Another unintended consequence of the internet
We were in Missoula, Montana, last weekend staying with friend in an older neighborhood of small, tidy homes. We learned that over the last several years our host’s former next door neighbor, had purchased, remodeled, and converted three of the other four houses on the same side of the street to short-term rental properties. Perhaps this example is a gross aberration in just that block of the Missoula housing market—but I doubt it. It speaks of a disruptive trend.
It may now seem like ancient history to recall when people looking for a place to stay first consulted listings of motels in the “yellow pages” of a paper reference called a “telephone book.” But that is not ancient history—and change has sneaked up on us. In fact, the rise of online short-term rental brokerage services like “VRBO” or “Airbnb” began in the late 2000s—roughly the same years in which Facebook gained traction. These rental brokerage services are now big business—and, in the manner of other disruptive technologies, they have spawned a massive conversion of housing stock into short-term rental units just like those on the block in Missoula.
All disruptive technologies have consequences—often unintended ones. Let’s look at some local numbers. We start with the City of Spokane City Council agenda item around regulations and fees for marketing a short-term rental. Erin Sellers and Aaron Hedge of RangeMedia.co in their February 12 rundown of the agendas of local government meetings that week noted the following [see P.S.]:
If the new ordinance is passed [so far it has not], the fee [for short-term rentals] will go down to $2 per [from $4] night, which the city estimates will offset the $173,000 cost of the program estimated in the 2024 Adopted Budget. In order to collect $173,000 from $2 nightly fees, short-term rentals would have to be used for 86,500 nights in one year, which would amount to about 237 units rented out every single night of the year. [Click here and go to pdf page 574 for the data source.]
Bravo for back-of-the-envelope calculations. Let’s take that a step further. Assuming that many of those 237 units could house two plus people each, around 500 folks might have a roof over their heads if those units were offered as long term rentals. Clearly, one cannot simply snap one’s fingers and make these units affordable long term rentals—but these 237 units are listed on account of demand by people of means facilitated by internet-based brokerages. During some parts of the year many of these units will likely sit empty.
While we ought to have sympathy for the work and entrepreneurial spirit of those like our Missoula host’s neighbor, we must also ask at what point the rise of the short-term rental market threatens the integrity of the community. Long term rental unit shortages driven by units tied up in the short-term rental market are undoubtedly a factor in the rising number of people rendered homeless.
How often is your Airbnb or VRBO rental owned by an über-wealthy distant investor or investment company seeking profits—and in so doing distorting the local market and driving the housing shortage? One rarely knows if the contact person for the rental is the owner-operator or simply the employee of a management firm contracted by an investor consortium. We need data.
Frustratingly, most of the news coverage around the imposition of short-term rental (STR) fees and regulations is centered on the fees and regulations themselves and not on the reason for discussing them in the first place—the market disruption posed by STRs. On—line brokerages dealing in short-term rentals have changed the dynamics of the housing market. We cannot build our way out of the housing and homelessness crisis with an unregulated “free market” that in large measure serves only the well off.
Keep to the high ground,
Jerry
P.S. If you’re not already a subscriber to and reader of RangeMedia.co you should be. Erin and Aaron’s weekly Civics post is a valuable window into the workings of local government—and makes signing up well worthwhile. Paid subscription not required—but urged.
P.P.S. Thanks to M. Sellers, who graciously provided me with the reference to the primary documents (part if the agenda materials) that were to be considered that night at City of Spokane City Council from which they got their numbers. Click here and go to pdf page 574.
P.P.P.S. A $4/night tax on short-term rentals was passed by the City of Spokane City Council on July 10, 2023. Funds collected under Section 08.02.090 are designated for “Affordable and Supportive Housing,” an eminently logical application meant to ameliorate the harmful effect of internet-based short-term housing on the availability of affordable housing. (A secondary goal of the ordinance is to formalize the collection of data on the activity of the short-term rental market.) But, as is so often the case with taxation in Washington State (e.g. the state constitutional prohibition on an income tax), apparently there is a taxation tripwire somewhere in the State Constitution or the Revised Code of Washington that raises the risk of expensive litigation challenging the ordinance as an illegal tax. The current proposal to reduce the rate to $2/night (or eliminate it altogether) is an effort to avoid litigation. Of course, reducing or dropping the fee also negates a significant part of the intent of the original ordinance.