AirBnB units drop by 74% due to SF regulations
m.sfgate.com
m.sfgate.com
Rather than fix the tricky speculation issue, government focused on Airbnb. IMHO this will hurt both cities by making it more expensive to visit.
A $1.5M home should rent for at least $4.2k (P/R ratio of 30). That's $50k a year, smaller than the appreciation of $90k but still very significant. The only reason I see to not at least hire a rental management company to do the renting for you is if you are subject to rent control and fear not being able to evict the tenant/raise their rents.
The reason I have a lower rent figure is that rents haven't gone up as quickly, as much of the new construction has been focused on rental stock.
Anyway, according to zillow last 2 years is 7% average - and since depth of recession 8 years ago, 8.6%. 12.8% is likely a statistical abnormality. (Of note 10 year average is 5% vs. ~8.5% for SP-500 index funds)
Rents have varied over time. I'd say the rent on a place like this would be $3k a month in 2009, and maybe $4k now. This is harder to estimate. Also, rent control is different for SFH than for apartments - in this case, I'll assume rent control is in place [1].
So, lost rent is 3k a month for 8 years, $288,000. Ok, that's some serious lost money.
Gain in equity is $800,000. If your tenant make is hard to see and realize that gain, it really might make sense to leave it vacant.
I have seen houses in SF sell for vastly below market due to existing tenants, with powerful rights (there are certain protected classes of tenant). There's a lot of room between 300k and 800k.
It's not so simple, of course. It's expensive to be a landlord, and time consuming, and that income is taxed. So the loss of renting actually isn't $288,000, it's lower. Also, the house may be enjoyable as a pied a Terre. Think of it as any investment - you park your money somewhere, hope it will grown. Owning this house is no different from owning gold, or stock. You buy it, you hope it will appreciate. Buying and not renting could make sense as a mildly risk-averse approach - you give up some yields in exchange for the lower risk of not having a tenant. .
At the same time, cash flow is tough. Many people simply can't afford to pay the mortgage for 8 years without that rental income. And they figure, eh, eventually the tenant will leave, and then they can sell.
But overall? Yeah, I can see how it's economically rational to buy a place to speculate and simply leave it vacant[2]. Or, alternatively, rent only to extremely trusted people (family members or others treated as such).
[1] I'm cherry picking dates and rent control policy to show the best case scenario for not renting a place out.
[2] I believe this is harmful. Pointing out that something is economically rational (and in this case, perfectly legal) does not mean I endorse it!
There are lots of vacant properties: people happy to just watch the home value go up without dealing with renters...
Depending on the jurisdiction, letting go of a tenant--or dealing with a problem tenant--can eat up months, if not years, of expected profits. Two ends of a spectrum: India, with squatter rights, versus most American cities, with speedy courts and contract law.
Basically if you have a lot of money, the marginal extra income isn't worth the headache.
Tenants can also be surprisingly good at destroying your property and they have a surprisingly large amount of legal rights.
Two landlords in particular didn't know about things like escrow account and interest laws for security deposits, contact information posting for vacant landlords, who's responsible for things like snow removal and smoke detector maintenance. I left those units in good condition (thankfully for them!) but nearly sued twice and, in one case, received triple damages on my security deposit.
One landlord said "To keep costs low, tenants generally organize snow shoveling" I said "Oh, sorry, I didn't realize we were breaking the law here."
There are some states with very few tenant rights where landlords can get away with a lot. California and Massachusetts are not those states. It's a very serious part time job that requires a lot more than just owning a property.
He got his comeuppance.
This regulation is just the sort of red tape that incompetent governments impose, fooled by rent seeking interests to implement a barrier to entry to reduce competition.
I agree with you to a large part, but thats exactly what a host of AirBNB is after as well (seeking rent). I dont like how people try to use it as if its a bad word.
https://en.wikipedia.org/wiki/Rent-seeking
It's not a very descriptive term and I see why people get confused by it.
Economic theory shows that in a perfectly competitive market the price of a good equals its marginal cost of production. So prices above marginal cost demonstrate either a lack of competition in the market or other deviations from the theoretic ideal that give producers what economists call “market power”, the ability to charge higher prices for a good than they should be able to charge in a market in which many producers compete to sell more or less indistinguishable items.
Financing costs and all other costs are included in this calculus, so economic “rents” (as a term of art) in the context of the rent charged on homes and other real-estate means something like “excess profits due to a dysfunctional market”; in this case the dysfunctionality of the market is largely the result of regulation that prevents local supply of housing to rise to the level of local demand.
We saw this during the housing bubble: rents were detached from the price of housing and stayed low.
The problem here is that short term rental brings more revenue than long term rental. Before Airbnb you had to be a hotel to offer short term rental, so most landlords stayed out of that business and stuck to long term rental even though there's less revenue per unit.
But with Airbnb you can take your units out of the long term rental pool and put them in the short term rental pool, and because regulation has been slow to catch up, you don't have to take on the regulatory burden of being a hotel to do so.
Fewer units in the long term rental pool obviously, then, causes rents to go up.
Given that Airbnb makes units more valuable (by converting them to short-term rental and increasing the expected cashflow), they would of course then be more attractive to investors and that is perhaps part of the increase in housing prices in Vancouver. But even in that case the causality is increased rental cashflow driving up prices, rather than vice versa.
(Though I could see people buying vacation homes, status homes, etc. doing this)
If you were to let renters use that property and they don't take care of it properly, you'd have lost a lot of money. It's often just not worth the effort for these people.
Property tax acts as a stick to put property to productive use rather than just sit on it, otherwise the USA property market might be as dysfunctional as china’s.
It is expected that the Chinese government will eventually abandon the land lease system and replace it with a property tax one. But they won't do so until the current bubble pops.
Or you just sit and hold it. Maybe send in a cleaning and maintenance crew every once in a while to keep the dust at bay. Much less headache than renting.
Personally I'm inclined to be in favor of these protections, but I can also understand a wealthy investor wanting to take the hit of leaving the place empty to avoid these kinds of troubles.
http://kalw.org/post/growing-number-san-francisco-landlords-...
https://sf.curbed.com/2017/7/12/15961486/sf-tax-landlord-hom...
https://www.theatlantic.com/business/archive/2011/05/empty-a...
Remember that renters can block your ability to convert the property to something else, as you can't instantly evict them, so the value of the property can be higher the more empty apartments there are.
In cities where there are businesses on the bottom floors, and apartments above, they sometimes only rent out the business spaces, as they lack the same level of legal protection from short term evictions.
While life might be simpler with your model, it doesn’t fit reality well.
Here’s a decent analysis of the California situation with mismatched supply and demand and the headache that goes along with the state’s governance: http://www.latimes.com/business/la-fi-home-prices-20170725-s...
> High prices (demand) attracting speculation (supply) should drive down rents (prices) ... [but they're not]
Should? Then why aren't they?
> new buildings are regulated through zoning and permits.
In reality Antarctica is freezing cold and difficult to get to. And in reality there is a shortage of places to build new housing at an affordable price in either location mentioned.
yes, and AirBnB has built a business off ignoring those pesky laws.
As of 2011 there were 306,105 renter-occupied units in Metro Vancouver (http://www.metrovancouver.org/services/regional-planning/Pla...)
As of April 2017 there were an estimated 5,000 units on Airbnb (https://www.straight.com/news/943456/average-airbnb-prices-a...), but unclear if that's Metro Vancouver or a greater area.
The City of Vancouver estimates that 1,600 rental units could be returned to the rental supply (http://www.metronews.ca/news/vancouver/2017/11/14/vancouver-...).
The vacancy rate was 0.9% as of Nov 2017 (https://www.biv.com/article/2017/11/metro-vancouver-rental-v...).
So, let's do some rough math: 306k units * 0.9% vacancy rate = 2,754.
So Airbnb is holding up somewhere in the range of 50% - 100% of the vacancy rate of units in Metro Vancouver. It isn't a giant number, but if they were released back onto the market, that's a significant amount of stock to be available for renting, and I'd expect would relieve some upward pressure on rent prices.
That said, I don't disagree that there are other causes too, such as zoning, lack of many new builds until the last 10 years, and empty apartments. But my hunch is that Airbnb is a bigger factor than empty apartments, and a lesser factor than zoning/builds.
Which is insignificant, given the vacancy rate is a very small fraction of the total housing supply and has a natural level not affected by rental supply increases.
A condo may be unaffordable as an investment with a long term rental, but when one can get higher rents with short term rentals it then becomes profitable. Now instead of investor landlords doing long term rentals you have those persons outbid by people who are willing to pay more because they're running virtual hotels. Resultantly the price of condos rises and vacancy decreases.
This is explicitly the sort of group that the Vancouver regulations are targeting. Vancouver regulations allow you to rent out a room in your primary residence, but will not let you rent out a full house that is not your primary residence.
A huge part of Airbnb's revenue comes from commercial operators that buy condos to rent out exclusively, so expect Airbnb's Vancouver revenue to drop like a stone. If this trend catches on Airbnb revenue could decrease quite a bit...
It's not like the government is doing nothing. They've already tried other avenues, now it's time to try targeting short-term rentals.
"Build baby build" / reforming zoning and the massive influence disparity of current homeowners is the only way to fix housing in major cities.
For various reasons Seattle builds almost entirely purpose built rental apartments and nearly no condos. In Vancouver it's the reverse.
Seattle now has a 5% vacancy rate whereas Vancouver has sub 1%, despite the fact that Vancouver has multi unit construction at all time highs (33k at the moment).
It's a deeply complex problem and there's more to it than just building more. Clearly what Vancouver is building is not the right product to increase vacancy.
Additionally, developers should be forced to provide rental units when building condos. An indication that something is wrong in Vancouver? The richest people in the city are developers, who have been reaping enormous profits by converting precious density into cash. The city needs to make that density far less precious by greatly increasing its supply - and quickly.
Finally, speculation must be targeted provincially with a steep increase in property taxes across the board. Property owners who declare income and pay income tax in the province can have their property tax reduced dollar for dollar down to the original property tax rate. But investors - foreign and local - will have to pay more, making speculation far less profitable.
"About 2,000 people listed their homes but never rented to tourists." The percentage is artificially skewed by the effects of eliminating stale listings, and the real effect attributable to regulation is less significant than the headline suggests.
"San Francisco charges a $250 registration fee plus a $90 business registration fee for all hosts." This is a scarier prospect for AirBnB and other companies. If $340 is really enough to scare off a significant percentage of people, how much are these hosts making?
I'd suggest this one of the major killing factors. Many sf units are basically condo titles, which cc&r usually forbid Airbnb.
I'd love to see some numbers on how many hosts de-listed after a short while without any bookings or stopped after one or two at the most. It seems like a given that those kinds of hosts are pretty much gone now.
We (airbnb) have integrated with the city for registration requirements so that you can do it from the web UI. Go into the "Manage Your Space" section and click the "Registration" tab. I work on appsec and did the security shepherding for this integration.
Though I do wonder what the impact is on potential new hosts when they're in the "maybe I will, I maybe I won't" phase. It strikes me as more of a PR problem: convince potential hosts in SF that Airbnb makes compliance painless—fees aside—so they can get to the point where they're willing to pony up and try it for themselves in light of the new rules' publicity.
I mean this is, in part, a business registration fee we're talking about... are there other regulated businesses where you can charge first and get licensed second? Trash disposal, flammable material production, health care services? Liquor wholesaling? Gynecological services? Radioactive material transport? ...
From a regulatory standpoint the entire point of licensing actors is to deny poorly behaving actors licenses. If AriBnB were facilitating the sale in expectation of a license being granted then AirBnB is trying to act as a regulatory body, a no-no, and at the very least liable for any problems with the transaction or host, a no-no for AirBnB.
It's not the money. It's the fact that you will be on record and people can check up on you.
All this tells me is that a huge chunk of the AirBnB folks actually knew when they were in violation of something and, now that they might get caught, have decided that AirBnB really isn't worth it anymore.
Trust but verify.
And beyond the compliance checking here and now, it also means you're subject to and pre-registered for any and all forthcoming regulation.
I think, though, it's only fair. If private rentals are gonna compete with hotels then private rentals need to start addressing some of the issues we have regulated mostly out of existence with how hotels used to be. Like having a registered business, or perhaps the right kind of insurance, or the right kinds of fire safety systems that are monitored on a schedule. Business ain't easy, and shortcuts are how we get unthinkable tragedies. It's only fair the economics of AirBnB hosts reflect that.
Oh, I agree. Things like "pest control" are really damn important to people living around you.
Sure, single family homes or very small condo units (e.g. just a couple units where the owners all know each other) may allow it, but if other cities take this lead it will be a large, significant blow to AirBnB.
My whole point is they won't anymore in SF after this policy goes into full effect.
Unless it's something like a hotel or real bed and breakfast (the article explains these exemptions), only primary residents are allowed to list short term rentals (this legislation was put into place to prevent investors from buying up places just to put on AirBnB). It's illegal for the building owner to put up short term (i.e. < 30 days) rentals for multiple units in a building zoned for apartments or condos.
My point is that almost all large, multi-tenant buildings prevent their residents from doing short term rentals through subleases (or, if it's a condo building, in their HOA rules).
This is also really unfriendly to tenants, you now have a bunch of strangers traipsing through the hallways with no relationship or accountability to the neighbors.
The root of the problem is that tourists have diverging interests compared to locals, because they don't have to share the same building for many years. In situations where agents have to deal again and again, tit-for-tat works. But not where they meet just once.
It should be solved by good reputation tracking over rentals, so they don't escape responsibility - maybe reputation tracking should be outside the hands of a private company that has an interest in the game, like an independent organisation.
I have no political statement to make about it, but there are so many issues between the internet and the law: content copyright, airbnb, uber, money laundering with bitcoin... If you're a technologist, I can clearly see how a libertarian agenda fits perfectly.
Governments are not following on technologies to take advantage of them, or at least not quickly enough...
Hopefully SF's measure has more teeth.
Interesting you brought this up. Unless the listing is unbelievably attractive, a listing without a number or address just seems sketchy to me. Makes me think its the analog of a hourly rented motel.
If you're visiting an unfamiliar city and the place has good reviews, I don't see anything sketchy about only being able to narrow down the location to within a few hundred metres.
Why?
The nice part about this is that with so many fewer AirBnB things going on, some rental units are likely to come back on the market.
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EDIT: Yea it looks like the city is reducing the legal number of days someone can rent out something via Airbnb [0,1]
[0] https://techcrunch.com/2018/01/10/amsterdam-to-halve-airbnb-...
[1] https://www.engadget.com/2018/01/10/amsterdam-airbnb-rental-...
1) How has the average price for similar priced airbnb offerings changed pre and post regulations
2) How do vacancy rates for airbnb offerings in SF change following the purge?
I can see trends in both directions. Would be an interesting empirical analysis of how supply changes outcomes.
upside: maybe more housing available