‘The Rent Is Too Damn High’

The following is an excerpt from the author’s new monograph, How Progressive Cities Fight Innovation (Encounter Books, June 2017).

For good reason, millions of people who have taken an Uber, shopped on Etsy, found a professional’s help on Thumbtack, or booked a place to stay through Airbnb love the sharing economy. These services, and countless others like eBay, TaskRabbit, Rent the Runway, and GoFundMe have a common theme — they connect people though online platforms. Often, the sharing economy enables transactions that used to be infeasible, time consuming, or cost prohibitive.

Others see the sharing economy as an enemy to be eliminated. Just take the case of the hotel industry’s response to the rise of short-term rental platforms like Airbnb and HomeAway. In October 2016, New York passed a bill that creates civil penalties of up to $7,500 for advertising a whole apartment that is for rent for less than thirty days. This means that people going on a weekend getaway or staying with their significant other across town face thousands of dollars in fines for listing their place online.

The justification for this bill was that short-term rental platforms drive up rents in New York City. This claim would be laughable if policymakers did not take it seriously, but it is now the main argument used against short-term rentals.

It is impossible that an online platform that did not launch until 2008 can be blamed for the city’s decades-long struggle with high rents. Rather, in a classic case of government dishonesty, politicians blame problems created by years of government overreach on the new guy in town.

To validate their war against short-term rentals, New York City leaders portray home sharing as a net loss of forty-one thousand housing opportunities (the number of active Airbnb nightly listings in the city prior to the October 2016 ban) for locals. They claim that wealthy Airbnb users set up so-called illegal hotels and turn entire apartment complexes into unregulated temporary residences. This paints a dark picture of home sharing, but a quick look at the numbers makes this narrative fall apart

Airbnb’s forty-one thousand active nightly listings in New York City represent just over 1 percent of the city’s three million housing units, and 90 percent of Airbnb posts in New York City are for residents’ permanent homes. There is no way that taking a maximum of 0.1 percent of New York City’s residential units off the market by using them exclusively for short-term rentals is what drives rent increases. This is especially true considering that the city has 110,000 hotel rooms. These numbers should make people question why hotel industry leaders are suddenly concerned over access to affordable housing.

The real reason for higher rents is a combination of an increased demand to live in New York and an insufficient amount of housing supply to meet this demand. Burdensome regulations that limit development are a major contributor to the lack of housing supply.

Land use regulations prevent denser construction and building more units in existing buildings. Construction and zoning regulations have so drastically increased in scale and scope that 40 percent of the existing buildings in Manhattan would not be able to be built today. With a high level of restrictions on how builders can meet the demand for housing, it is no wonder that New York City property is so expensive.

If anything, Airbnb is an asset to the middle class. The average Airbnb host in New York City makes about $5,500 a year from the service, money that 76 percent of users say helps them stay in their homes or apartments.

The claim that short-term rentals are to blame for high rents is also common across cities in California. Since the 1960s, the residential construction rate in California has significantly declined and, as a result, real housing prices increased by 385 percent from 1970 to 2010. Though limits on new construction are not the sole cause for increasing housing prices, they are a major factor.

San Francisco, where rents for one-bedroom apartments frequently exceed $4,000 per month, has the most serious housing shortage in America. Over the past twenty years, San Francisco has only permitted the annual construction of an average of 1,500 housing units, while the city’s population grew by ninety-seven thousand — and growth has been stronger in recent years.

Unlike many other major U.S. cities, San Francisco has building permits that are discretionary rather than as-of-right. This standard makes it more difficult to gain approval for development because it invites numerous legal challenges. Barriers such as lengthy preliminary reviews and environmental appeals add unpredictable costs and years of delays for developers, which ultimately lead to higher costs for buyers and renters.

It is easy for politicians to blame corporations for problems that are ultimately their own responsibility. This is precisely what California senator Dianne Feinstein has done. In October 2015, she published an article in the San Francisco Chronicle arguing in favor of the city’s Proposition F, which would have limited short-term rentals in San Francisco to seventy-five days a year and, according to Feinstein, would have helped to alleviate the city’s housing shortage. Predictably, Feinstein did not mention the lack of housing permits in cities across her state. It is also important to note that she and her husband have a stake in a San Francisco hotel that is worth up to $25 million. Proposition F was soundly defeated at the ballot box, but city leaders quickly created other restrictions on short-term rentals.

Ironically, Airbnb might owe its existence to San Francisco’s housing shortage. In 2007, the city did not have enough hotel capacity to house visitors for an industrial design conference, so Airbnb’s founders Brian Chesky and Joe Gebbia decided to start a company to fix this problem.

Another tactic taken by hotel unions, such as the AFL-CIO–affiliated New York Hotel and Motel Trade Council, is to claim that Airbnb threatens “good-paying union hotel jobs in New York City and around the country.” Despite the union’s claim that hotels across the nation will suffer, the data indicate that the overall hotel industry is booming even with the growth of home sharing. According to STR, a leading company in hotel market research, the hotel industry just had its best year on record. Hotels and home sharing can thrive together because companies like Airbnb expand the proverbial “pie” of lodging options. Both models offer different experiences, levels of convenience, and price points.

The hotel industry and its union backers, like other opponents of the sharing economy, do not want to promote innovation — they want to protect themselves from change and competition. Companies like Airbnb and HomeAway relieve some symptoms of high rents and housing shortages by helping people with their existing rents or mortgages. The claim that short-term rentals are the reason for higher housing costs is demonstrably false. Instead of placing blame for housing shortages on these companies, policymakers should embrace these services and reevaluate regressive restrictions on new housing development.

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