Short-term rentals are feeling the heat, but are they the true villains?
Welcome back to the Mailbag!
There was talk earlier this week around the office about new restrictions being placed on short-term rentals in major cities across the country.
Dallas and New York were the main topics of discussion and, of course, we all had differing opinions on what exactly it all meant.
Lucky for us, and hopefully for all of you, we work at a place full of actual experts we can reach out to when topics like this arise and become water-cooler talk.
Normally – if there is such a thing as normal for a Mailbag – we like to use this space to talk about Texas Tech University stuff, the awesomeness of us, or at least something with a regional slant to it.
In this case, we're not actually going to talk much about Lubbock or Texas Tech. We feel like the housing market, one of the biggest drivers of the economy, is a topic relevant to everybody.
So, we did what we usually do: we reached out to one of our experts and asked what the danger of short-term rentals was to the housing market as a whole, and what was driving metro areas to put restrictions in place.
The conversation evolved a bit into a discussion of the housing market and why there is cause for concern.
So, is Airbnb the real villain in all of this?
Let's dive in.
The expert we went to is Carl Pankratz. He's an assistant professor of practice in the Jerry S. Rawls College of Business with a ton of experience in commercial real estate disciplines. He also has been involved in more than a billion dollars' worth of real estate transactions in one capacity or another.
We'll start with short-term rentals and then move to the larger concerns.
From his perspective, Pankratz believes Airbnb restrictions are based largely on perception. We used Dallas as our main touchpoint to start his explanation.
Dallas and most of the rest of North Texas have used zoning restrictions to eliminate things like Airbnb in single-family housing areas. Some of our readers may have already noticed the change and how much harder it is to find a short-term rental in those areas.
We asked Pankratz why these restrictions were imposted, and he explained that there were two main causes.
“No. 1, it's the loud parties,” he said. “That's what everyone points to, and in some ways, perception is reality. People are trying to go to sleep at night with their family and there's a house next door and they're out until midnight in the backyard really letting loose with the parties.
“Second is just the fact it's a single-family neighborhood, and you never know at any time who's living next to you. So, those are some of the issues those companies are facing.”
Pankratz pointed out that many of the issues stemmed from bad management practices and could have been avoided.
“In a lot of cases, if an Airbnb is managed properly, some of these issues do go away,” he said. “But, similar to apartments, if you have out-of-state owners that really aren't keeping track of it, there are a lot of problems that happen.
“So, Airbnb becomes enemy No. 1 in the town square, but a lot of the issues that are reported can be minimized with good management.”
Admittedly, when we started having conversations about this in the office, the main concern was what short-term rentals were doing to the housing market, but Pankratz explained that concerns about the housing market run much deeper.
In fact, long-term rentals are playing a big role in how the housing market is shaping up.
“A statistic that is not reported upon enough is the impact of institutional investors,” Pankratz explained. “Instead of companies like Blackstone and MetLife putting their funds towards buying warehouses, retail spaces and apartments – things they have historically targeted for investments – they have now turned their sights firmly on the single-family market. A statistic that MetLife just released, by 2030, 40% of U.S. single-family home rentals are going to be owned by institutional groups.
“In the past, you had a firefighter who decided, ‘Hey, I'm going to flip a few homes,' or teachers who maybe bought a rental house on the side just to make some extra income. That is being replaced by these institutional groups buying these houses in droves.”
Along with the loss of available houses to institutional groups, Pankratz explained that developers are seeing more profitability in creating rental options than in building new houses to put them on the market for sale.
Combined, those issues combined leave fewer options for potential homeowners in a market already struggling to contain interest rates and insurance costs.
“When you look at interest rates, property taxes and skyrocketing insurance cost,” Pankratz said, “those three are all critical pillars that are having a deep effect on affordability.
“With affordability, Airbnb is just front and center, and it's a great villain. But, behind the scenes, when you see so much money being poured into this sector where traditionally it hasn't been, that's probably a bigger issue than Airbnb would ever be.”
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