I’m saying this as a realtor who has helped clients buy and sell properties that they use for short term rental (STR) investments: it’s long past time for us to reform STR laws.
When I was a legislator in 2016, I even voted for the law that centralized STR rules at the state level, created a structure for taxation and restricted how localities could make their own laws.
I regret that vote. At the time, I thought it was a good thing that regular people had an opportunity to make money renting out rooms in their own property and I had little concern that the Hiltons and Marriots of the world would have to forego that new yacht purchase as a result of regular people making money for a change.
I also remember at the time predicting that we would need to re-visit the new law to update it and adapt it with the times.
This is where we must squarely put the blame on Governor Ducey. I even agree with some of the most conservative members of the legislature who attempted to pass laws since then to allow localities more power to restrict STRs.
Never did I expect that the governor would resist the will of the voters, neighborhood leaders and housing experts.
Let’s review the damage that STRs have done:
1) Fewer Homes Means Higher Prices. The most damaging affect has been that STRs remove homes from the market so that families have fewer choices. Over the last decade purchases of STRs (and residential homes being turned in to long term rentals) have shrunk the over-all supply of homes to the tune of millions of homes.
Most homes come back on the market every 7-10 years. So, when you take a big chunk out of the inventory over the course of a few years, the price of the remaining homes goes up. People can’t afford to purchase a home. Older people who want to downsize don’t sell because they fear they won’t be able to afford a smaller home for what they paid for their larger home.
Let me say this as clearly as I can. Much of the housing crisis in America right now rests squarely STR investors. Millions of homes are no longer available for people because they are being used for commercial businesses. We can also look to the investors after the crash of 2008 who were buying homes 100 at a time to turn in to rental properties.
2) Damage to Neighborhoods. Healthy neighborhoods stay healthy when people know each other and respect each other. When upwards of a third of the homes in some neighborhoods are turned in to STRs, the health of the neighborhood is undermined. We’ve all heard about the parties and harm to peace and quiet. This has been particularly acute in historic neighborhoods. For an entire generation, people have been working to preserve historic homes only to find STR investors coming in with no respect for the historic beauty of the neighborhood.
3) Neighborhoods are not Commercial Zones. Have a look at this map of Sedona from 2019. This was presented to the city council and showed how many vacation rentals have been located in Sedona. According to Sedona Assistant City Manager Karen Osburn, “We never anticipated at the Capitol that someone would go into a neighborhood, purchase a home and basically turn it into a mini-hotel. So that’s the challenge. You have a home that’s basically purchased as a business but you don’t have someone living on site, and managing it, I think you have a problem.”
4) Who is hurt the most? I spoke with a potential client once who was from Spain. He told me how the STRs in the middle of Madrid changed the entire town. The cute little corner shops nearly all closed down because the people who lived full time in those areas moved out. There was nobody left to buy groceries eery week. Similarly, when whole sections of town, which were previously affordable, are no longer affordable, the working population must move further our, or to less desirable housing.
5) Price escalation. The math is simple. The STR investor can pay quite a bit more for a home because they are making a lot of money from rentals. So, they drive prices up and families are left out –sometimes literally outside.
Have a look at this great open letter to the owners of AirBnB. As the author points out, the creator of AirBnB originally started the app because they needed a way to find people rent out a room in their expensive apartments in San Francisco. The app has moved away from just renting rooms and now has exacerbated the very problem that the founders of the company attempted to remedy.
I’m not judging, folks. I’ve use AirBnB and I’m going to re-think that.
Further, I understand the excitement of investing in a property that makes a lot of money for you and your family.
We are duty bound to work for our clients. If they want to purchase a home as an investment, we will work for them. But from here on, I will attempt to educate them about the damage that STRs do to neighborhoods and families.
I can recommend, perhaps investing instead in the growing renewable energy and battery technology industries. That’s growing and will help more than it hurts.
