So much money is floating to the top x% that even just renting to them on weekends is more lucrative than renting to locals 365 days per year. Where are people supposed to go when even the middle class is homeless?
I guess we still have some buffer room as most people still have some disposable income that doesn't go to rent, but when that cap is hit, then what?
>So much money is floating to the top x% that even just renting to them on weekends is more lucrative than renting to locals 365 days per year. Where are people supposed to go when even the middle class is homeless?
This has always been the case in mountain towns. The article is more doom and gloom than anything. I spent my early teen and twenties ski bumming around the exact towns mentioned (Crested Butte, among others) years before AirBnB existed. It has always been a lifestyle of poverty couch surfing and floor camping. The dichotomy of extreme rich and poor has existed in these towns like nowhere else in the US for as long as skiing has been an upper class pursuit. Those who wish to make their lives in these towns know this and value the lifestyle above all, so they adapt. The ones who don't move to Denver.
Housing doesn't intrinsically need to get more expensive. But if we make it impossible or difficult to increase the supply, we're going to see prices rise. This isn't really about money "floating to the top;" it's about legal and regulatory problems.
> This isn't really about money "floating to the top;"
I don't think anyone disputes that the vast majority of growth in the economy has gone mostly to the top 20%, how can that not affect the other 80%'s ability to purchase a home?
And at least in much of Canada, it is the price of the underlying land that is going up, if land gets zoned for a multistory skyscraper, the land value immediately adjusts to consume the majority of the "value" created from rezoning.
Millennials are having to spend an increasingly large percentage of their money on housing, a much higher percentage than prior generations, especially on a $/sqft basis (if you want a place where there are jobs). And this is on top of the massive student loans needed just to get any kind of job > minimum wage.
EDIT: Just finished that 2nd article, it is an absolutely brilliant overview of the hypocrisy of well to do "Liberals" that absolutely infuriates me. Thanks for the link.
Zoning can only be one side of the equation, as it only affects supply. There's no zoning or technology for too much demand, too much people. Better infrastructure is a temporary band-aid before people either do or don't come up with a consensus on what society and growth should look like.
In a free nation, demand can only be controlled through restriction on immigration and birth rates. For the USA that means demand is a national policy issue. It cannot be managed by cities or states. All cities and states can do is manage supply to meet demand.
But for addressing your concern this is good news: "before people either do or don't come up with a consensus on what society and growth should look like."
Unless there is a dramatic shift in policies to allow MASS immigration or everyone starts breeding like rabbits in the USA, we do not really have a problem here where our urban spaces will develop into unpleasent places. In fact it's actually the underinvestment in our urban spaces that precisely creates many of the issues people connect to cities.
Cities and states need to address the supply and infrastructure problem to allow people to live affordably, with a good standard of living, in the places that they want to live.
> It doesn't have to be about immigration, that's silly.
I said "demand can only be controlled through restriction on immigration...". For example, if the Bay Area wants to control demand to keep house prices lower, it has no ability to that because it does not have a border. It cannot stop people moving there. Only the federal government can do that at a national level by controlling how many people can cross the border to immigrate. And as a second matter influence birth rates through public health programs (but birth rates aren't a problem in the USA).
> The US currently had supply and demand issues amongst it's growing and declining cities.
Yes, but cities and states cannot control demand. They can only control supply.
> In a free nation, demand can only be controlled through restriction on immigration and birth rates. For the USA that means demand is a national policy issue.
And since that topic is associated with race, good luck having an objective discussion in a Western country. In Canada, if you even suggest there is a discussion worth having, a huge percentage of the population will immediately assume you are a Trump supporting racist. More subtler topics like the obvious fact that some segments of immigrants are not contributing to the economy via income taxes while massively increasing housing demand are completely beyond discussion.
It doesn't have to, but it does. It's actually a funny "conversation".....race/culture is irrelevant/nonexistent, unless you suggest bringing in middle class immigrants from other Western countries, and then for some reason, it suddenly is important, very important that it is drawn from lower class nations, usually "coincidentally", predominantly visible minority countries....under the guise of "diversity" (even though we were just told that all cultures are the same). This has always been obvious, but I've never really understood "why" people acted like this without resorting to crazy conspiracy theories. This article that someone linked has a very plausible theory:
"Or take immigration policy: Dean Baker of the liberal Center for Economic and Policy Research has called for increasing the number of doctors, dentists, and other professionals allowed into the U.S. while limiting the number of less-skilled people, like would-be retail clerks, custodians, and housekeepers. The reason is that high-skilled immigrants squeeze the wages of upper-middle-class professionals, who can afford to take a hit while lowering the cost of various services for poorer people by giving them the option of going to cheaper doctors and dentists. By contrast, bringing in retail clerks, custodians, and housekeepers makes life cheaper for the upper-middle-class professionals while squeezing the wages of working people, particularly immigrants who already live in the U.S. Want to guess how popular the idea of increasing the wages of nannies is with the upper-middle-class people who employ them? I’d love to know, but I’m sorry to report that upper-middle-class pollsters have yet to ask the question."
It is a really good article, I encourage everyone to read it.
> There's no zoning or technology for too much demand
Agree with your first sentence, but I quibble with this part. Demand for real estate is local, and defined as something resembling density: it's an intensity distributed over some area. That area is limited by development and infrastructure.
For example, you can alleviate the intensity of demand by widening the area in which those consumers can be satisfied. In other words, build more transportation that makes it more palatable to live further afield. The article even mentions it specifically: running the commuter shuttle to Gunnison more frequently eases the pain of living there and working in Crested Butte.
I know it sounds like free market dogma, but I swear this is true: supply grows to meet demand. Airbnb will just encourage more housing to be built, by creating a new short term housing market that until now had not existed.
In many mountain towns (like the one I just relocated from), supply is more or less permanently fixed due to constraints on land and water.
Often they are bordered by Federally or state owned land, and have limited supplies of water due to the simple fact that they are on top of a mountain and there is only so much water in the natural aquifers.
Building taller buildings and using water more efficiently will only get you so far...
Your point is valid, but I think it doesn't give enough credit to technological innovation and market forces. We've figured out how to do pretty amazing and ridiculous things with the right incentives in place in the past, and I'm not sure what about this problem would classify it as impossible.
To phrase it more glibly: "Necessity is the mother of invention."
Right but there's no shortage of mountains where new towns can be built. If people really want to live in mountain towns, the market can meet that demand for pretty much any number of people.
And, in fact, there are tons of "mountain towns" where real estate is cheap. They just aren't chi-chi mountain towns with cute coffee shops and gourmet restaurants often associated with world class ski areas.
What if they spent all their savings on rent and then lost their jobs due to automation, productivity gains needing less workers, or immigration (workers willing to work for less)?
Supply grows to meet demand, but what if the demand side has no money left? I think a lot of these "timeless" rules of thumb are going to be discovered to be not so timeless after all.
There is no evidence that the middle class is being impoverished by automation. Automation has the effect of increasing wages. It's the sole reason wages today are 20X what they were 200 years ago.
In any case, this is completely unrelated to housing usage patterns.
If you ignore all the unemployed people that are not classified as unemployed, you're right. Good thing to know there are literally no knock on effects from automation, it's just gravy for everyone.
But there is no reduction in the aggregate number of jobs.. Of course jobs are destroyed and created as the economy changes. That's always been the case and always will be. But the net effect of automation is more wealth being generated, which shifts the demand curve for labour to the right, causing wages to increases.
Globally, median wages are increasing at their fastest rate in history [1]. Wage growth for the middle class has stagnated in the US, but not nearly as much as some people (myself included, until recently) believe [2]. The primary cause of this slowdown in wage growth is slowing productivity growth [3], while the major secondary cause is growing income disparity. Growing income disparity can be traced [4] directly to growth in regulatory restrictions that impede the free market, and not automation or technology.
3) Ignores unemployment. "Most importantly, the growth in the average real wage is largely determined by improvements in labor productivity, output per worker hour."
4) Partially true (I very much agree with the protectionist immigration point), but there are many issues with that article as well.
The trick is, what kind of jobs are being destroyed and created.
With current wave of automation, unskilled jobs are being destroyed, and specialized jobs are being created. The people leaving the former can't access the latter.
Have you seen the rise in house prices around most of the western world over the last 30 years? In particular in cities and high demand places? Growth in supply is a fraction of the increase in demand.
Probably true but it doesn't really take away from the point of resources being tied up by a percentage that is significantly less than 50% of the population.
Rents businesses essentially "short circuit" the flow of capital through the economy. So a "one percenter"[1] buys a cabin which he rents through AirBnB to other "one percenters". Because he isn't a hospitality business he doesn't hire desk staff, a concierge, or pay taxes that are funding local government efforts. Instead the 'rents' just recirculate right back into the "one percenter" pool.
The absurd extreme of this notion is something like the vision in Elysium of a rich people enclave with no need of any human "non rich" staff.
I don't see that actually coming to pass but as Gates and others have noted, it is important to understand how technology can distort an economy and work on ways to repair that distortion.
[1] In quotes because it is a stand end for 'top n% where n << 50'
If you're talking about a true 1%er they're hiring handy-man types and maids. They're paying property tax on those homes, funding roads and schools they will never use. It's highly likely they are paying other state and local taxes too, including but not limited to income taxes. All of the other 1%ers who come into that area are spending money at local restaurants or other venues which is pulling money out of the 1% and into the hands of locals.
If you're talking more like a 20%er, then they are either doing the same thing, or they live locally so even though they're not hiring a maid/handy-man, money is going from the 1%er to a person living in the local economy (themselves).
I see it a bit differently, I started from a differential point of view like this;
Assume the cabin exists. It can be owned by someone who lives in it, or someone who really just rents it. In either scenario property taxes are going to be paid. And in either scenario the cabin will be maintained by local service agencies (plumbers, electricians, etc).
The only difference might be that the 1%er is paying a laundry and maid service, and a local to pick up and give out the keys to the place.
There is no special "business property tax" for AirBnB/VRBO type rentals and according to Fresno many VRBO/AirBnB types don't actually report their income (this annoys the state equalization board), and according to the Sunnyvale city manager people who rent out rooms or their houses should have a business license but they generally don't and it is hard to enforce.
My suggestion was that if you differentiated between a VRBO/AirBnB place and a bonafide hospitality business, like a Bed and Breakfast, there is both significant additional tax revenues and additional documented employment.
Everywhere I've ever lived had higher property taxes on homes which were not your primary residence. At the very least people are paying those increased rates.
If a person isn't reporting their income, that's a federal crime, and we have enforcement mechanisms for that. They might be lagging a bit, but if there's anything the government is fairly good at, it's making sure you're paying income tax.
In what way is a bonafide Bed and Breakfast going to result in additional documented employment? All of the bonafide BnBs I've stayed at were completely run and maintained by the home owners.
"There is no special "business property tax" for AirBnB/VRBO type rentals"
There's no extra property tax, but most places require sales tax to be paid on all short term rentals and many charge lodging tax on top of that.
In my case in Virgina, I pay 10.3% combined sales and lodging tax on every dollar of rent.
There is also much more wear and tear on a vacation rental than a long term property, so it's not just increased business for local maids but all construction trades, local handymen etc.
Many places do in theory require sales or lodging tax to be paid, but that's different than successfully collecting it. Compliance among AirBnB hosts with such taxes is especially low. That is a major reason for the amount of money spent, on both sides, on lawsuits over data. Many jurisdictions want AirBnB to turn over data about large renters, and AirBnB does not want to turn it over. Governments like NYC's have managed to collect a substantial amount of back taxes by suing AirBnB for data, prevailing, and then pursuing tax dodgers they're able to identify from the data. But that approach only really works for municipalities with legal departments as well funded as NYC's.
Municipalities are lazy. Instead of doing their research and suing individual owners, which they should be doing as those are the folks not paying taxes, they look for the aggregators like AirBnb which are a big target and sue them instead.
As someone who pays my taxes it is very annoying to have another body step in and muck it all up. AirBnb is notorious for collecting the wrong taxes and poorly reporting the taxes they do collect.
> There is also much more wear and tear on a vacation rental than a long term property, so it's not just increased business for local maids but all construction trades, local handymen etc.
That is a good point, it is no doubt especially true for transient renters versus someone who is renting a place to live in full time.
Yes I pay transient occupancy tax of about 13% which nets my mountain city about 8k extra per year that they wouldn't have gotten from one property. I still pay the property tax too of course. So these cities are benefiting greatly and you can see them making upgrades everywhere with more jobs.
I see why some people would not welcome growth but nobody owes you a lifetime guarantee on living in a desirable place for a low amount. It's real estate and has always been subject to change, many times severe fluctuation.
If the citizens of these towns want more affordable housing, they are free to vote such zoning into existence. If they continue to shoot themselves in the foot, then I'm not sure how many crocodile tears I'm supposed to shed for them.
The smaller the government the easier it is for the people to have control. I mean, we're talking about towns of a few thousand people here. It has to be pretty easy to sway an election over a single issue like this if the people are in your favor.
You might have an argument except that the other option for these guests, the ski resort, is 100% going to be owned by the 1%. Conversely, the AirBnB properties are likely to be owned by the 99%. Let's all take a deep breath and understand that the big complaint here is that the poor and middle class people in this town are becoming more wealthy, because their property value is skyrocketing.
You are significantly overestimating. According to the ski industry itself, which tends to use a fairly generous definition that includes things such as cross-country skiing, only around 7% of Americans ski: http://www.planetski.eu/news/4090
And many of these are people who live in day-trip distance of ski areas rather than renting or owning second homes, so the proportion in that market is even lower.
>Er, in this case the x% is like, 30+%. Lots of people take ski weekends in the winter.
But the reality is that the resorts make their profits off a tiny percentage of the clientele. The middle class family who stays in a budget hotel, buys season passes, and brings their own food, ends up being a net loss for the company.
Practically all the money is made on the full price daily ticket sales, expensive marked up restaurants, and high end real estate sales/rentals. Without the rich people who blow $20k on a week of skiing once a year, the industry as we know it simply would not exist.
The fact that airbnb is negative for rental rates and hurts locals is Airbnb biggest existential threat. In reality renters outnumber home owners that do Airbnb thus when it comes to regulations people will vote for more regulation long term.
I moved to Taos, New Mexico last year, a ski town with a huge Airbnb market, like Crested Butte. It has definitely increased long term rental prices around here, but, to a former NYC resident like me, they were pretty low to begin with.
Taos, thankfully, has a lot of factors which prevent it from becoming the next Jackson Hole or Crested Butte. For one, unlike those towns, we have a lot of land. Taos isn't really hemmed in by National Forests and has plenty of room for new construction. Second, Taos was fairly large to begin with: 15,000 people or so in the greater area, so Airbnb has a more muted effect.
It seems like a very mixed bag to me. Long term rental prices keep going way up, but many locals seem to be making a lot of money renting out (of course, only the ones who can afford to own in the first place). The city also seems to make a decent amount of money from lodgers tax as well.
Of course, ski towns have also had a short, long, and midterm rental market since long before there was an AirBnB. For a number of years after school, a group of us rented a ski condo decades ago.
I'm a bit curious about this trend generally. Skiing as a sport isn't growing much and I believe it's still below pre-recession heights overall. Of course that's not the only reason to stay in a mountain town but it tends to be a big one in the winter.
I have a neighbor who grew up in Venice beach (a coastal town within greater Los Angeles). His parents live in the same house he grew up in. It's always been somewhat touristy, especially on the oceanfront, but since the digital STR wave he says it has rapidly destroyed the neighborhood. The challenge is lots of late night activity - people talking loudly in the streets, screaming etc, drink and drugs, and just a general itinerant population of people who come and go, adding nothing to the locality. I know this reads like a 'get off my lawn' mentality, but it is surprising how quickly a place can lose its ambiance and atmosphere - the things that made it attractive to visit - when the population becomes dominated by faceless, ever changing visitors. It seems anywhere 'interesting' is suffering from these issues...
Wow, those are some military-grade nostalgia goggles. Venice Beach was never a sleepy beach town, it was always kind of earthy with a healthy dosing of weekend revilers. The only thing that changed was the surfer dudes now own million dollar "quaint beachfront townhouses" and care about noise levels and the wrong type of people visiting their neighborhood.
I recently relocated out of a small mountain town to a job in the city, so this article resonated poignantly. The bit about everyone either having a second job or a second home is so true!
I owned my home and did not have this problem with housing directly, but rising costs of living (possibly a side effect of rising rents for the rest of the workers?) and a reduction in the available jobs in the area led to me being available to recruiters.
In the end it was a positive thing, and I landed a position at one of the major tech companies that was very top on my list. But it was still a bit sad to go...
Highly doubt Airbnb will be around in the next 10-15 years. If Hotels can catch up and get with the program they could easily get people to stop renting on Airbnb.
Oddly enough the people who complained about rent control and increased rent prices in cities now ask for crazy prices on Airbnb when renting their room ( even if they have 3-4 roommates) It just isn't worth it anymore unless you're a group of 6-7 people. Might as well just get a hotel.
You can't actually kill the idea of a platform connecting travelers with decentralized supply. Sure, it's possible that the specific company Airbnb might not exist in the future, but there will always be people interested in exchanging spare housing capacity for money, and with the increasing ease of long-distance travel, I'd expect that population to only grow in the future. Maybe the dominant platform will be Airbnb, maybe it'll be HomeAway. Maybe it'll be Craigslist.
Hotels are actually really poorly positioned to fight Airbnb et al, since they face the huge capital costs of building/owning/maintaining giant buildings. Sure, they might win fights to change regulation or enforcement in some number of markets for some amount of time, but they'll never be able to spin supply up or down as nimbly as the marketplace platforms that don't own their own inventory.
I've been renting my house out on Airbnb in Tahoe. It is a house I lived in for many years myself. I hear these concerns all the time, but Tahoe has always had vacation rentals, and in my opinion the real solution is to build more units. The backlash against building has gotten so ridiculous that we are creating our own problems. IMHO Tahoe would be better served by higher density development than the sprawl we have now
Large cities do have prices impacted, but because of the larger existing population it takes a lot more to completely push out residents. They still operate as cities, with people living and working there year-round, businesses that don't exclusively cater to tourists, etc. Regardless of how many New Yorkers complain about tourists, New York as a functioning city with residents is not on the verge of disappearing. Smaller tourist-heavy towns really are being almost completely replaced with seasonal rentals in some cases though, to such an extent that the town more or less ceases to exist as a functioning town, and turns more into a seasonal amusement park.
In addition to mountain towns in the U.S., you see this in a lot of smaller European towns and cities, where especially in quaint historic areas nobody actually lives there anymore. Again usually below a certain size. Despite the AirBnBs, Paris is still a real city, but Venice is pretty much on life support (the old town has lost 70% of its population over the past few decades). Although AirBnB is only one factor in all of this. With Venice it started with mass conversion to regular B&Bs, and in some areas it's more just traditional purchase/rental of vacation homes (Londoners buying up 2nd homes in Cornwall is what's pushed locals out of towns like St. Ives).
Yes exactly. As an example in Switzerland the phenomenon predates the BnB boom by at least two decades. It has lead to a new law that tries to limit the 2nd home ratio for each town - not sure how successful this is though.
If the amount of second homes and STRs is causing a problem, it's perfectly reasonable for the government to tax them. As an example, UK councils are allowed to charge 50% more tax on homes that have been empty for more than two years (100% and one year in Scotland); if 19% of the town's rental stock has been converted to STR, that's a sizable revenue stream for rent subsidies and other programs.
That said, the only way to guarantee affordable housing is to build more housing.
Unfortunately the 50% "empty homes premium" excludes furnished properties, which means in practice almost all STR and 2nd-home properties escape it, so it doesn't really benefit councils like Cornwall that have a large proportion of such properties. The requirements are "unoccupied and unfurnished for 2 years or more" [1].
It seems more effective as an anti-blight law than anything else, encouraging people who have completely empty and unused property to sell it to someone who will do something with it. It's also supposed to target pure investment properties that people haven't even bothered to furnish, like those said to be owned by Russian oligarchs in London. Although I wonder if it will be effective there, since an investor can simply hire a company to throw some IKEA furniture in the apartment.
I'm not entirely sure if those were the goals, or if it started out life as a stronger proposal that ended up watered down. As is it's a bit confusing, since it seems to have a pretty narrow range of application that's easy to dodge.
Council tax increases also wouldn't have much of an effect on empty properties in central London because of the band system; tax on a property in Kensington would max out at £2124.04 before surcharges, or 0.02% on a £10M house. The property tax on a comparable house in Manhattan (based on checking MLS records for listings in Chelsea and picking a $13M townhouse) would be $44 000/year.
AirBnB has increased the price of Reykjavik rent from an average of ~150k p/m (approx $1500USD) to ~250k p/m in two years. 44% of the Reykjavik rental market is on AirBnB[1].
The government passed laws limiting how much a private individual can AirBnB their property, but they forgot to specify which department should enforce the law, so at the moment no one is enforcing it. Things are starting to come to a head.
Keep an eye on us, we're gonna be a tracer bullet for how the rest of the world might react.
I guess we still have some buffer room as most people still have some disposable income that doesn't go to rent, but when that cap is hit, then what?