main arguments opponents of short-term rentals use to try to persuade cities to curtail short-term housing rentals is that such units decrease the supply of housing available for long-term lease and thus increase demand and the price of rents. Cities become less affordable, the argument goes, when property owners, seduced by the promise of faster, greater profits, lease housing to short-term renters that otherwise would be occupied by long-term tenants.

“You know we have a housing shortage here in Austin,” Mayor Pro Tem Kathie Tovo told NPR earlier this year as she defended tougher short-term rental rules passed by the Austin City Council in February 2016. The new rules phase out short-term, whole-home rental properties that are available year-round by April 2022. “We are working on issues related to affordability and then to have a policy on the books that takes available housing stock and makes it unavailable for renters, for property owners is not in the best interest of Austin residents.”

Is Tovo right?

No. Short term rentals account for an astoundingly low percentage of homes in most cities. Instead, housing affordability is largely caused by cities and municipalities not planning in advance for urban growth. City councils that blame short term rentals for affordability issues could make more headway working to ease the complicated regulations, onerous permitting process, and hefty fees that face developers interested in increasing housing stock.

 

Hotels impact affordability

The growing demand for short-term rentals decreases demand for hotel rooms, Bertolet points out. Lower demand for hotel rooms means fewer hotels need to be built; cities can zone large lots for new apartments instead. “Hotel and apartment developments compete for the same scarce urban land, so more new hotels means fewer new apartments, and fewer apartments means higher rents,” Bertolet wrote. Banning or limiting short-term rentals or otherwise trying to encourage or force owners to lease their properties long-term in the name of housing affordability probably is a zero-sum game, says Dan Bertolet, a senior researcher for the Sightline Institute, a Seattle-based think tank that focuses on sustainability issues.

It’s important to remember that short-term rentals, long-term rentals and hotels “are each interrelated components of the same citywide housing market, each utilizing the same basic resource: bedrooms,” Bertolet wrote last year in reaction to Seattle’s effort to regulate full-time short-term rentals. “Restricting a specific type of STR will have the unintended but unavoidable consequence of shifting demand to bedrooms elsewhere in the city … (and) is unlikely to yield any net gain in housing affordability.”

Of course, hotel owners want visitors to stay in their bedrooms, not in the bedrooms of a short-term rental. The American Hotel and Lodging Association plans to target short-term rentals by lobbying states and cities to constrain short-term rentals, forming alliances with neighborhood associations and affordable-housing groups, and paying for studies that support its points of view, The New York Times recently reported. The association has a $5.6 million annual budget for this effort, according to The Times.

 

Affordability is a serious problem for cities. But until more data emerges, it appears targeting short-term rentals as major contributors to a city’s lack of affordability is looking for solutions to a problem in the margins of a page rather than the center. And it could be that policies meant to make things better could instead make matters worse.

 

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