Who’s Next Door?
A look at the state of the short term rental market and who is renting them in Tahoe/Truckee
Originally posted by Moonshine Ink on Thursday, April 12, 2018
Housing Crisis
Short term rentals have rapidly become a polarizing topic in this community. While property rights advocates argue for the freedom to utilize their homes as assets and housing advocates point to a decline in long term rental inventory being a result, the local jurisdictions are caught in the crossfire and have thus far been treading carefully and cautiously. It’s a heated discussion, and in fact multiple sources requested not to be named in this story for that very reason. But, people are speaking up, and it appears that action to find a balance between these two schools of thought may be on the horizon.
The short term rental market has skyrocketed locally and nationally in a few short years. In Truckee, the number of Airbnb units is currently growing at 65 percent a year, according to AirDNA. Strict rental ordinances recently were put in place nearby in South Lake, and across the country, sister mountain hamlets have approached the pros and cons associated with the house sharing economy in diverse ways. All of these factors have thrown the issue into sharper focus as communities scramble to address the issue.
On April 6 the Mountain Housing Council (MHC) held a meeting bringing an array of entities together for a conversation on short term rentals. Attendees included representatives from the Town of Truckee, Placer County, the Truckee Chamber of Commerce, local business owners, HOAs, and local realtors. Seana Doherty, program director for the MHC, said that the council, which was formed in spring 2017, is still in the research phase, in order to better understand the state of STRs before potentially moving forward on policy. One of its primary goals? Getting a firm grasp on who is renting out short term units in the area.
This isn’t as easy as it seems, as the demographics of the local renters aren’t exactly cut and dry — and how can you draft policy for a population if you don’t know who they are? We did a little digging of our own and found that many people renting fit into a handful of groups including locals renting to make ends meet, second homeowners, property management firms, and investors. Let’s break it down here.
Making Ends Meet
The short term rental issue, like so many others, is painted not in black and white but myriad shades of grey. While some locals have been kicked out of their homes in order for them to be converted to vacation rentals, others have been able to live in the area solely due to the added income of these lucrative rentals.
Kim Szczurek, administrative services director for the Town of Truckee, said that when the Town addressed STRs last spring they had “a lot of people testify that they needed that [STR] money in order to live in their house.”
Surprisingly, only a very small number of people are utilizing this added revenue stream by renting out just a single room in their home. Of all the Airbnb listings in Truckee for example, AirDNA shows that only 61 are private rooms, compared to 891 listings for entire homes.
Meet Dinny Evans, who has lived in Truckee for about 30 years — a span of time that would have been cut short if the part time rental of her home on the Truckee river hadn’t allowed her to pay her mortgage.
Evans had lived in the 2 bedroom house since 1999, and bought it in 2007. When she tried renting it long term she ended up $1,000 in the hole and found that even with her side income as a Radical Forgiveness coach the only way to pay her substantial mortgage was through renting on VRBO. She now lives with her boyfriend in Washoe County while renting the Truckee home, and enjoys the freedom that renting short term allows her. She can stay in her home in between renters when she comes to Truckee.
“It’s my house. It’s my asset. I don’t have a 401K, and I don’t have a retirement plan, and I don’t have a stock portfolio; everything I have is in this house,” Evans said.
When it comes to regulations and their connection to short term rentals as a property investment, Evans is a strong proponent of her private property rights and asks, “Where do you draw the line between ‘the stock market is okay but buying another house isn’t?’”
An Investment in Housing
California was built upon the Gold Rush, and is catching up to the “green” rush, but the STR market has boomed in a way all its own. In a study by MIT, UCLA, and USC, the researchers suggest that, “increased ability to home share has led to increases in both rental rates and house prices …. home sharing increases rental rates by inducing some landlords to switch from supplying the market for long-term rentals to supplying the market for short-term rentals.”
This isn’t surprising considering that the average monthly revenue for an Airbnb rental in Tahoe City is $3,408, according to AirDNA. This revenue stream can be a powerful incentive for homeowners, but according to the 2016 Regional Housing Study, facilitated by the Tahoe Truckee Community Foundation, “On an annual average basis, property managers indicated that long-term leases provide better returns, compared to short term rentals.” The study cites the added cost of property management fees, Transient Occupancy Tax (TOT) fees, utilities, snow removal cost, and other expenses that take away from the renter’s bottom line.
This might not stand up to current data, however. The study says, “Assuming an average long-term rental rate for two- and three-bedroom units, a property owner would need to receive a nightly rental rate of $325 per night, eight nights per month, in order to generate the same revenue as they might otherwise collect through a longer-term.” According to AirDNA though, the average daily rental rate is currently $400 in Tahoe City, with an average occupancy of 35 percent, or about 10 days per month.
“The 2016 Regional Housing Study acknowledges that there are times when long-term rentals make more financial return than short-term. However, it’s a complex issue that individual homeowners must decide on based on how they see their property, whether that is as an investment property, active vacation home, or a primary residence,” said Stacy Caldwell, TTCF CEO. “Our hope is that we find a balance as a community in honoring and maintaining a tourist-based economy that recognizes second homes as a big part of it. Meanwhile, we need to unlock some of the existing housing stock because we know we can’t build our way out of our current housing situation.”
As far as whether singular entities have begun buying up multiple units in the area to rent short term as an investment, there are cases of this happening but it seems to make up a small portion of the overall STR inventory. According to TOT collections data from Eastern Placer County, of the 4,359 short term rentals registered in the region, 3,919 are singularly rented by people with only one listing. The remaining 440 listings are owned by people or LLCs with multiple listings, but according to the data there are only a handful of individuals with more than two short term rentals in the region. There is one instance though, of an individual who rents seven properties through the property management company Turnkey Vacation Rentals, and a few LLCs with multiple rentals such as Hyatt Vacation Management and One Village Place, which collectively own 47 listings in Northstar.
Property Management Possibilities
The TOT data supplied by Placer County did show that the vast majority of homes rented short term were provided through property management companies — well over half. In a 2016 article, Moonshine Ink reported that property management firms were getting the short end of the stick in competing with hundreds of STRs that were renting without paying the TOT tax, putting the tax-paying firms at an economic disadvantage. Since then, Host Compliance has tracked down many of these properties, both in Placer County and the Town of Truckee. Truckee now reports a 90 percent compliance rate on TOT payments.
The market is growing for these companies as more properties convert to short term. We talked with one renter who is looking to create an interesting business model in the industry. Alison Lee launched her property management business Tahoe Lake Love last December and said that as of now, the two properties that she owns and rents as well as a third property she manages make up her and her family’s only source of income. Those three rentals are pulling in almost six digits according to Lee, but she’s not sitting on the money. Lee herself recently bought a pop-up trailer to live in, so that she could save money and direct the profits from her rentals into development of an app she hopes to launch by Memorial Day. The app, she said, will act as a marketplace for local businesses to connect to visitors and “make it easier for everyone to patronize the local shops that give Tahoe its unique and unforgettable flavor.”
Lee says that the long-term goal of her company is not renting short term, but for now it makes the ideal means to an end of creating an app she hopes will give back to the community.
“We want to begin a forward-thinking discussion, helping local representatives understand the value of new technologies and a way that short-term rentals could offer solutions, as opposed to black-listing them all as problem creators or community destroyers,” Lee said.
Lee said that she has considered using the income of short term rentals to subsidize renting other properties long term but that she wouldn’t be able to do that yet without creating a negative cash flow. She did say, though, that “with a small subsidy and cooperation from local government, it wouldn’t be too difficult for us to participate in such development within the next few years.”
Second homeowners
Judging from the number of single listing individuals that utilize property management firms to run their rentals, it appears the largest demographic of short term renter is second homeowners. This isn’t surprising considering that according to the 2016 Housing Study, the primary factor determining whether someone would rent long or short term was “the frequency with which they want to use the property themselves.”
The second-home lifestyle does lend itself to an ease with short term rentals, but some view these second homes as a potential source of added workforce housing inventory. What it would take, according to Jennifer Merchant, Deputy CEO-Tahoe at Placer County, could be outreach paired with an incentives program. The county, which has a very pro-property rights stance regarding STRs, will be launching an outreach program for second homeowners to gauge interest on potential incentives to create long term housing. Placer has compiled a database of the mailing addresses of more than 14,300 second homeowners in the region and plans to send the query out by mail sometime this month.
Last year, the county hosted public forums regarding TOT tax spending. Merchant said that one of the loudest messages they heard was the idea of investing lodging tax revenues into affordable housing options. TOT could be a potential source of financial incentive for this project, she said, but the query so far is simply to feel out interest and specific details are still a ways out. Merchant did say though that some possibilities include vetting renters for the homeowners, covering any damage to the property, providing the deposit, and other options.
So What’s Happening Now?
Policy makers are on the verge of diving into the STR issue, but aside from tax collections the Town of Truckee and Placer County’s approaches have been very hands off regarding regulation. Asked about the Town’s status on drafting policy, Szczurek said, “where we are is nowhere.” But it’s on the docket, and Szczurek and Town Manager Jeff Loux both said that addressing STRs is high on the Town’s list of priorities. On the county side, Merchant said that while Placer might make updates to its TOT collections code, there is no plan to make any changes to the land use and planning side of things, i.e. regulations. The county is, however, open to other alternatives such as the incentives approach noted above.
Doherty at the MHC says that differences in how the Town and county move forward regarding the topic are to be expected, and a wide range of possibilities need to be considered. The MHC has broken this range down into four main approaches to STRs: do nothing, TOT collections, regulations, and incentives. Regulations could include zoning restrictions, licensing, residency requirements, or caps on the number of rentals per host or per neighborhood.
Incentives-based approaches all revolve around reversing a perceived trend of long term rentals becoming STRs by providing some kind of incentive — subsidy, credit, gift certificate — to homeowners who provide long term housing. Doherty also mentioned the role that HOAs can play in a regulatory, mitigation, and incentives role. For example, this last winter the Tahoe Donner Association used a master lease program to rent 10 of the houses in its neighborhood to about 70 of its J-1 workers.
It is absolutely possible that the Town, Placer County, and the local HOAs could chaotically go completely different directions regarding how they each approach STR regulations, or lack thereof, but Doherty said that this is why getting everyone involved in the conversation is so important. There may be multiple interests at stake, but the MHC hopes to be the uniting factor in driving research and communication to insure that STRs can be a boon to our housing market and not a pitfall.
