San Diego has wisely made it easier to build granny flats. This is the Leucadian model by Crest Backyard Homes.
Photo from crestbackyardhomes.com
It must be the noise — not higher rents and home prices — that people feel most strongly about.
I am referring to public indignation about short-term vacation-housing rentals — Airbnb and the like. People scream to the city council about the constant stream of new neighbors renting the house next door for days or a few weeks, particularly in the summer tourist season. Some short-term renters hold all-night parties.
So, the neighbors go to the city council for relief. A battle rages. San Diego’s council tackled the problem late last year, and there still has been no action, because many people say their ability to rent out their homes or granny flats short-term helps pay the mortgage. “That’s why the city council has struggled with this issue — there are genuine upsides that work against the argument of a disruption in the community,” says Gary London of London Moeder Advisors. Plus the municipality rakes in tax income from companies such as Airbnb that connect people looking to rent out their homes, or part of them, to those looking for a short-term vacation spot that isn’t as busy or cold as a hotel.
By renting out a home or granny flat part of the year, “Families that might not have been previously able to afford a house” may be able to do so with the additional income from short-term vacation rentals, says London. Last year’s move by city officials to speed up the construction of granny flats was very intelligent strategy, says London. What’s more, the noise complaints, which he believes are exaggerated, “can be mitigated,” he says. (One can always call the cops.)
One economist, asking not to be named, says, “The chorus of complaints largely comes from the beach areas” where millennials (aged 18 to 34) huddle, sometimes raucously. “If you buy a house in the beach area, what do you expect?”
Economists almost unanimously tell me that in a metro area the size of San Diego County, short-term vacation rentals don’t drive up home prices or rents significantly and don’t harm the hotel industry. Nationwide, “the impact [on housing prices, rents, and hotels] from the Airbnbs is a small drop in the bucket,” says Skylar Olsen, senior economist for Zillow.com. In December of 2016, Zillow polled economists on the topic. Only 5.1 percent of housing experts believed that the ability to rent entire homes for short periods would have a meaningful, large impact on the supply and affordability of longer-term rentals.
Last year, three academic economists did a study of Airbnb’s effect on home prices and rents in 100 zip codes around the United States. Result: for every 10 percent growth in Airbnb listings, rents rose 0.42 percent and home prices 0.76 percent. The authors admitted that these were hardly earth-shaking increases.
To be sure, smaller metro areas that depend heavily on tourism are in a bind. Arizona State University did a study on Ketchum, Idaho, which is near Sun Valley and is a haven for hiking, fishing, trail-riding, and other activities, along with skiing. (Gary Cooper and Ernest Hemingway vacationed there, and Hemingway committed suicide in that location.) The Arizona State study concluded that short-term rentals pushed up home prices, driving out residents. The population dropped from 3003 in the 2000 census to 2689 in 2010. Similarly, towns around Lake Tahoe complain bitterly. Only 35 percent of homes in skiing haven Truckee are available for permanent residents. The rest of the homes are often vacant.
In a study, Sonoma County concluded that excessive short-term rentals created a problem. After the fire that swept the area last fall, the county’s board of supervisors slapped a 45-day moratorium on new vacation rentals to facilitate housing for those displaced by the fire.
Tourism is big in San Diego, but it’s not dominant. Kelly Cunningham of the San Diego Institute for Economic Research says that although many experts say tourism is San Diego’s third-largest industry, he would put it fourth behind technology, defense/military, and real estate. “Real estate is the reason for the city existing,” he says. He, too, believes that short-term rentals “are a small factor in housing affordability and rents.”
Last December, Alan Nevin of Xpera Group published a study focusing on the economic impact of short-term rentals in San Diego. The study was done for HomeAway, a vacation-rental marketplace, and Expedia, a travel-booking website. “We are talking at most about [short-term rentals being] 1 percent of the city’s housing units,” says Nevin. The effect of short-term rentals on housing and rents “is absolutely insignificant,” he says. Those rentals may make a dent in hotels and motels of a mere 0.1 percent.
His study points out that renter-occupied housing in San Diego “is typically bound by leases that prohibit subletting,” although some people cheat and secretly rent out their apartments when on vacation. There are bars to short-term renting in professionally managed condo projects and in higher-quality master-planned communities, too.
The direct and indirect effect for the city of short-term rentals was $500 million and 3000 jobs last year, says Nevin. The business generated $700,000 in tax revenue for the city.
Nevin says that, overwhelmingly, the short-term rental industry is based near the water — such as Pacific Beach, Ocean Beach, and La Jolla. The average daily rate in San Diego is $163, says AirDNA, which provides data on the short-term rental industry. The growth rate is 44 percent a year, and that frightens some San Diegans. Short-term rentals may make a small dent now, but if they keep growing at a big rate, they could push up rents and housing prices, driving even more people out of the county. (Economists point out, however, that the 44 percent is coming from a small base. The growth percentage will decrease as the numbers get larger.)
Mikaela Sharp of Irvine’s John Burns Real Estate Consulting says she hasn’t made a study of the topic, “but in my opinion more short-term rentals will increase rents because it causes a decrease in the supply of spaces available for long-term rentals.” But, says Sharp, she is not sure of the magnitude of the effect. One reason: “Renting out a property short-term on Airbnb is much more work than a long-term rental.” It involves, for example, much more cleaning.