August 26, 2015

Organized Money Is Already On The Scene

KPCC reports from California. “Los Angeles officials will hold citywide meetings on short-term rentals in the coming weeks as they move toward regulating the rapidly-growing industry. Sebastien De Kleer was among the handful of professional short-term rental operators who spoke. De Kleer noted his 80 LA properties have generated more than half a million dollars in lodging taxes in the city in recent years. That’s ‘money that I love to spend, money the city and residents desperately need,’ DeKleer said.”

“Dozens of Airbnb hosts showed up to defend the site and their right to home-share. Many said that income generated from renting out a room has allowed them to do things such as pay the mortgage and send their children to college. Councilmember Mike Bonin, who authored a motion for regulations with Council President Herb Wesson, said he didn’t have a problem with home-sharing. His motion aims to allow people to rent out part of their primary residence. But he said the ‘bad’ kind of short-term rental is proliferating throughout his district, which includes tourist magnet Venice.”

“‘Real estate speculators are coming in and buying up entire apartment buildings and using them as rogue defacto hotels in our neighborhoods,’ Bonin said.”

From Seattle Weekly in Washington. “Alice doesn’t have a job—not in the traditional sense, anyway. She’s self-employed. Instead of working nine to five, Alice is a host for Airbnb. Alice (who asked to be identified by a pseudonym) operates two apartments as full-time Airbnbs. ‘I started to realize that there was a huge number of people coming into Seattle, and realized I could pay off my student debts a lot faster if I could host more than just a couple times a month,’ Alice explains. ‘And now I have two [apartments] in the city that I do full-time for Airbnb.’”

“Alice rents a third apartment for herself, and works as housekeeper, booker, and concierge for the Airbnb units. ‘I rarely meet my guests,’ Alice says. ‘Getting into the building is pretty automated. Everyone just kind of helps themselves.’”

The Citizen Times in North Carolina. “In Asheville, short-term rentals mean homes rented out for less than 30 days - typically to tourists - when the owner or a main resident isn’t present. Council members voting for the high fine spoke in unusually impassioned language about why they were against short-term rentals despite pleas from some residents. They said there was a very real possibility that businesses would buy up chunks of neighborhoods, turning once residential areas into defacto hotel districts.”

“Vice Mayor Marc Hunt and council member Gordon Smith said ‘organized money’ was already appearing on the scene. Despite a local housing crisis, long-term rentals that had housed locals were being turned into more lucrative short-term rentals for tourists, they said. ‘What I don’t want is for predatory investors to come in and gobble up our neighborhoods and housing stock,’ Smith said. ‘That is exactly what is happening in other cities around the world. So let’s not pretend it can’t happen here.’”

The Boston Globe in Massachusetts. “The vast majority of people who advertise Boston homes on the online rental website Airbnb list just a single property — presumably to occasionally rent out their home or an extra room. But 15 percent have posted multiple listings, according to a Globe review. Airbnb acknowledges that some people are not renting out their own homes. A survey of its Boston users released by the company last year found that while 82 percent of users were renting a primary residence, 8 percent were renting an investment property, 6 percent were renting a secondary residence, and 4 percent were renting an in-law unit attached to the primary residence.”

“One Everett landlord said that he and his business partner recently converted 13 of the 100 apartments they own across Boston, Everett, and Chelsea from standard yearlong rentals into short-term rentals, and then listed them on Airbnb. ‘It’s more profitable for us . . . and we don’t have to deal with the hassle of a regular tenant,’ said Jose, 25, who asked that his full name not be published because he fears that officials would try to shut his operation down. ‘You can easily triple the income going through Airbnb, compared to a regular rental.’”

The Arizona Daily Star. “Hundreds of Tucson-area homeowners were surprised to learn this year that their properties had been reclassified as commercial. The move by the Pima County assessor targeted people who rent their houses, guesthouses or condos as short-term or vacation rental properties for profit. For some people who own vacation and short-term rentals, the move feels like a government money grab.”

“‘What they did was slam us with twice the property tax,’ said Chris McGuire. He and his wife, Shana McGuire, at one point owned two vacation rentals in Oro Valley but decided to sell them after the assessor notified them of the changes. The reclassification changed their property tax payment ratio from 10 percent for residential to 18 percent for commercial. ‘I’m trying to make a little bit of money and trying to make the mortgage,’ Chris McGuire said. ‘It just wasn’t worthwhile.’”

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Comment by Ben Jones
2015-08-26 07:44:12

‘New short-term rentals are not welcome in Laguna Beach’s residential neighborhoods, the City Council decided. Mark Christy, a Laguna Beach resident and principal investor of The Ranch at Laguna Beach, an Aliso Canyon property boasting a hotel and golf course, said some of his employees have left town because they couldn’t afford rising housing prices. The short-term rental industry has played a factor, Christy said.’

“How can you compete when you’re paying $2,500 [per month] for a two-bedroom place and the allure of $475 a night is calling the landlord?” Christy said.’

‘Councilman Kelly Boyd echoed Christy’s sentiments, contending that people who were able to rent longer-term in the city are now priced out as owners find they can make more in two weeks by renting short-time. “I don’t like seeing people taking advantage of this,” Boyd said. “If they bought a home with the intent to rent to pay for it, that upsets me.”

Comment by Ben Jones
2015-08-26 07:47:52

‘Everyone knows it’s a bitch to find a place to live in Venice Beach. But there are more than 1,000 units for rent in Venice Beach on Airbnb. According to a study published by the Los Angeles Association for a New Economy (or LAANE) in March, that’s more than any other neighborhood in Los Angeles, and it accounts for more than $13 million in revenue to owners — revenue that isn’t taxed by the city like actual hotel revenue is.’

“People are being evicted, harassed, intimidated into leaving their homes,” says Judith Goldman, a cofounder of Keep Neighborhoods First, a group that’s fighting the spread of short-term rentals across L.A. “Conversion of buildings into short-term rentals in these destination neighborhood’s [like Venice] has become a tsunami.”

‘Goldman says many apartment buildings in the area have been entirely transformed into unofficial hotels. “These opportunistic owners are gaming the sharing economy to illegally convert affordable housing into hotels in disguise,” she says. “This is not home sharing, this is home snatching.”

Comment by Ben Jones
2015-08-26 07:52:14

‘In March, using data from October 2014, LAANE found that six percent of landlords on Airbnb were leasing companies, renting out more than one full units on the platform, but that those six percent were bringing in 35 percent of the Airbnb revenue in LA. Another 42 percent of landlords were renting out a single full unit, for another 54 percent of the revenue. Leaving the 52 percent of people just renting out extra space to earn just 11 percent of all the Airbnb money in the region.’

‘After the report was released, Airbnb kicked a few high-profile leasing companies off the site, but as the new LAANE report says, “the number of leasing companies on Airbnb actually grew from six to nine percent of all listing agents and from 35 to 37 percent of all revenue between October 2014″ and their latest analysis in July 2015. And, same as the last report, LAANE still found leasing companies posing as regular people on the site while advertising a slew of units.’

‘Meanwhile, the number of people renting out a spare room has “declined sharply,” from 52 percent to just 36 percent (they’re earning more though—16 percent of revenue). And that’s while the overall number of listings has skyrocketed: across 19 websites, the number of listings has doubled from previous estimates, to 23,268 units. Airbnb accounts for a full 65 percent of those rentals, with the rest spread across sites big and small, from Expedia to Way to Stay. The number of Airbnb listings alone has jumped by nearly third, up to 15,031 listings across LA.’

‘LAANE’s March study found rents rising much faster in Airbnb’s most popular LA neighborhoods than in others, but a University of British Columbia professor actually quantified the effect in San Francisco, finding that “the company removed sufficient housing stock from the San Francisco housing market to add between $19 and $76 to the average monthly rent.” Applying the median of that increase to Los Angeles’s rental market, LAANE estimates that “the $64.1 million in revenue generated by commercial Airbnb lessors this year has cost Los Angeles renters more than $464 million.”

‘They also estimate that short-term rentals are taking 11 units off the LA rental market every day, for a number that adds up to 63 percent of all the new housing built in the city between 2010 and 2014. (That new housing is supposed to be helping drive rents down.) In popular Airbnb neighborhoods like West Hollywood, Silver Lake, and Echo Park, the number of short-term rental units is double or even four times the number of new housing units built. In Venice, Airbnb’s most popular neighborhood in Los Angeles, there are now seven times as many short-term rentals as there are new housing units.’

Comment by taxpayers
2015-08-26 08:08:29

property rights
landlords should be able to do as they please

(Comments wont nest below this level)
Comment by Ben Jones
2015-08-26 08:12:04

‘He and his wife, Shana McGuire, at one point owned two vacation rentals in Oro Valley but decided to sell them after the assessor notified them of the changes. The reclassification changed their property tax payment ratio from 10 percent for residential to 18 percent for commercial. ‘I’m trying to make a little bit of money and trying to make the mortgage,’ Chris McGuire said. ‘It just wasn’t worthwhile.’

I don’t care if people want to clean toilets for strangers. My point is this is related to the housing bubble. I don’t think these people would be doing it on this scale if house prices weren’t up and away. This guy in Tucson shows how marginal it is: 8% more tax and he’s out!

‘landlords should be able to do as they please’

I’m a landlord and I can’t do this legally. I also have all sorts of local, federal and state laws to follow. Not to mention insurance. Insurance is a pain for rentals and I don’t see how you cover this activity.

Comment by Rental Watch
2015-08-26 08:58:25

“I don’t think these people would be doing it on this scale if house prices weren’t up and away.”

A byproduct of high home prices for sure (most people would prefer NOT to clean toilets).

And high home prices and high rents–because both are more and more obvious–is a byproduct of not enough supply.

Comment by Mafia Blocks
2015-08-26 10:03:58

With 25 million excess, empty and defaulted houses and another 35 million just starting to trickle open, I don’t think there is an issue with supply Rental_Fraud.

Comment by Ben Jones
2015-08-26 10:29:42

‘not enough supply’

That’s what they were saying in 2004 in California before it became obvious there was a glut and developers walked away from thousands of lots. They said it in Tokyo too.

There’s no shortage of anything we can create. If just a few years ago we could build a glut of every type of housing, what is different now? That this thinking continues is more proof to me that it’s the same bubble.

Comment by Mafia Blocks
2015-08-26 13:31:48

Remember…. there is a globe full of land and a full 95% goes undeveloped.

Comment by Rental Watch
2015-08-26 13:42:19

“There’s no shortage of anything we can create.”

That would be true if there was no zoning laws, no Sierra Club, no CEQA, no Coastal Commission, etc.

We have placed artificial restrictions on the ability to create more housing.

Comment by Mafia Blocks
2015-08-26 13:44:22

That doesn’t do much to explain the fact there are 4.4 million excess empty and defaulted houses in CA Rental_Fraud.

Comment by Ben Jones
2015-08-26 13:51:43

Life After The Boom: What Will Happen When This Bubble Bursts

Don’t worry about the lack of housing. Get ready for the bust.

Comment by Califoh20
2015-08-26 14:08:40

Do we want a free market or gov controls? Cant have it both ways.

Like Ayn Rand or Jesus, pick one.

Comment by Ben Jones
2015-08-26 14:11:49

‘Cant have it both ways’

You can if you are a silicon valley, money losing website loaded up with former Obama goons.

Comment by Ben Jones
2015-08-26 14:13:50

California’s capital city of Sacramento has announced an initiative to introduce 10,000 housing units in its downtown district over the next decade.

Do they have a magic wand?

I’ve been to California. There’s plenty of land and even a few illegals that still remember how to work. You’ll get your houses.

Comment by Mafia Blocks
2015-08-26 15:05:21

“former Obama goons”

Helpless flunkies.

Comment by Rental Watch
2015-08-26 17:23:53

There are 480,000 people living in the City of Sacramento (which is not as dense as lots of Cities in CA–so downtown represents a small fraction of this). I’m just putting 1,000 units per year in perspective.

Just because there is a desire to build 10,000 units over a decade doesn’t exempt the developers from CEQA challenges/lawsuits from neighbors based on state law.

Comment by Mafia Blocks
2015-08-26 17:29:02

And how many excess empty and defaulted houses are there in Sacramento…. 50,000? 100,000? 200,000?

Comment by Ben Jones
2015-08-26 08:02:04

‘Industry fissures are sure to surface as Los Angeles opens a debate Tuesday into how to regulate short-term rentals. In their motion, the councilmembers proposed authorizing short-term rentals when someone rents out their primary residence — “a spare room, a back house or even their own home while they are out of town.”

‘But the councilmembers said hosts should not be allowed to rent units that are not their primary home — to keep “speculators from creating a syndicate of short-term rental properties.”

Comment by rj chicago
2015-08-26 08:25:16

I wonder if Mark Hanson is not onto something here in his latest post that perhaps as Ben posted above re AirBnb. I wonder if folks are not purchasing ’second / vacation homes’ under false pretense to rent out as an AirBnb full time. I don’t have any direct evidence of this but given Ben’s posts above and Hanson’s take I wonder if there are not dots to connect?

Linky here…..

Abbreviated text here…(Ben’s rule)

Bottom line: “Second / Vacation” home demand has surged more than any other housing segment over the past three years. The overwhelming market opinion is that aging, equity-market affluent baby-boomers are all rushing in at the same time to buy their dream “vacation” home. But, this is misguided, as the data, herein, reveal the truth; there is no indication true “2nd/vacation” home demand is surging at all.

Goes on to say this…..

Excessive speculation and fraud are driving house demand and certainly prices. “Vacation”, “second”, and “investment” properties are all part of the same speculative “trade”, but by different parties. And just like in 2006, the distinction between the property types has become de minimis. As prices continue to increase past the ability for the incremental buyer to afford, either leverage-in-finance or fraud, must fill in the buyer qualification/house price divergence.


Comment by Mafia Blocks
2015-08-26 10:06:18

“Excessive speculation and fraud are driving house demand and certainly prices.”

That is correct. Realtor, mortgage and appraiser fraud is at record highs once again.

Comment by Jingle Male
2015-08-26 13:35:08

We rented a VRBO house for a week in San Diego. The owner purchased it March of 2014, mostly for a short term rental property investment ($1.68M) and felt the added benefit was that he could leave the SF peninsula every now and then and use the SD home for a vacation place for his family.

He told me the short term rental market was not all it was cracked up to be (overpaid?) and he was going to sell in the fall of 2015. This appears to be true, because it is now up for sale at $1,850,000. 545 Sea Lane, La Jolla, CA 92037. It shows up on Zillow.

Comment by IPFreely
2015-08-26 09:01:10

If land owners were really free to do as they pleased, there wouldn’t BE a housing shortage. Do we have zoning or not? Do we have borders or not? Do laws even matter anymore? Let’s just have anarchy, that seems to be what everyone wants.

Comment by HBB_Rocks
2015-08-26 12:30:42

Do laws even matter anymore?
The laws were all created by the same group that the housing bubble blog consortium is fighting on a daily basis. If they can’t build an appropriate supply of houses, how they can manage something more difficult like equitable laws?

Disparate taxes between commercial and residential properties, and policies against renting for whatever term are all drivers of housing shortages or overages depending on the area.

Zoning as written is also a waste, outside a handful of truly harmful industries.

Why do you need special insurance for rentals? If I have an extra kid, or let grandma stay for a while, do I need to declare that on my insurance? They figured it out for rental cars, they can figure it out for houses.

Comment by Senior Housing Analyst
2015-08-26 13:40:55

Yorba Linda, CA Housing Prices Crater 7% YoY; Housing Demand Plummets To 28 Year Low Statewide

Comment by Senior Housing Analyst
2015-08-26 14:53:26

US Census Bureau: “California Is America’s Poorest State”

Comment by Karen
2015-08-26 17:46:08

All the articles Ben linked to talk about how the vast majority of landlords on AirBnB are renting out their primary residence, or portions therof. But how do they even know this for sure? I’m assuming this is a self-reported statistic, and if so, these people are probably lying every bit as much as they do on their mortgage applications.

Comment by Ben Jones
2015-08-26 18:42:16

It may be so, but the percentage of revenue to full unit rentals is large and growing.

As far as property rights, I’m not posting the complaints of people around these places. If anyone wants to get on their high horse about property rights, what about the rights of neighbors who never bargained to live next to a hootenanny? I’ve already been down this road in Sedona with the craigslist people. It’ll end eventually because either locals get sick of the partying or prices go down and these toilet cleaners find something better to do.

Comment by JimO
2015-08-26 18:23:39

Hey if you’re generating income from ST rentals you will be taxed … and you had better be declaring the income from it … or start practicing your perp walk …

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