As short-term rentals increase, what's the effect on affordable housing?

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Thursday, September 29, 2022
Tough time finding affordable housing? Airbnb rentals may be a factor
The I-Team takes a closer look at the effect short-term rentals such as Airbnb are having on the already squeezed affordable housing market.

RALEIGH, N.C. (WTVD) -- It was right before the pandemic hit that Justin Winter and his wife decided to convert their old home in Durham into a short-term rental.

For years, they had rented out their apartment while they were out of town so they thought why not make the leap to a full-time investment?

Fast-forward two years and Winter manages nearly 50 short-term rentals across Raleigh and Durham.

After years of working in eCommerce and software, he started his management company, Pendleton Places, after seeing the rise in short-term rentals and the need for the management of these types of properties.

"We definitely saw a big need for people moving to the area just because it is growing so quickly with new companies coming to the area," he said.

Data from AirDNA, a site that analyzes short-term rental data found rentals listed on Airbnb and VRBO increased by 81% or nearly 700 units in the Raleigh area over the last two years.

Similarly, increases were reported in Durham (+537 units or 58%) and in Fayetteville (+393 units or 131%).

The money behind the rentals

Realtor and investor Michelle Vega is another person who decided to make the leap into the short-term rental market.

Vega managed around 30 long-term rental properties across the Triangle. She's converted six to short-term rentals over the last few months and is eyeing a handful of others to convert soon.

A big factor in the switch? The money.

Vega explained she use to make $1,400 a month from one of her properties and was able to generate $2,400 in 16 days from Airbnb.

"That same week, it was like three days later, she's like, 'Alright, I have another one. Let's set up another one,'" Karen Bello, an Airbnb manager in North Carolina.

Bello is working alongside Vega to furnish, convert and manage the properties. She has managed over a dozen Airbnbs across North Carolina.

"In college, I rented out my two-bedroom apartment. I rented out the second bedroom and it ended up paying my rent and also putting money in my pocket and I was like, 'Whoa, mind blown, If my one bedroom, where they're sharing spaces with me, makes this amount of money what kind of money can a three-bedroom home make?'" Bello said.

Setting up and managing short-term rentals can be more daunting than property owners anticipate. Up-front costs to furnish properties can be hefty and being available for guests 24/7 can be taxing, but if done well, the financial payback can be big.

Like Vega, Winter said his own short-term rental property generates enough revenue to pay for property expenses and give them extra savings.

The ABC11 I-Team analyzed Airbnb data provided by Inside Airbnb, a mission-driven activist project that provides data on Airbnb rentals.

The I-Team's analysis found the average nightly rate ranged from $102 to $142 for rentals in Wake, Durham and Cumberland counties. If these units were booked 90% of the month, they have the ability to generate $2,700 to $3,800 for hosts. This is considerably more than the average monthly rent for each location. ApartmentList estimated average rent for a two-bedroom apartment ranged from $1,280 in Fayetteville to $1,520 in Raleigh.

While the conversions may make sense for the property owner, some can't help but question what effect an influx of short-term rentals has on the overall market.

"In a community like ours, where there is such a shortage of affordable housing and housing in general that can aggravate things," said Roberto Quercia, a professor at the UNC Department of City and Regional Planning.

Impact of short-term rentals on affordable housing

As short-term rentals expand across the nation, numerous studies have tried to identify what their impacts are on the overall housing market, specifically for the local residents.

The Economic Policy Institute, a non-profit and non-partisan think tank, found that "the costs of Airbnb expansion to renters and local jurisdictions likely exceed the benefits to travelers and property owners."

The 2019 analysis found the biggest cost of Airbnb on local residents is the reduction in the supply of housing.

"Many of these short-term rentals are close to downtown Raleigh for example, NC State is not too far from there. It may affect students. It may affect people, workers, who may live around there that work at the university," Quercia said. "So it does have an impact beyond the immediate impact on the availability of that particular unit."

Many of the studies found the biggest impact came from short-term rentals that offered guests the 'entire home' rather than a room in an occupied house.

"The key is whether it kind of displaces or pushes away other kinds of housing that we need as a community to have to be able to house our residents," Quercia said.

Data from AirDNA shows around 80% of the rentals listed in Raleigh, Durham and Fayetteville are entire homes.

In 2020, one study found that a 1% increase in Airbnb listings would translate to an annual increase of $9 in monthly rent and $1,800 in house prices. Researchers did point to the difficulties in measuring the effect of a single factor to the entire housing market.

"However, measuring this impact is not straightforward. The main challenge is that the housing market is, of course, affected by factors other than Airbnb, such as gentrification and economic trends," the researchers wrote in the Harvard Business Review. They said they accounted for these factors in their study.

Similarly, a study completed by the New York City Comptroller in 2018 found a 1% increase in short-term rental units in a neighborhood drove up rent by 1.58% and cost renters $616 million extra in 2016.

Locally, housing advocates aren't so sure short-term rentals are having such a negative impact on the market.

Winter said he believes it is important to protect the area's long-term affordable housing supply but also argues there is a place and need for short-term rentals.

While the idea of short-term rental sites like Airbnb usually conger up images of weekend vacationers, Winter said that is not always the case at his properties.

He said many are travel nurses or people who are in-between housing situations and spend weeks or months in a rental property.

"We've had people be here for weeks and months at a time who otherwise literally wouldn't have had a place to stay and we can offer prices in some cases that are lower than a traditional longer-term hotel," Winter said

Nathan Spencer, the executive director of WakeUP Wake County, agreed and said part of a growing city is the need for diversity in housing options.

"These short-term rentals are sort of a symptom of a larger opportunity in the market. We really need to focus on the real causes," he said.

Spencer also said he doesn't believe the number of units being converted to long-term rentals is making an impact in the Triangle's market.

"I think we have to continue looking at it and continue to watch it but I also think that we need to have an understanding of the reality of the situation," Spencer said. "We should not be in a situation where we're focused on such a small thing and not focused on the much larger issue, which is that a small number of short-term rentals pales in comparison to the number of affordable units that we actually need in this in this region."

He further expanded by pointing to many of the units that are being rented as short-term properties are not units that would be affordable to families who need more affordable options.

AirDNA found a majority of short-term rentals are concentrated in the city centers of Raleigh, Durham and Fayetteville. The same locations tend to have higher rent prices.

"If people are upset by this, we should be pushing their attention in their energy towards the opportunity to get involved with getting more affordable housing in their neighborhoods," Spencer said.

Locally, government leaders are trying to keep a handle on short-term rentals.

The city of Raleigh recently passed a new short-term rental ordinance in spring 2021 that requires a zoning permit from every operator.

The city has 291 registered short-term rentals with 83% of the units register this year.

"If you look at the scope of things, that kind of number isn't going to have any impact on our affordable housing needs," said Tomas Barrie, the director of Affordable Housing and Sustainable Communities Initiative at NC State.

However, AirDNA reports more than 1,500 rentals located in Raleigh, so the true extent of the expansion may be underreported.

Barrie said communities should continue to watch and track the impact and presence of these rentals.

"I think it's reasonable to be concerned about any areas, any housing types that might affect housing affordability, in Raleigh, we should watch these things, we should be very vigilant and make sure that there are not unintended consequences of otherwise, you know, good legislation and ordinances. So I think it's very appropriate to ask these kinds of questions," Barrie said.

But, he also agreed he doesn't think at this point these units are causing much disturbance.

Both Barrie and Quercia said more data is needed and governments should spearhead the collection as stakeholders continue to monitor the impacts housing types are having on rent and the overall market.

"I will not blame a property owner for wanting to make more money, especially given the inflation and everything else that's happening, but is the role of government to actually keep an eye on that," Quercia said.

The balance between the amount of short-term vs. long-term rentals is one that stakeholders and leaders continue to search for.

"Should it take over the other option? Absolutely not. What does that balance look like? I don't know. But, you know, we're excited to help be a good neighbor. In all the communities that we work in and, you know, try to serve our communities," Winter said.