A deeper look at short-term rentals and how, in the hands of the wealthy, they will hollow out our city — something that’s already happened around the country
Above: Part of the Carolina Lane/Chicken Alley area, where some former apartments have been turned into short-term rentals
The “sharing economy,” as it’s called, will save us all, so the story goes. Short term rental establishments invite tourists to occupy and party in the heart of downtown, on properties bought up by local (or not) housing magnates. The tourists and the landed gentry benefit – isn’t that what the free market intended? Isn’t that what made our city great?
The “sharing economy” is supposedly the great equalizer. All you need is access (though to a great deal of resources) and then you can share them, and profit mightily. With online apps enabling the sharing of cars, tools, and housing, it’s supposedly easier than ever to make money.
First you need a sweet loft downtown, then you can rent it to tourists for a ton of money, then you can buy up a whole block, then you can rent it out to even more tourists willing to pay hefty fees to soak up the city’s rich culture. They can party with all the other tourists partying downtown. Technology solves all.
For some, at least.
What gets glossed over in too many discussions is that the short term rental (or STR, for short) market is used by a variety of groups, from diverse socio-economic backgrounds, with differing goals. Clumping them all together because they happen to use the same websites is fairly arbitrary. There are people, usually those who bought property in far more affordable times, desperately staving away foreclosure or even homelessness by renting out a second, unused room, people who aren’t interested or can’t deal with a full-time roommate but who can handle the occasional guest.
Most people who use Airbnb or similar services utilize them in this way. But there are also wealthy commercial investors rapidly buying up choice real estate that is left empty most of the time, to the detriment of the local housing stock and community. It’s vital to distinguish these different groups, as the latter will hide behind the stories of the former. Without better regulations — and soon — these non-resident investors threaten to repeat in Asheville the same destruction they have wrought elsewhere: higher rents, residential communities fragmented with clogged roads of partying tourists, and legal businesses going bankrupt.
Breaking it down
Let’s examine Airbnb as an example for the short-term rental market. It’s certainly the most well-known part of it. It came from humble beginnings, at least the story goes. Two guys, unable to make rent in San Francisco, turn their apartment into a temporary bed and breakfast during certain business conventions. They inflate some air mattresses and pour some cereal. It helps them pay their bills. They can afford to live in the city. It’s the great equalizer.
They start raising money, attracting the interest of investors, they set up their website, they gain more properties, and they gain more investors. It starts to occur to people that they can make serious bank from short term rentals. Far more money than they could from conventional renters. Those who can afford it start buying up properties. Lots of properties. They start buying blocks of properties in the best neighborhoods in town. What was originally a cottage industry quickly, nearly immediately, becomes commercialized.
It’s become so big that there are other companies that have been created just to help manage Airbnb rentals – Guesty, Pillow, Urban Bellhop — just to name a few. More and more properties that people could actually live in year-round are taken off the market to be used infrequently by tourists. The landlords don’t mind because they still turn a mighty (and frequently untaxed) profit. The tourists don’t mind because they get an interesting, or swank, or “authentic” place to stay in the core of a city.
And the heart of the city is hollowed out.
This story has played out on the west coast and cities around the world. If City Hall doesn’t take action, the same will happen here. In some areas like downtown, where short-term rentals are legal, arguably it already has.
Growing like a weed
The sudden growth and viral spread of the so-called “sharing economy” has caught governments off guard. As anyone who has ever attended a local government meeting can attest, the gears of government are usually slow and creaky, but these new technologies that bring people together for underground commerce are lightning fast.
Airbnb was founded in 2008, and started to raise serious capital by 2011. Now in 2015 it claims over a million listings in over 34,000 cities in more than 190 countries around the world. On their website, the company states that they have hosted over 25 million guest stays.
This March they started a new round of funding that will bring the company’s valuation to $20 billion. Despite its small beginnings the fact is that this is a huge, international phenomenon, backed with the money of the wealthy elite, preying on local cultures and communities. The very thing they’re working to monetize — an “authentic” experience of place — is the very thing they threaten by their unregulated, rampant greed.
There are neighborhoods in Barcelona that were bought up by so many investors looking to profit from short-term rentals, that locals moved away just to get a decent nights sleep from the nonstop partying. The Catalonian government retaliated by fining Airbnb €30,000 (roughly $32,000), insisted that Airbnb remove all local properties from their online listings, and is considering banning online access to Airbnb from the whole of Catalonia.
This is how you destroy a city.
No government yet quite knows how to deal with something that has spread this quickly, that threatens one of those fundamental concerns for civilization: where are people going to live? Governments are watching each other to see how best to deal with it. More established members of the tourism industry are horrified to see illegal (or dubiously legal) operations stealing their business, while they operate in accordance with multiple state and local regulations (reaping, it’s worth noting, their own tidy profits).
Housing advocates note that this deepens our housing crisis, taking valuable real estate off the market for actual residents. Those on the precarious edge of society, living paycheck to paycheck (at best) find fewer places to rent, and the available locations more expensive, even as their income remains stagnant. Residential communities find their streets and driveways clogged up with tourists. Neighbors or even cities have difficulty contacting owners who don’t live on-site to manage noise complaints.
A Harvard study found that racial disparities continue even in the world of short term rentals: “we find that non-black hosts are able to charge approximately 12 percent more than black hosts, holding location, rental characteristics, and quality constant.”
Maybe the sharing economy isn’t the techno-utopia that we were promised.
In the United States, California — and the West Coast more generally — has been hit hardest by the underground short term rental phenomenon. Los Angeles is currently studying the problem, but in the meantime, according to UCLA, they are the most unaffordable city in the nation for renters. On average, renters in L.A. pay a whopping 47 percent of their income to have a roof over their heads. As the city’s commissions study and pour over the results, investors are buying up even more properties in desirable areas.
A study found that over 7000 apartments and houses had already been taken off the metro L.A. rental market. In Venice Beach, six to seven percent of all units have been converted to STR use.
Being LA, things have gotten a bit weird: one family who ran a STR minifarm spent thousands of dollars in court fees trying to evict a guest who declared squatters rights.
They aren’t the only ones in the area to have trouble with squatters. Airbnb has told hosts that they need to be aware of their state laws, leaving the hosts on the hook for legal fees to deal with con artists, those who would damage their properties, and those who do them personal harm.
Malibu responded by giving local government officials the ability to subpoena STR websites, having noted that residential areas were turning into “hotel zones.” This forced Airbnb to the negotiating table, where it was decided to make STRs legal, but to levy a 12 percent hotel tax (known as a “transient occupancy tax”). Malibu is expecting to add almost half a million dollars per year to the city coffers.
San Francisco, the epicenter of this change, has seen STR investors mutate their housing market. Of the roughly 5000 listings for places to stay in the city, two thirds of the Airbnb offerings were for entire unoccupied apartments or houses. The famous Mission District has the highest density of Airbnb sites in the city – 681 rentals, with 389 being entire homes. Of the nearly 4000 hosts, the majority had single listings. However, 513 hosts had multiple properties listed.
Almost a third of all listings are controlled by hosts who have these multiple properties. In some cases the hosts were merely property managers for the real owners, in other cases, they were the owners. The top 10 area hosts run 5.2 percent of all listings.
The professionally managed locations end up being the most reviewed, with the most reviews they end up the most popular. They increase their prices simply because they can, with prices more expensive than legally run bed and breakfasts or hotels, all while avoiding many taxes and regulations. These are a far cry from the humble cottage industry of inflating an air mattress in your living room.
Airbnb is also in a heated, lawsuit heavy mess in New York City. Again, it has become dominated by investors taking over the housing market, preferring to keep properties empty to local residents who could rent, and instead keeping them open for the more lucrative short term rentals to tourists.
A New York Times article states: “According to the attorney general’s office, based on information given to it by Airbnb, the top 40 Airbnb hosts in New York have each grossed at least $400,000 over the past three years, a collective total of over $35 million. The top 100 hosts in that time period have grossed $54 million.”
Now a new website scrapes data from the NYC Airbnb site, and has found that despite what Airbnb says, their actual website reveals that 58.3 percent, or the majority of rentals, are for entire apartments. It also shows that these apartments are available almost 70 percent of the time. Space is precious in cities; an entire apartment left empty most of the time is a waste.
Portland went ahead and legalized STRs. They kept things simple: residents using these services need to officially register, pay $180 for a permit, and pass a fire safety inspection. However, resident response has been lackluster, it is thought that less than 10 percent of STR hosts have followed through. As ever, enforcement remains a problem for municipalities, whether STRs are illegal or legal but regulated.
In New Orleans local housing experts found that depending on the location of the neighborhood, the impacts of STRs varied dramatically. In some cases it sped up a form of post-Katrina tourism-driven gentrification, but others had minimal impact. How best to tease out the problematic, commercialized aspects from the true cottage industry? And how to best protect the already-present law-abiding tourism industry?
Sleeping in the land of the sky
The Asheville metro region has a very well documented housing shortage. It has been well-covered by area news outlets. With our one percent vacancy rate in the rental market, and the non-existent vacancy rate in the government assisted housing, we need all the housing we can get.
The city even commissioned a major study to shine more light on the current state of housing in Asheville and the surrounding region.
Asheville has the highest percentage of our population below the poverty level (20.4 percent), compared to Buncombe County (14.7 percent) or the region as a whole (14.3 percent). The Asheville region also has a large elderly population with special needs (over 100,000 people), a significant population with mental illness (over 16,000), and a large, underserved homeless population (over 4000).
The report, completed by the Bowen research firm, projected that from 2015 to 2020, Asheville’s household growth rate will be 7.6 percent, faster than area counties (5.9 percent on average) and the broader mountain region. Diverse types of housing will be needed for a range of incomes, household sizes, and age groups.
On top of that, on any given night, over 300 people are homeless. There’s a two-year wait list for housing designed to be accessible for people with disabilities. There’s also a two-year waiting list for anyone with HIV/AIDS to receive rental assistance through a program (HOPWA) that will soon be entirely defunded. Domestic violence victims are referred to other area shelters due to overcapacity. There’s a lack of transitional housing for victims of domestic violence to continue receiving supportive help. Domestic violence victims also need more rental assistance to resettle after loss of income. Around 60 percent of all domestic violence victims in the region lack stable homes. There is a critical need for affordable transitional and permanent housing for those who have previously been incarcerated; they have intense difficulty finding adequate employment in order to qualify for housing.
Given the above, we actually can’t afford for ANY space to be vacant, regardless of who owns it. Perhaps, if it was possible, the city or county should even consider a fine for any home or unit that is vacant for 90 days or more. If some of the housing on the local Airbnb is secondary vacation housing that would otherwise go unoccupied, we might reconsider how long we allow buildings to stand empty.
In what remains a remarkably suburban city, (previously discussed on the Blade here) creating density is a priority, and if we can’t immediately create density, then the least we can do is fill up the housing we actually have built. Allowing STRs to remain legal in downtown is hollowing out our area of densest housing (and densest potential housing), which is counterproductive to everything the city of Asheville claims it’s trying to accomplish at this time.
Where we are now
STRs are currently illegal in Asheville’s residential neighborhoods. But this hasn’t stopped anyone — the Asheville Airbnb currently has 615 entire homes or apartments up for rent. According to the Bowen report, approximately six percent of the area’s overall housing supply is locked up as vacation or seasonal housing. It is estimated that by converting property to be a STR, one can charge four times as much money compared to a conventional rental, so it remains economically compelling to skirt the law.
But currently the city allows something called a homestay. This gives people the option of renting out one to three rooms of their house, but it requires the home to be over 2,500 sq. ft in size, there must be off-street parking available, breakfast meal is provided, and guests must stay in the main house. City leaders are mulling over making changes to the homestay regulations to make it more applicable to the modern market, including STRs. They are considering lowering the sq. ft requirement, limiting the number of guests to 5 total, only allowing one to three rooms to be rented, not requiring meals to be provided, and requiring off-street parking. In addition, establishments may be required to be 500 feet away from any other STR or Bed and Breakfast, have annual safety inspections, proof of insurance and primary income is generated by some means other than renting out the home. This differs from bed and breakfasts, which are larger enterprises where it is understood that the proprietors are making their living running the establishment. Bed and breakfasts also have more stringent requirements for size, zoning, and code.
Overall, the city would like to legalize, regulate, and tax STRs while somehow avoiding Portland’s problems. The most important factor in making the owners accountable to their community and responsible for their guests’ actions is to require the home or apartment to be their primary residence. When things go wrong, there’s someone present to resolve the problem, or pay the fine. Currently enforcement is based around complaints. Notably, STRs where the owner lives on site have far fewer complaints, whereas absentee landlords are notoriously difficult to contact when issues arise.
Unlike other tourism-based cities in America, and even many in North Carolina, Asheville finds itself with hands bound behind the back. The local transient occupancy / hotel tax (four percent) goes to the county, and as per state requirements, two-thirds of this money must go towards tourism in some fashion.
Buncombe County has made use of this money to build a variety of things that the community benefits from, but the damage that the tourism economy does to our infrastructure, our streets, is footed entirely by local taxpayers. For the city to be able to levy an occupancy tax, like other cities have, they would need the approval of the state. This is not a good time for relations between Asheville and the legislature, to put it mildly. The city is currently suing the state to even keep control of our water system, thanks to some of our former local representatives.
The city needs a local occupancy tax, it needs to recoup the damage done to our systems. But the city finds itself in an unfavorable political climate. The general assembly is considering legislation to further defund cities. As cities try to figure out the next year’s budget, they can only hope that gridlock at the state level will protect what funding streams they have.
If the city doesn’t step up, however, all of the careful planning for housing and money thrown at research will be for naught. Investment dollars will continue to pour in, taking homes off the market for local residents. Illegal, underground businesses will continue to undercut legal enterprises. Notably, Raleigh’s last bed and breakfast is closing down, and specifically cites short term rentals as undercutting their legal business.
All of this gets back to a theme Leigh Cowart mentioned in her recent piece on the local whooping cough outbreaks. Humans decided at one point that we wanted to live together, and that awesome things happen when we do so, but not everyone agrees to the compromises that make such things possible, or equitable. Just as some people want to ride on the coattails of others health by refusing to follow basic public health standards, others just want to make a profit and indirectly jack up your rent while telling you that you should be totally on board with this, because hey, it’s the new “sharing economy.” We’ll be the new Silicon Mountain, the glamorous place that is a playground for rich and connected. Maybe we’ll get on another Top 10 list.
I’m sure the homeless, the struggling, those who can’t find work, those who are moving away to have any chance of actually advance in their careers will be thrilled to hear it.
What the city should do is clear, if no doubt unpalatable to the gentry that are reaping profits off renting out their second (or third, or fourth…) homes to tourists. The city should ban STRs throughout the entirety of Asheville (including in non-residentially zoned areas like downtown where they’re currently allowed). It should make the fines high enough to be a serious deterrent, and to more than pay for the additional staff needed to actively seek out offending STRs and strictly enforce this rule. At the same time, the city should change the homestay and other rules to make it easier for working-class homeowners to reap some benefit; on a small scale that doesn’t hollow out the housing supply.
If that hurts the profits of people currently (and in many cases illegally) furthering our city’s housing crisis, well, they can get over it. There’s no such thing as a risk-free investment or business. They were happy to reap the profits from being early adopters in a gray area of the law. There would be a certain justice in the bill coming due for the impacts inflicted on others by this particular bit of risk-taking.
New technologies don’t necessarily solve problems that are human in origin. They can save labor and project power; but at it’s heart technology is neutral in the face of existing inequalities, exploitation of the weak, and human suffering.
It can be used to benefit individuals and for the good of all, but it can also be used to benefit individuals at the expense of others. Without strict regulation to protect our vulnerable and our community as whole, we’re throwing our future into the hands of people and technology who could care less.
Joy Chin is an Asheville-based writer and researcher.