How to Face the Housing Crisis in Expensive Cities

The lowest hanging fruit of them all: Airbnb and its ilk.

By John E. McNellis, Principal at McNellis Partners, for The Registry:

There are problems and then there are “high-class” problems. Being unemployed is a problem. Getting hit with a huge tax bill is a high-class problem. Not qualifying for food stamps is a problem while discovering your favorite bistro is fully booked is a high-class problem. Being chased by debt collectors is qualitatively different than being hounded by paparazzi. You get the picture.

Perhaps explaining why we hear so much about it, our housing crisis is another high-class problem. There is no housing crisis in the bottom 20% of our zip codes. According to the Economic Innovation Group, a business-backed DC think tank, the vacancy rate in distressed America is 14.4%, a rate guaranteed to floor rents and prices. The elite zip codes – the top 20% – have a vacancy rate a bit under 5% and no doubt approaching effective zero in the white-hot coastal zip codes.

And elite neighborhoods have – you guessed it – high class problems. One is Airbnb.

In order to continue its phenomenal growth, Airbnb has been forced to shed its sheep’s clothing and admit its essence. With the recent announcement of a joint venture with Newgard Development Company, a Florida builder, the company has all but proclaimed that it’s nothing more than a hotel operator. A poorly-regulated hotel operator, as much about grandma renting out her sewing room as Uber is about helping drivers earn pocket money. Hand-in-hand with Airbnb, Newgard intends to build a couple thousand apartments where tenants can Air-out their units 180 days a year and split the profits three ways.

This business model – leasing apartments to the gullible at outlandish rents predicated upon the income they can expect from their own overnight rentals – suggests two obvious winners and a host of losers. The losers will run the gamut from the part-time tenants destined to be disappointed with their actual returns to the work-force tenants in need of real housing to society at large as it watches its permanent housing supply dwindle away. Who will build an apartment when the hybrid hotel/apartment gets so much better economic mileage?

Maybe what this should be telling us is that, somewhat akin to the minimum wage, one size doesn’t fit all. Rather than regulating housing in the less fortunate zip codes – 11% of California’s population lives in a distressed zip code – we should be encouraging job growth there and focusing regulations on where they are truly needed.

Here are a couple suggestions:

First, the lowest hanging fruit of them all: Airbnb and its ilk. Treat these companies for what they are – hotel chains – and ban them outright in residential zones. How hard is that? Besides tin-cup landlords and Airbnb lobbyists, who is going to complain?

Second, our need for affordable housing is so great we should abandon the lovely notion of providing home ownership for the economically challenged and instead focus on rental housing. Here’s what happens in the real world if you require, say, a 100 unit subdivision or condominium project to sell 15% of its homes at affordable prices, that is, at about 40-50% of the market price. You create 15 lottery winners who will never move – there is always a provision that says the profits go back to the housing authority if the house is sold. And who will likely be unable to afford the necessary upkeep on their homes and the assessments of the home owners’ association (HOA). Thus, about 10 years into the life of a subdivision, the affordable residences begin to call attention to themselves in an unpleasant manner and the HOA gets even more unpleasant in its efforts to collect back assessments.

For each affordable house, a builder could – with the same money – build 2 or more apartments. By way of example, we developed a mixed-use project in Palo Alto that included 37 single family residences. As the city then had a 15% low-income requirement, this meant 6 residences had to be affordable. We suggested instead that we build a 14 unit apartment house atop our commercial building. In accepting our proposal, the city received 133% more dwelling units in the bargain, dwellings we maintain in first-class condition at our expense.

Also, and this is important, the families who moved into our apartments are not tied forever to the location the way they would be if they were windfall owners. If job opportunities arise out of the area, they can relocate on a dime. You may have seen the articles arising out of the Great Recession that lamented the American worker’s lack of mobility, the fact that his home ownership kept him tethered to the Rust Belt when he should have been following the jobs to the Southwest.

If a city is, however, unwilling to permit rental units in the midst of single-family housing, another approach may be worth considering: Allow the developer to sell all 100 houses in her subdivision at market prices (say, $1 million), charge her the discount on the otherwise 15 affordable units ($500,000) and pay out the resulting sum ($7.5 million) over time to a number of the city’s qualifying low-income residents as direct rent subsidies. You could, for example, subsidize thirty families by $2,000 a month in existing market-rate housing for over 10 years with $7,500,000. This approach avoids the often politically insurmountable issue of building dedicated low-income housing.

If we focus on providing clean, safe and affordable rental housing and not dilute our efforts with a myriad of other social goals – notably, home ownership for all, promoting tech and protecting unions – we can accomplish far more than we’re doing today. By John E. McNellis, McNellis Partners, author of Making It in Real Estate: Starting Out as a Developer. The article was first published on The Registry.

Insider view on the Housing Crisis in California. Read…  California’s Housing is Bleeding Out and We Apply Band-Aids




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  75 comments for “How to Face the Housing Crisis in Expensive Cities

  1. Thrasymachus
    Nov 19, 2017 at 10:15 am

    >Besides tin-cup landlords and Airbnb lobbyists, who is going to complain?

    Actually, consumers, entrepreneurs, and defenders of private property rights that’s who.

    The sharing model is the creation of economic resources through releasing and making available private assets that used to sit idle. Uber accomplishes this by making private cars available to the public for transportation. Airbnb makes private dwellings available for short-term houses. The result is greater resource utilization and expanded earning potential for anyone willing to share his idle resources.

    • Nov 19, 2017 at 10:29 am

      There aren’t any apartments in San Francisco that are “sitting idle” for long. Prices and rents are through the roof, and local residents are being pushed out because they can no longer afford to live here. And yet, there are Airbnb rentals everywhere. Airbnb’s headquarters is in SF, and the city is in love with its startups, but even in SF, the City Council is grappling with the Airbnb problem.

      Airbnb is a lodging operation similar to hotel chains that offer apartments. But it’s not treated like one. That’s where part of the problems arise.

      • BVian
        Nov 19, 2017 at 11:21 am

        What this doesn’t answer is how do you regulate Airbnb? We can’t afford to hire more government workers due to the pension problems and you need an entirely new dept with new salaries and pensions devoted to this.
        Also, lack of mobility is a bigger problem than just home ownership and rent control. Welfare plays a huge role in keeping people in California. If your child can stay on welfare until they are 18 here but is kicked off after 5 years in low rent states, no one is going to move even if the cost of living is cheaper somewhere else.

      • Thrasymachus
        Nov 19, 2017 at 11:22 am

        >Airbnb is a lodging operation similar to hotel chains that offer apartments. But it’s not treated like one.<

        In big cities perhaps (though I could argue how regulations (building restrictions, rent control, etc.) cause housing shortages (San Fran, especially), but for the rest of the home ownership segments (small towns, rural venues) Airbnb is a platform for idle resources which benefit consumers as well as private property owners.

        Airbnb and the sharing economy may have their flaws, but overall the sharing economy is a powerful, liberating force that represents the dynamic nature of a free market and a free society.

        • David G LA
          Nov 19, 2017 at 12:12 pm

          Why do hotels pay hotel taxes, business licenses, undergo inspections and file and pay income taxes when Airbnb hosts do not? Or you’re a libertarian? let anyone do anything, no zoning, no licensing, no taxes? we’re on our way!

        • Shawn
          Nov 19, 2017 at 2:41 pm

          AirBnb have used their propaganda in the San Francisco to make this out to be a David and Goliath type fight between large hotel operators and tin-cup landlords. In many parts of the world such as the United Kingdom there are what are called ‘Bed and Breakfast’ lodging establishments which are family run, taxed and regulated by local governments. AirBnb type lodging have a very unfair advantage over such businesses since they aren’t required to pay any taxes or adhere to any operating regulations.

        • CronyCapitalist
          Nov 19, 2017 at 3:15 pm

          “the sharing economy is a powerful, liberating force that represents the dynamic nature of a free market and a free society.” ROTFLMAO!

          The “sharing” economy is a skimming operation at best and a giant tax/regulation avoidance shelter. It’s nothing more than predatory crony capitalism, the kind of crony capitalism that defines most of what America seems to be successful at these days.

          Take away the subsidies for Airbnb, Uber etc and what are you left with? Not much but a new twist on an old idea…avoiding taxes and regulation!

      • DB
        Nov 19, 2017 at 11:34 am

        Wolf,

        I would make the distinction between owner-occupied Airbnb rentals (renting out your spare room), and “whole home” rentals (where investors buy a home on your block solely for the purpose of renting it out to bachelor parties).

        I would pose that spare-room rentals cause virtually no problems for neighbors or neighborhoods. As in, no crime, no diminishing of property values, no noise complaints. No demonstrable harm.

        I would pose that “whole-home” rentals are responsible for virtually all of those (legitimate) problems. Which are demonstrable harms.

        I see zero reason to limit — or even regulate — spare-room rentals. It’s my home, my property, and I should be able to do whatever I want with it, so long as I’m not harming others.

        I would further pose that the “need” for Airbnb and Uber-like companies arose out of desperation. Fewer able workers are employed, wage growth is stagnant, while real household expenses rise and pensions/Social Security are increasingly in jeopardy.

        Everyday folks turn to Airbnb simply to help them eat and pay their mortgage.

        I say, regulate the investment properties for what they are: hotels.

        And leave spare-room rentals alone.

        • Nov 19, 2017 at 4:55 pm

          I agree that spare-room rentals don’t pose any kind of problem for anyone. I don’t think anyone is worried about them. They’re worried about thousands of apartments disappearing from the housing stock and reappearing as vacation rentals in the lodging sector.

        • Habeas Corpsesus
          Nov 19, 2017 at 6:38 pm

          But Wolf, thousands of homes are disappearing from the housing stock anyway–scooped up by cash-paying investors and rented out to people who would rather have bought the house. Are these investors really going airbnb, or renting to desperate people at high rates? And if the former, okay, tax and regulate them, to extinction. If the latter, tax the hell out of them too.

        • Rates
          Nov 19, 2017 at 6:46 pm

          Here’s another contradiction. Anyone know of any hotels that have been driven to the ground by AirBnb? If not driven to the ground, then perhaps doing much worse?

          My point is this: if both AirBnb and hotels are doing well that means more people are travelling, meaning people having more money meaning the US economy is doing very well? But if that’s the case how can you make the argument that “Everyday folks turn to Airbnb simply to help them eat and pay their mortgage.”

        • Kraig
          Nov 21, 2017 at 7:15 am

          UK actually has separate lodger rules (2 guests max and must be your main home

      • Marty
        Nov 19, 2017 at 2:57 pm

        It may be the odious rent control that’s causing people to buy apartments in SF and rent out with airbnb.

        Anyway, you’ve moved the goal posts. There may not be any apartments “sitting idle” but there probably are plenty of spare bedrooms sitting idle, which was the original point of airbnb.

        There are people who are having trouble making ends meet who rent out that spare bedroom. Who are you to tell them they can’t?

        • Nov 19, 2017 at 4:58 pm

          I agree on the spare-room rentals. See my response above.

      • Raymond Rogers
        Nov 19, 2017 at 8:00 pm

        If housing costs are so high, why aren’t new in its being constructed to keep up with the demand? I would think the city would love the tax revenue, and the people lower housing costs. Surely it must be a profitable venture to build up and/or up. Is it a matter of bureaucracy, units being built but not ready, or some other factors?

        • Nov 19, 2017 at 8:56 pm

          Raymond Rogers,

          There is a housing construction boom going on in SF, mostly high-end condos and apartments. Towers are rising in certain areas at a dizzying pace. Many condos are snapped up by investors hoping to make a buck. But no construction boom can keep up with demand when housing becomes a highly leveraged global asset class in a world with excess liquidity that is trying to find a place to go. Financial demand of this kind for housing is not physical and can be nearly unlimited. But construction is very physical can never be unlimited.

          Which is to say, Airbnb is not the only factor, and probably not even the biggest factor that is causing the housing crisis here. But it’s a significant factor, among many factors.

      • rich
        Nov 20, 2017 at 10:16 am

        One size doesn’t fit all, and all cities are not SF, and all states are not California. I live in NC and can’t relate to, “affordable units ($500,000)”. Affordable, where I live, is $85 a square foot. Airbnbs here have brought money into the hoods, and cleaning up high crime, trashed out neighborhoods has not been a bad thing.

        By the way, folks with money usually don’t choose to live around folks who are desperate for money, and that’s not a new mindset. High density apartments in low density neighborhoods are not always desirable for the low density dwellers. On the other hand, one county where I live has facilitated low rent workforce housing by allowing homeowners to build auxiliary rental cottages on their lots. These are kind of like middle class carriage houses.

    • Mary
      Nov 19, 2017 at 1:39 pm

      Say I live next door to you. My large yard, a total headache to maintain, is “sitting idle”. Why not put it to productive use as a used car sales lot?

      • BVian
        Nov 19, 2017 at 2:04 pm

        Back to the code enforcement model- if one person does it, easy to crack down on. But if an entire neighborhood or city is doing it, the bureaucracy can not handle enforcement.

      • Thrasymachus
        Nov 19, 2017 at 2:57 pm

        Sure, why not give it a try. How large is your yard? How many used cars will fit? Front yard or back? If front, make sure your cars don’t infringe on your neighbors’ private property. Or block the city-maintained sidewalk. You’re putting one of the three major resources to work (land), but how about the other two: labor and capital? Can you afford inventory, especially tied-up if the cars go unsold. How about labor? Will you pay salesperson on the *lot* or will you have to hire someone? How many cars a month will you have to sell to make it worth tying up your resources? Lots to think about.

        • Paulo
          Nov 19, 2017 at 7:50 pm

          I live rural and a well-meaning local (retired) doctor co-signed a mortgage on a piece of crap trailer down the street from us in order for a local (somewhat challenged) young man to buy a house that he has no real chance of affording. The jack-o-lantern is still out in the yard, melting, (hey…just 3 weeks) and sits right next to the baby carriage which must be full of water. The baby is now three years old and is learning to drive a small quad, (you get the picture). The garbage can concept is not yet grasped, as they are left out on the street week after week and the garbage is brought out to them rather than ….. The 4 derelict cars, with flat tires, sit with hoods unlatched; just to stop that pesky need to reach for the latch in case someone might need some parts. Did I mention the washing machine sitting outside for the last year next to the partially painted shop? (He did get about 1/3 painted, though, and it only took 6 months!!) I think the ladder blew over. The lawn was cut once, 2 years ago. Every so often a bear gets into the garbage cans and what the dog doesn’t finish off or the crows take away, simply blows across the street to the Catholic Church.

          Air bnb is a pretty small problem compared to the goof living down the street.

          Oh yeah, I forgot to mention his neighbour, Kevin. Kevin is about 34 and is renting an old shitty owner-built home for $1300 month. It has no heat beyond a woodstove and is the poorest construction I have ever seen. (I am a carpenter and builder). Kevin, builds logging roads for a living, and lately broke up with his quite nice younger wife because she objected to him boinking his 25 year old blonde cousin who happened to come for a visit last year and stayed to warm his bed. The wife now lives up the valley and drops off the kids with kevin’s cousin for daycare, while she drives to town and cleans houses for a living.

          Why do I live here? Well, we have a great home on the river and a bunch of property. Unfortunately, the pride of ‘home ownership’ isn’t universal. It could be worse, though. My good friend has a beautiful home across from both of them!! Oh well, it gives him something to complain about. And everytime I drive by I get to say, “Kevin, get off your cousin and go to work”. It’s pretty fun, actually. And, the cousin is pretty cute. My wife doesn’t think so but …… I do.

          Air bnb isn’t so bad. At least the places must be nice in order to rent out. :-)

        • Viking
          Nov 20, 2017 at 8:18 pm

          @Paolo

          Beautiful, reminds me of the beginning of Idiocracy!

      • Larry
        Nov 19, 2017 at 11:36 pm

        No it’s not exactly in keeping with your example, but the residents of Foxborro, MAssachusetts that used to make an okay cut of cash renting out their yard as parking for Patriots games. Not a bad exchange for the inconvenience of living near a stadium that clogs up roads about 20 times a year. But lo and behold, billionaire Bob Kraft couldn’t stand to have a few of his overpriced lots empty so he worked with the local town government to make it illegal to park cars on private resident property.

        https://www.boston.com/uncategorized/noprimarytagmatch/2012/09/13/pats-home-game-will-be-test-of-parking-for-pay-ban-in-foxborough

        • Thrasymachus
          Nov 20, 2017 at 5:09 pm

          This is a perfect example of *rent-seeking” economics: Bob Kraft seeking to increase his share of existing wealth without creating new wealth. Thanks for the example!

    • Lune
      Nov 19, 2017 at 2:13 pm

      How about my property rights when I buy a condo in a secure building but have to deal with new strangers living in the next door unit each night?

      You could say take it up with the condo association. So now, we all need to suffer through extra regulations about how many “friends and family” can stay over in a unit, for how many days, plus pay for someone to enforce those rules, because one person abused the previous informal rules. Sounds like a private property takings to me…

      • Petunia
        Nov 19, 2017 at 3:13 pm

        If you are in a condo and there are empty or foreclosed units, they are already in the “rental” market, whether you know it or not.

        • Lune
          Nov 19, 2017 at 4:39 pm

          True but there’s a difference between renters, even ones who sign only month to month leases, and airbnb customers who come and go within days.

    • Huckleberry
      Nov 19, 2017 at 6:53 pm

      Exactly. I use airbnb on a regular basis. It’s cheaper than hotels in a lot of places and can be more convenient depending on the location.

      If I want to host people in my home and charge them a fee then that should be between me and them. The government should have zero say.

      Wolf in your response you mention crowded markets with low vacancy rates. Well just wait until there’s another financial reckoning and see what happens. Pretty sure that vacancy rate will jump like a bucking horse at a rodeo.

      I don’t see the point of trying to address all of the effects of central bank/government mismanagement of monetary & regulatory policy by micromanaging them with more government regulations and taxes. Fix the root cause (I know, tall order) or none of it matters.

    • intosh
      Nov 20, 2017 at 12:52 am

      Here is a story of that “sharing” economy:

      http://qz.com/842996/what-happens-when-a-30-billion-startup-stops-being-nice-and-starts-being-real/

      Anyone who still thinks AirBnB is about mom and pop renting out a vacant bedroom or an entire property when they are out of town a few times a year is either extremely gullible or being disingenuous.

      Now most listings are stealth hotel businesses. There are money out there buying apartments in bulk to be listed on AirBnB. It’s good business because no need to pay permits, nor taxes, unless caught and you pay someone under-the-table to go clean and maintain the units. It is a lucrative business but it is unfair and illegal business.

    • Duke De Guise
      Nov 20, 2017 at 6:07 am

      Sure, Thrasynachus, all the black cars now flooding the streets in my city (and in some cases being driven by my formers students, just graduated from high school), just used to sit idle somewhere.

      Keep telling yourself that, if it comforts you.

    • BadBnb
      Nov 20, 2017 at 12:58 pm

      I apologize in advance for the long rant.

      I guarantee all of the AirBnb supporters posting here do not live next door to an AirBnb house. Because if you did, you would not be so cheery on the idea.

      I do, and it’s been a living hell for my family and I for years. I purchased my home 17 years ago in the San Gabriel Valley (suburb of Los Angeles) because it was located on a nice quiet block filled with simple, SFR homes. My new Airbnb hosts purchased the house next door in 2007 and after struggling to make the mortgage, applied and received HAMP, then found the silver bullet when AirBnb came along.

      Now, for three months every summer (and one month during December) plus random dates during the year, I get the pleasure of dealing with vacationers who change every 3-4 days. Rarely a week goes by when a tour group doesn’t arrive at 2am on a weeknight, slamming car doors and side doors as they try to get settled in for their lovely holiday.

      Since the house rules forbid them from smoking inside, outside they go, right next to my bedroom window. And since it’s cheaper to rent a house vs. 5 hotel rooms, they also pack 10-12 people for the week bringing along with them 4-5 extra cars which they park anywhere they please. And those are just the minor annoyances.

      I’ve called the city about noise complaints, occupancy complaints, safety complaints, and their response is always the same, can’t do anything about it since there aren’t any laws being broken.

      So while I can appreciate and accept the occasional party, house guest or even vacation swap, it’s the constant churn of people and activity that AirBnb brings to an otherwise quiet single family neighborhoods that creates the animosity.

      So yes, there absolutely needs to be regulations set in place, can’t happen fast enough.

      • Thrasymachus
        Nov 20, 2017 at 3:32 pm

        Very clearly stated. Thank you for your reply. Your negative exposure to the Airbnb model reminds me of the Section 8 housing or Halfway House model, which are subsidized by government funding.

        As in your case, you buy a neighborhood as well as a home and have undoubtedly spent years forming neighborly relationships and now you have a *transitional residence* next door to you inflicting all of the negatives as you have described.

        From what I have observed, Airbnb works best when a homeowner rents out a room, but remains in the home for the duration of the guest stay. The guest enjoys a home stay at a lower price than a hotel and the homeowner gets additional income. (Witness host testimonials waxing wonderful about the extra income, income that helps a homeowner pay bills, etc.)

        It appears to me most of the problems occur in the *flip-key* model (like your neighbor) in which a homeowner turns over the house to guests (strangers?) and vacates their own home.

        As I’ve stated, the sharing economy is a powerful model for consumers and asset-owners, and I hate to see it regulated away, but it appears a lot more study is needed other than just imposing a *lodging tax* on the property.

        By the way, regulations are happening on a city by city basis. Not just taxes but guest duration restrictions. How is your city council addressing this issue?

        • BadBnb
          Nov 20, 2017 at 6:07 pm

          Thrasymachus,

          I appreciate your response, thank you for hearing me out. If they rented out a room in their home, quite honestly, I probably would never have noticed or raised an eyebrow.

          When someone is staying in the same house as a stranger, I imagine the host probably goes a bit above and beyond the vetting of their guest and as a result, minimal issues arise.

          On the other hand, renting out the entire home just lends itself to additional worries due to the increased capacity (and subsequent people that will definitely utilize such capacity), far outstripping the resources available to support the increased numbers (ie, parking, number of people in the house).

          Regarding the city, I’ve had correspondence with the Chief of Police, City Mayor and City Manager regarding the situation and while they sympathize with our situation, I can tell this is something they are taking a wait and see approach. They did say they were keeping an eye on developments in other cities such as Anaheim, Santa Monica and a few others, which seem to be at the forefront of the legal issues stemming from the short term rental market. But I don’t believe they’ll have any solutions until more people either complain about it, or even worse, something horrific happens during someone’s stay.

          I’ll also submit (as others have already stated), AirBnb has had a detrimental effect on the housing stock across the larger cities and surrounds. My neighbor is a case in point. If there was no way to generate additional income from AirBnb, they would have most likely put the house on the market, or foreclosed (take your pick) and the market would be allowed to run it’s normal course (don’t even get me started on the Central Bank’s role in all of this as well).

          I’m not wishing for people to lose their homes, if they want to liquidate their pensions or 401Ks in order to feed the alligator, have at it, since it doesn’t affect me. But I, nor my neighborhood, should have to be collateral damage so they can get by.

          I’m dead serious, it’s like living next to a motel, and I’m pretty sure most people wouldn’t enjoy that.

        • Thrasymachus
          Nov 20, 2017 at 7:23 pm

          Exactly. *Property rights* works both ways, right? Jane Jacobs wrote a seminal book on urban planning called *The Death and Life of Great American Cities* in which she profiled what was wonderful about her neighborhood, Greenwich Village. It was about high-density, low-rises in which neighbors knew each other and their daily habits and were more inclined to help each other. She was contrasting low-rise neighborhoods vs the high-rise federally subsidized towers where people were disconnected from the street and each other. Strangers rotating every few days from a Airbnb *transitional residence* would have quaked her bowels for sure.

        • cripes
          Nov 25, 2017 at 2:37 am

          Thrasymachus:

          Your equivalence of AirBnb and Halfway Houses to “Section 8” tenants is misplaced in important respects.

          For several years, Housing Choice Vouchers (HCV) have replaced the former section 8 program; a minor quibble, but one that shows you haven’t been paying close attention to the topic.

          More pertinent is that HCV tenants, about 70% of whom are elderly, disabled or minor children, have much longer tenure of residency in their homes than other tenants, due to the blatant, and often illegal, discrimination against them.

          Obviously also, is that the few landlords willing to rent to subsidized tenants are almost exclusively in the worst neighborhoods, or buildings set aside for voucher holders and gangbangers only, thereby concentrating poverty in areas devoid of decent schools and employment opportunities, unless you are counting drug dealing.

          Again, which the majority of HCV tenants don’t engage in, except eventually the children who grow up in these circumstances.

          Finally, Singapore, Vienna and many other cities have demonstrated that social housing–owned by the municipality–can be stable, economically mixed and sought after by the middle class, eager to live in nice homes managed in common, rather than by profiteering private speculators.

          Just not in the US.

  2. DK
    Nov 19, 2017 at 10:35 am

    More regulation and taxes. That’s what we need.

    • economicminor
      Nov 19, 2017 at 11:32 am

      Regulations arise when some new profitable idea creates an unfair imbalance with preexisting models. This can occur in the social order or the taxing or regulation of existing business models.

      People act like this is unfair when in many cases it is just a natural reaction to some entity that has figured out a loop hole that is causing existing business models to be disadvantaged. If you want no new taxes or new regulations you want things to quit changing. Taxes are the price of having a civilized society. You want chaos? Get rid of all taxes.

      • BVian
        Nov 19, 2017 at 11:38 am

        Speaking as someone who has to chase grant money to plant street trees in my neighborhood or build parks, taxes are great when they are reinvested in the public. It doesn’t work out when they are just paying the administrators to “administer” the money.
        Even if you come up with more money for a new regulating dept, they will most likely end up being as effective as code enforcement.

      • Thrasymachus
        Nov 19, 2017 at 11:47 am

        >Regulations arise when some new profitable idea creates an unfair imbalance with preexisting models.<

        Unfair imbalance? It's called *creative destruction* my friend. And it explains why I am typing this on a Mac rather than a Olivetti typewriter.

        • David G LA
          Nov 19, 2017 at 12:14 pm

          When you buy a Mac, you pay sales taxes. The store pays rent, taxes, wages, benefits. not a logical comparison.

      • marty
        Nov 19, 2017 at 2:50 pm

        Regulations arise when some “bright” politician sees money to be made.

        “Taxes are the price of a civilized society.” It’s hard to believe adults repeat this stuff. *sigh*

        • Bob Bancroft
          Nov 19, 2017 at 10:45 pm

          Don’t use tax funded roads, municipal water, courts, call the government police, firefighters or use goverment stabilized money/banks. Taxes can be wasted, but in this country most of the waste is funding war toys. There is always government, and yes, the cost of civilization is taxes. Adults realize this.

        • Vanu
          Nov 19, 2017 at 11:10 pm

          Go live in a third world country for a few years and get back to us on how life is without a tax base.

        • How Now
          Nov 20, 2017 at 6:14 am

          When I read comments like yours, Marty, I’m reminded of the poor job I did as a teacher. For people to think that “regulations” ARE the problem and not have an appreciation of WHY there are “regulations” is a lesson in failed civics education. Yes, there are some regulations that are gratuitous, largely for the benefit of a particular company due to lobbying. But most are the result of “good intentions” – not the ones used to “pave the road”. Why should DuPont not dump toxic waste material in rivers? Why should home owners not have regs that keep their neighbors from opening a brothel next door? Read Sinclair Lewis’s “The Jungle” and get a glimpse of the conditions in the meatpacking industry years ago, before “regulations”. Arguing to “get the government off my back” is the rhetoric of oligarchs. If you aren’t an oligarch, then you should shed the sandwich board and stop carrying their water.

  3. Petunia
    Nov 19, 2017 at 10:46 am

    I spent most of my life as a renter in low end and high end neighborhoods and the cultures of these places are entirely different. The cultural aspects are what dirties the water when it comes to mixed income development and we like to pretend these differences don’t exist.

    You are being careful or maybe kind in pointing out that low income translates into less maintenance money for upkeep. But the lower income also translates into less money for entertainment, which translates into boomboxes blasting, not just necessarily on weekends, and more people coming and going all the time. I have seen it all up close.

    Personally I would reject mixed income housing and have done so in the past. If you want to help the poor or low wage workers, just give them the money. You would be surprised at how many people like the lifestyle of the old neighborhood.

    • Michael Fiorillo
      Nov 20, 2017 at 9:48 am

      That’s why George Meany, head of the AFL-CIO in the ’60’s and ’70’s said that the best anti-poverty program ever invented was a union.

      Unfortunately, while not yet illegal, it’s virtually impossible to organize unions in this country anymore.

      • rich
        Nov 20, 2017 at 10:25 am

        Unions lost their clout when labor got off-shored.

        • Michael Fiorillo
          Nov 20, 2017 at 1:58 pm

          They started losing it even before that, but your point is still valid.

          On the other hand, until the robot/ automation apocalypse swallows us all, there are still workers in this country who could throw quite a scare into the Overclass, if they were educated, organized and mobilized.

  4. Habeas Corpsesus
    Nov 19, 2017 at 11:38 am

    Isn’t there a way we can preserve the Airbnb concept without the voracious zombie aspect? And I do know average, non “high class” people who are renting out “grandma’s sewing room.” I just returned from a once-in-a-lifetime trip of Great Britain that I could not have afforded without Airbnb. We are too old for hostels or cramming 3 people into a hotel closet. Two weeks and 3 cities for $100 a night. Tiny hotel rooms were going for $250. Is this a first world problem of mine? I shouldn’t travel if I can’t afford corporate prices?

    • Petunia
      Nov 19, 2017 at 11:57 am

      I grew up in NYC and long before Airbnb, people were subletting their apts, especially in the summer months. Since subletting was either illegal or not allowed, it was always a “friend or relative” staying over. We had an old widow in our rent controlled building who took in boarders for her spare room. Technology has only made it easier to do.

      • Habeas Corpsesus
        Nov 19, 2017 at 12:15 pm

        Interesting. Back in the 80s my friend listed her house with some outfit, can’t remember the name, Homeaway or something like that. Much easier to do this now so more people are doing it.

  5. Shawn
    Nov 19, 2017 at 2:22 pm

    “Airbnb and its ilk. Treat these companies for what they are – hotel chains – and ban them outright in residential zones.”

    Good article but good luck with that. Oh naive me, I though that Federal government is the epitome of corruption. But the reality is that city governments take the cake. There is no way Mayor Lee of San Francisco is going to ban AirBnb unless his hand is forced.

    • Cal
      Nov 23, 2017 at 2:00 pm

      Lee grew up in a housing project in Seattle, BTW.

  6. RD Blakeslee
    Nov 19, 2017 at 2:39 pm

    Sometimes a new paradigm is best. Move away and get a life.

    • Habeas Corpsesus
      Nov 19, 2017 at 4:44 pm

      rd blakesly: I have no idea what you are saying but “get a life” is obnoxious and probably violating the forum’s policy of respectful posts.

      • RD Blakeslee
        Nov 19, 2017 at 5:10 pm

        Since you “have no idea what I’m saying”, how do you know it’s obnoxious?

        BTW, you misspelled my name …

        The phrase “get a life” was not directed to any individual, so it didn’t disrespect anyone.

        I will concede that my meaning would have been clearer if I had said “get a NEW life”.

        • alex in san jose AKA digital Detroit
          Nov 19, 2017 at 6:22 pm

          LOL “Get a life” is offensive now? Really? The phrase every 90’s mall rat used to toss at their pal because they didn’t have the latest “pipes”, IE wide no-taper jeans with a stripe down the side?

          “If we get any more sensitive we’re all gonna get a rash” – Jim Goad.

  7. Lee
    Nov 19, 2017 at 3:50 pm

    Interesting article especially about the vacancy rates.

    Melbourne is around 2%. Other areas such as down by the coast are almost like ghost towns during the winter and on weekdays.

    “There are 50 Victorian towns that have more vacant properties than occupied properties, according to the latest census data from the Australian Bureau of Statistics.”

    SEE:

    https://www.domain.com.au/news/victorias-holiday-home-market-is-booming-off-the-back-of-wealthy-downsizers-20171115-gzm0qo/

    In my little area I see very few ‘For Lease” signs on houses and townhouses and those I do see usually don’t last long. In many cases the houses have recently sold and are now being rented out while plans and approval for redevelopment are undertaken.

    The big 35 unit development down the street has started construction about a year ahead of schedule which means that they have basically sold out. One unit is on the market for resale, a flip, before it is even finished and listed at A$945,000 – 3 bedroom 2 bath townhouse on a ‘whopping’ 238 square meters of land……………

    Cross the road and go up one street and you can get a bigger place on a little more land, but older without the fancy fixtures for around A$600,000. (The rent on that place is around A$18,000 a year.)

    And our houses are getting smaller’ too:

    https://www.domain.com.au/news/australias-homes-the-smallest-in-two-decades-but-still-second-largest-globally-commsec-20171120-gznaxc/

    We rank number two now just behind you yanks. That figure includes apartments and townhouses. For houses that figure is 242 square meters in Victoria (Around 2600 square feet).

    We also had a ‘huge’ number of houses list in the neighbourhood. A couple in a small court down the street from us next to each other, one further up from them on a corner block (It sold within 10 days of listing. Now to just see what the price was), and then two just one house apart from each other on that same street. One across the main road and on a side street – really nice with a big yard surrounded by A$1 million plus places listed for A$1.3 million. That house will probably sell before any of the others on our side go under contract.

    Further up the road on the other fancy street a house had been listed and didn’t sell, went to auction and didn’t sell, and is now listed again. A little over 1 1/4 acres with indoor swimming pool…………… a real ‘bargain’ at around A$1.5 million! No subdivision possible though.

    One of the houses listed on our side was sold 5 years ago by the bank and it went cheap – about A$150,000 less than the ‘market price’ at the time. The current listing price is more than double that sales price, but the buyers probably put in a good amount of money to fix it up. Even more expensive than the one on the corner that sold fast. IMO it will take a long time to sell at the asking price and will have put a big discount on the asking price.

    And finally, to see some of the ridiculous prices being paid for properties in the fancy areas have a read:

    https://www.domain.com.au/news/cashedup-baby-boomers-dominating-melbournes-heavily-stocked-auction-weekends-20171119-gzojvt/

    PS:

    Fed credit went up by US$4.5 billion in the past week…………..

  8. Shawn
    Nov 19, 2017 at 6:15 pm

    At least Seattle is doing something but I hear Vancouver is doing more.

    Seattle council approves tax on Airbnb, other short-term rentals

    https://www.seattletimes.com/seattle-news/politics/seattle-council-approves-tax-on-short-term-rentals/

  9. Shawn
    Nov 19, 2017 at 6:24 pm

    This article shows that city government regulations and limits are having an effect on AirBnb’s bottom line. 14 million people a year visit Paris, AirBnd’s biggest market, followed by London and Amsterdam.

    Airbnb To Limit Home Rentals In Its Biggest City
    http://sanfrancisco.cbslocal.com/2017/11/14/airbnb-limit-home-rentals-downtown-paris/amp/

  10. 2GeekRnot2Geek
    Nov 19, 2017 at 6:58 pm

    I agree with Wolf. AirBnb should be banned outright.

    The “Sharing” economy is about disruption, and the disruption is usually targeted at all the costs associated with the things that are regulated with the customer in mind. Think your personal safety and health.

    As someone who traveled for about a decade of my career, I have seen problems in reputable regulated hotel chains. And almost all of those were in desirable vacation spot locations. (I never had a problem in Toledo, Cleveland, Pittsburgh, Albany, or Buffalo LOL)

    So when you think about all the “unnecessary” regulation, consider the list below as “What could possible go wrong in an unregulated AirBnB?”

    1. Bedbugs
    2. Cockroaches
    3. Rodents
    4. Incredible dirty rental
    5. Improperly cleaned or stored eating and drinking utensils.
    6. AirBnB Host backing out at the last minute and you have no where to stay.
    6. AirBnB rental next door partying “Animal House” style for the duration of your stay.
    7. A prior guest has a copy of the rental key. (Do not believe they change the locks between guests. It is not cost effective for the Host.)

    There will always be a percentage of Hosts who are in it for the money alone, and just don’t give a damn about your health or safety. Rent the grandmothers spare room. It will probably be cleaner and safer.

    • Rates
      Nov 19, 2017 at 9:44 pm

      There’s this thing called Reviews and human nature. People who got high reviews tend to do things to maintain that standing.

      I have been using AirBnb since 2013 and over that period, I’ve only encountered a SINGLE and admittedly terrible (cleanliness issue) experience.

      Some of the hosts I have stayed with actually worked or had worked in the hospitality industry and those were the absolute best. Everything in their homes were impeccably clean. Heck I would trust them more than hotels. Remember, hotels are also in it for the money, and they might sometimes skip cleaning your room or towels too for “Green” reasons.

      Except for that single occasion (never believe a host that is still a student), I have never experienced any of the issues you’ve listed above, and I’ve used AirBnb in over 10 plus cities all over the world with as many as 20 hosts.

      AirBnb is cost effective for travellers and it allows visitors to experience foreign countries as if they live there i.e. local neighborhoods, likely places you would NEVER go to if you are just a tourist.

      • Shawn
        Nov 20, 2017 at 6:51 pm

        Dude, I’m fine with AirBnb and no, it should not be banned. All people are asking all over the world that as a hotel/motel/B&B operator, pay the required taxes and adhere to mandated regulations. I guess I’m not a Libertarian, I do believe that for our society to function, people have to pay reasonable taxes and follow rules.

        • Rates
          Nov 20, 2017 at 8:48 pm

          No problem with taxes and rules. I was responding to the hysterics of @2GeekRnot2Geek.

  11. George McDuffee
    Nov 19, 2017 at 8:43 pm

    IMNSHO it appears that all of the “housing” problems listed in this and other posts are not unique to “housing” but are rather a few of the symptoms of a society/culture/economy undergoing unprecedentedly rapid change and stress.

    The core problem appears the increasingly rapid drive to ever greater centralization in all areas of human activity, from ultra urbanization, with ridiculous population densities, to highly pernicious economic consolidation under the “Brave New World Order,” exacerbated by massive tax evasion and rent seeking.

    Is it any surprise that socioeconomic models from the dawn of the industrial revolution [Wealth of Nations by Adam Smith] and the Napoleonic wars [comparative advantage by Ricardo] no longer apply in this new age, and are increasingly counterproductive from the viewpoint of the typical citizen?

  12. JR rabbit
    Nov 19, 2017 at 9:11 pm

    I would add to that list of problems with unregulated rentals.
    Does grandmother’s spare room come with functioning fire alarms and fire suppression systems, as well as well lighted and marked emergency escapes? Does the 3rd floor have a separate fire escape ladder?
    It would be awful to wake up to a fire inside your own home. Now imagine your panic to wake up to a fire in some home you don’t really know and have no idea how to get out of.
    (my wife recently found herself in a classy Airbnb house. There were no fire escapes and only one exit from the 2nd floor. All the windows were painted shut.)
    I think I’ll skip on the Airbnb until those rooms get inspected and meet the same safely standards as hotels.

    • intosh
      Nov 20, 2017 at 1:24 am

      Some people already paud the ultimate price:

      https://medium.com/matter/living-and-dying-on-airbnb-6bff8d600c04

      It’s only a matter of time before this “new” business is regulated. Then, it will become pretty much a traditional hotel business. But in the meantime, some customers will die or get hurt. People against regulating a market don’t realize that regulations don’t just appear in a vacuum — there are cases or events that led to their conception.

  13. Penfold Dangermouse
    Nov 20, 2017 at 10:59 am

    Can someone kill the PR/Ted Talk-driven gimmick that AirBnB/Uber “shares” idle resources.

    no, no, no. Professional hoteliers/jitney cab drivers delivery the bulk of AirBnB/Uber supply. There’s a power law distribution in rides given and hoteliers using the very data that AirBnB/Uber releases.

    People are buying cars specifically to Uber in. People are taking housing off market specifically to AirBnB with.

    Yes, grandma may rent out her room when she’s gone, grandpa may Uber once in a while, but they’re the exception, not the norm.

  14. C smith
    Nov 20, 2017 at 12:15 pm

    “…when housing becomes a highly leveraged global asset class in a world with excess liquidity that is trying to find a place to go.” Yep. The central banks did it…and everyone else is forced to clean up the mess.

  15. Goldlaerche
    Nov 21, 2017 at 5:12 am

    Another low hanging fruit: can’t by unless for primary residence and only property. No investing, sorry. No sympathy for your second or third home wants. Can be revisited if and when and where residents are served and there is oversupply, but until then those who want to buy a place to live in it come first. Wanna by a second condo to rent out for retirement income? Too bad, we need homes for people to live in and there ain’t enough for your investment pleasure. Maybe later. Put your money elsewhere.

    Markets need to be regulated to serve some real-world purpose, lest they (and we) serve their own.

  16. Kraig
    Nov 21, 2017 at 7:23 am

    Why not just use caravans ( trailers) statics are quite good although mostly used as retirement homes here.(prices are always way lower though) Despite their name they are relatively mobile(they can always be crane lifted onto a flatbed, and plugged into infrastructure the other end. Shipping container homes are worth considering but don’t have the production levels and the same ability to scale. Of course these trailer parks could easily accommodate mobile trailer and RVs as well.

  17. mtnwoman
    Nov 21, 2017 at 8:15 am

    Having health insurance that costs 25% of one’s income is a “high-class” problem. Interesting you didn’t list this a problem

    Having to find the money to pay essentially another mortgage is one reason some of us turn to AirBnB.

    I’m 60 yo, self-employed, and this year the cheapest plan I can find is $1,000 per month PLUS $6,650 deductible to pay BEFORE it even pays for anything beyond a pap.

    Should we go without insurance and face bankruptcy when a health issue arises? I say it’s past time the US join the rest of the world’s develeoped nations and implement Single Payer/ Medicare for All.

  18. Cal
    Nov 23, 2017 at 1:54 pm

    You cannot simultaneously be for low skilled immigration and then lament the lack of low income housing.

    According to the U.S. Department of Homeland Security (DHS), an estimated 2,830,000 unlawful immigrants resided in California in 2011, compared to 1.5 million in 1990 and 2.5 million in 2000. This number represents about 24 percent of the entire estimated unlawful immigrant population in the United States (11.5 million in 2011).

    Wonder how this affects the supply of affordable rentals?

    Study finds half a million illegal immigrants in Bay Area

    mercurynews.com/ci_18509257

  19. c1ue
    Nov 23, 2017 at 3:51 pm

    I totally agree on the Airbnb phenomenon destroying housing supply for actual residents: the apartment underneath me has been full time Airbnb for years now. That unit is out of the resident pool forever.
    However, if there is a magic wand to be waved – I wouldn’t focus on Airbnb.
    Proposition 13 is by far the greater evil.
    While sold as a way for the elderly to keep their homes (instead of reaping a huge windfall and moving to Florida), in practice it leads to the same people moving to Florida but with the bonus of being able to rent their erstwhile homes for more money in 1 month than the annual property tax.
    There are many multi-million dollar properties in SF where the property tax is less than half my present rent.

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