Below is a Facebook post I shared in August but am updating and adding some links and additional text. Next Tuesday the San Diego City Council will have a special meeting to consider changes to the Municipal Code which would eliminate nearly all short-term rentals in the city. The changes will address whole unit rentals of less than 30 days, as home-sharing (a room in a home rather than a whole unit) is essentially already banned. For more in-depth detail and the legal mumbo jumbo I’d recommend reading this great post by Omar Passons from earlier this week.
The following are my thoughts on Airbnb / short-term rentals, why I support short-term rentals in our city, and where I see the industry going in the future.
I am an Airbnb host and have been for a few years. When our family travels it’s basically exclusively what we use. We’ve had a great experience on both sides of the equation and I’ve never tried to hide that. I’m a supporter, user, money maker, etc. Next month we’ll be taking our family to Mexico City for a week and look forward to staying in an Airbnb property there. Here’s a photo of the property we’ll be staying at.
Locally and globally Airbnb has experienced massive growth since being launched in August 2008, this wouldn’t be possible unless it was affording an opportunity for the millions of hosts on the platform. (Potentially this could be due to hotel rooms being artificially capped by zoning / permits / etc but I think it’s mostly because these platforms are accessing non-standard rooms and properties in authentic neighborhoods that provide superior value.) Pair the desire for non-standard rooms / neighborhoods and value with the growth in travel globally and you have a massive opportunity.
However, the growth to date is likely to be dwarfed by the growth to come. PriceWaterhouseCoopers (PWC) issued a report in 2015 on the “sharing economy” including a variety of sites across industries including Uber, onefinestay, Airbnb, Feastly, and many more. As of the report date, only 7% of the U.S. population had participated in the sharing economy as a provider. PWC predicted that five major sharing economy sectors – travel, car sharing, finance, staffing, and music / video streaming – would grow from $15 billion in 2015 to $335 billion in 2025, a growth rate of approx. 36.4% annually.
What does the current opportunity and projected growth mean for hosts? Money. I know of few people that open their homes to strangers for free – even CouchSurfing is predicated on the give & get premise so there’s a benefit or exchange of value derived. There’s an economic opportunity for people to utilize and they are taking it – great. They’re doing so on a widespread, individual basis and connecting one-to-one with guests – even better.
I think a lot of the blowback is about “punk” millenials like me that are just saying “screw the rules” and “i do what i want, the system is the one with a problem”. Based on my interactions with other hosts I think this far from the truth. It’s widely covered that millenials don’t have much money, have major debts, live with their parents at historically unprecedented levels, and mostly don’t own property.
Who does own property? Boomers. And older members of Gen X and the Greatest Generation. (And Millenials that inherited from those groups or have had above average successes.) Additionally, for many years the average house size has been growing while the average household size has been shrinking. Per the American Enterprise Institute, from 1973 to 2014 the average number of persons per home declined from 3.01 persons to an all time low of 2.54 persons. Over the same period the median home size increased from 1,525 square feet to a record high of 2,506 square feet.
So today home sizes in the US have never been higher and family size has never been lower. Meaning? There are tons and tons of empty rooms – completely unused, spider web covered. I live across from an entirely empty house (next to a surface level parking lot in a residential neighborhood) in the heart of San Diego’s hippest neighborhood of North Park. Empty rooms are the real opportunity of the short-term rental industry – for both host and community.
Many articles focus on flip young people (me and my brethren punk millenials) boasting about having 10 units and how the money is so easy putting properties on VRBO, Flipkey, or Airbnb. It’s probably true, to some extent. This is a new opportunity with a ton of excess demand not currently being met. This excess demand will be met due to the incentives created – there is real money on the table.
The idea and model of web-based room renting is fairly new – even a few years ago it was unknown or fringe. (Though boarding houses and room letting has existed for centuries.) Today people from all age groups use it widely, though as the PWC report points out there is much room to grow. Think of the evolution of users of Facebook – young first adopters, then a broader segment of the populace, and today with a huge amount of older frequent users. That’s where this model is going – both on the user and host sides. The same with uptake of private room vs. whole home. When I started hosting our guests were 70-80% foreign, today that’s about 15%. The idea of staying in someone’s home was odd to Americans but more familiar to foreigners. This trend will continue and even now I hear a lot of commentary about preference for private room vs. whole home. The personal connection is much greater – part of the “live like a local” push that is the current Airbnb media slogan.
As all of these trends come together the biggest opportunity – empty rooms – will take over. This will be driven by the biggest owners of property in the US, Boomers. Those multiple property “owners” (quotes because the multiple property hosts are often lessors that use Airbnb as a sublet opportunity) will be crushed by home-owning Boomers. Especially in California the advantage is huge – no mortgage, property taxes fixed at a very low level thanks to Proposition 13, and more empty rooms than a younger family with kids at home. Someone paying $700K for a 2 bedroom today can not possibly compete with someone offering a room in the same 2 bedroom bought for $70K in 1975. In a similar vein will be people with changing situations and spare rooms – couples about to have their first child and build a family, older couples that recently sent their children to college, etc.
What else is the economic opportunity doing? It’s spurring people to add units – increasing supply of total housing. That’s a good thing. Attic and garage conversions, adding separate entrances to bedrooms, building grandma flats, even building new units with purpose built areas for use as short-term rentals – when there is opportunity people respond. It’s the same reason you see cranes everywhere in San Diego today and none in 2010 – if there’s no opportunity no one is going to commit capital and take risk. Today many (maybe most?) of these sorts of new units may be going to short-term rentals. That won’t always hold true and when total supply goes up there is more flexibility in the market and potentially a decrease in average cost. (Potentially because demand also fluctuates.)
This post doesn’t even touch on non-economic factors – the personal connection is enormous and underplayed. Many of our guests are moving to SD, want to move here, are interviewing for jobs or academic opportunities – they instantly have a local perspective on the region, a connection for the future, and a guide. This is a huge deal. San Diego is the best place to live in America and I love sharing why with others. I know many other San Diegans feel the same. Our residents can connect and relate to guests from around the globe 100x better through short-term rentals than the biggest ad campaign, Comic-Con, or other paid marketing can accomplish. Opponents of STRs use the term “Short Term Vacation Rentals”, I prefer short-term rentals as many guests are not here to party and play at the beach, there are a host of reasons people visit San Diego and top of my priority list is attracting talent to our city.
I have a feeling that short-term rentals are likely to be banned soon in San Diego. Many other California cities have taken this path and it’s hard to blame them. We’re looking at all-time highs for rents, property prices, etc. Our population continues to boom. The economy grows, but mostly at the top. It is not a pretty picture for those looking to buy or rent and short-term rentals are undoubtedly a part of that growth in prices (although based on number of units I would say a very small part). But giving people an economic opportunity is a good thing and taking it away by dictat is a bad one.
I’m proud of the hosts / property owners I’ve met. We are committed to addressing real issues. We have proposed a number of specific, meaningful regulations to avoid negative impacts for San Diegans – an increasing fine scale including prohibition of use, dedication of TOT funds from short-term rentals for enforcement, an annual registration fee with funds for enforcement, posting of contact information and a required response time (or additional fine). These are meaningful suggestions and address complaints from opponents. We are happy to come to the table and discuss other aspects of the debate.
I didn’t come from money, we didn’t inherit our house. The opportunity from short term rentals enabled us to purchase our home in North Park as well as have a parent at home during the early years for our children. That was huge, huge, huge for us. If others don’t want to have a stranger in their home or yard – that’s absolutely their choice. But to take away that opportunity from future home buyers and others we should not do. Good times come and go – not long ago many in SD were underwater on their homes. More opportunity and more flexibility is great and should be embraced. I hope that short-term rentals will continue to provide an opportunity for San Diegans of all backgrounds, means and neighborhoods.
I hope you agree and will let your City Council Member know.