Limit short-term rentals to improve affordable housing, says Philadelphia Fed CEO

A CEO of a regional U.S. Federal Reserve bank cited the role of short-term rentals in escalating housing prices and challenged municipalities in popular tourist areas to further regulate short-term rentals so that workers can find local accommodation.

Federal Reserve Bank of Philadelphia President and CEO Patrick Harker’s recent essay may provide additional intellectual justification for affordable housing advocates to pressure local authorities to enact tougher housing regulations. Airbnb, Vrbo, Booking.com and a host of other local short term rental bookings. sites.

“Areas dominated by tourism like the Jersey Shore [in New Jersey] are without worker housing,” Harker wrote last month. “The workforce housing incentive could begin to alleviate these supply shortages. And in those same tourist-heavy areas, local governments might seek to limit the number of short-term rentals to ensure local residents have places to live.

Affordable housing advocates and city officials often link the expansion of short-term rentals to rising rents and house prices, but it’s rare for a top Federal Reserve official or the federal government to do so. The Federal Reserve is not part of the US federal government, but Congress established the Federal Reserve banking system.

Harker’s essay, “Unpacking Shelter Inflation,” looked at soaring home sale prices, which soared 51% to $731,000 in the second quarter of 2022 in his native New Jersey, and he correlated much of it with “high median incomes and proximity to New Jersey”. to a well-paid job. »

Of course, the pandemic has sent home prices skyrocketing in suburban areas.

But then Harker added another factor, namely investors turning homes into short-term rentals and limiting 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 swallowed up a large share of the housing supply, especially on the Rive, for example. Airbnb recently announced Ocean City, New Jersey as its most booked US destination. In fact, Airbnb cited Ocean City, New Jersey as its top US location for fall travel based on nights booked.

“As the article notes, experts agree that the problem with affordable housing in the United States may come down to the fact that the country is simply not building enough homes – which is why the cost of housing is rising 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 are now single-home sharing in order to make their home affordable and address the rise in The focus needs to be on building more homes for people and Airbnb wants to be part of that solution.

Airbnb cited these regulations as a risk factor in its 2021 annual report.

“The number of listings on Airbnb may decrease due to a number of other factors affecting Hosts, including: the Covid-19 pandemic; enforcement or threatened enforcement of laws and regulations, including short-term occupation and tax laws; private groups, such as landlords, landlords, and condominium and neighborhood associations, adopting and enforcing contracts that prohibit or restrict home sharing; leases, mortgages and other agreements, or regulations that seek to prohibit or restrict home sharing,” Airbnb said.

Reacting to the Philly Fed CEO’s essay, Expedia Group spokesman Dave McNamee said: “Expedia Group has a history of working alongside communities on solutions to the challenges they face. The share of Ocean City’s total housing stock accounted for by short-term rentals has increased 1.3% over the past three years. Although small, we will remain focused on working with state jurisdictions to explore policies that address local concerns.

McNamee cited the benefits of vacation rentals for tourists, local owners, 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 are not responsible

Vacation rental company executives tend to discount the link between the properties they sell and the affordable housing crisis.

“I think affordability is a complete red herring,” said Jon Gray, CEO of RVshare and former head of HomeAway, at the Skift Future of Lodging Forum in May. [see the video here]. “People who are on the streets looking for housing are not people who are buying a million dollar house that is going to be rented out.”

He said the average real estate values ​​of homes listed on Airbnb and Vrbo are well above the selling prices of entry-level long-term rental properties.

“We [HomeAway] Initially, we kind of listened to this theory that this was hurting affordable housing, and then we commissioned studies on this, and, I mean, we’re talking about two, three standard deviations of property value .

Merilee Karr, founder and CEO of the UndertheDoorMat group, also speaking at the May conference, said it was easier for politicians to throw rocks at the short-term rental industry than to take measures to build affordable housing.

Karr, who is also chairman of the UK Short-Term Accommodation Association, said it was up to the vacation rental industry to show that there was no direct correlation between the lack of affordable housing and the increase short-term rentals.

Karr admitted, however, that the issue is complex and that there could be some impact, especially as the self-employed want more flexibility in their workplace and at home.

Gray said the abundance of unused office space created by the pandemic provides an opportunity to renovate these properties into affordable housing. “It’s something that municipalities would do better to use their time than trying to make vacation rentals affordable rental housing,” Gray said.

Airbnb and Expedia/Vrbo did not immediately comment on Harker’s trial or the issues involved.

Airbnb and Vrbo have entered into 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 decrease due to a number of other factors affecting Hosts, including: the COVID-19 pandemic; enforcement or threatened enforcement of laws and regulations, including short-term occupation and tax laws; private groups, such as landlords, 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 prohibit or otherwise restrict home sharing”.

You bought a house, now what?

These days, many people and businesses who buy or own a property are faced with the question: should they turn it into a vacation rental or rent it out on a long-term lease to make the most money possible? This dynamic undoubtedly contributes to the lack of affordable housing for long-term tenants.

Rentop and AirDNA conducted a study on the issue in the United States and found:

  • “Small units are better suited for long-term rentals in most cities. However, as the number of bedrooms increases, units become more lucrative to list as vacation rentals. By the time a property grows to four bedrooms, listing it as a vacation rental is more profitable in 90% of cities.
  • “In cities with high tourist demand, vacation rentals are more profitable than long-term rentals with fewer rooms.
  • “Unsurprisingly, long-term rentals are more favorable in cities where long-term rental prices are higher, regardless of the number of bedrooms. It happens in cities like NYC, Miami, Los Angeles and Oakland.

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