Co-living and Short-Term Rental Impact on Multifamily Real Estate
August 24, 2018
Short-term rental companies like Airbnb are capitalizing on the rental and traveler sectors. What affect does that have, in turn, with the multifamily real estate industry?
In recent years, short term rental options (like that provided by Airbnb) offer renters and travelers alike the ease of “living like a local” as an alternative to traditional hotels, often coupled with cost savings. Property owners, or hosts, are also enjoying extra income generated by renting out a spare bedroom – or entire home – that they’re not using anyway.
And while this provides a convenient opportunity for travelers, the number of affordable multifamily housing units available has dwindled. Consequently, as supply has diminished, the ability to secure units in already competitive metro markets has become increasingly difficult as the short-term rental industry has grown (Airbnb alone now boasts more than 5 million listings!!).
Complaints of short-term rental activity inducing rent inflation and exacerbating the housing shortage are common, and the multifamily industry is trying to catch up as unregulated short-term rental activity has caused issues in communities across the nation.
Monitoring Short-Term Rental Impacts
The multifamily commercial real estate industry has been closely monitoring the impacts, both positive and negative, of short-term rental services like Airbnb, VRBO, and HomeAway.
While these services are growing in popularity with consumers, they raise potential issues for apartment companies, including but not limited to:
- Tenant lease violations
- On-site security concerns
- Questions around liability
- Questions around property insurance
These concerns over short-term rental practices as reported previously, have led to litigation in numerous jurisdictions.
Issues with Multifamily Real Estate
Besides the issue of transformation associated with short-term rentals, the multifamily industry has also expressed displeasure with short-term rental practices (as outlined above). In fact, Airbnb is now in a handful of court battles that have drawn involvement from the National Multifamily Housing Council and the National Apartment Association.
At the heart of these cases is the question of who gets to control and make money off of underutilized space. Of course, the multifamily industry, like many municipalities, wants more control and the ability to capitalize on the space it rightfully owns.
The tricky thing is that people have been able to operate short-term rentals virtually unchecked for years. They like short-term rentals, and it is tough to tell them what they can and cannot do in a space they feel is their own.
It's not that the multifamily industry is against short-term rentals. In all actuality, many multifamily owners and operators are pro short-term rental and want to participate in the market. Still, doing so comes with a good amount of headache.
The dream scenario is a symbiotic relationship among residents, travelers, property owners, and short-term rental platforms where everyone capitalizes on unused space.
Many cities across the nation have imposed legislation that looks to regulate the co-living/short-term impact on the multifamily industry.
For example, a newly passed city ordinance in Boston prohibits property owners from hosting short-term rentals in homes they don’t live in and aims to make data on short-term rental properties more widely accessible.
The ordinance is designed to crack down on what are deemed to be “investor units.” Consequently, those who reside in a unit and seek to rent a spare bedroom or an adjacent unit in their multifamily home are able to do so for a year. The City estimates these new regulations will put approximately 2,000 multifamily housing units back into inventory for renters or buyers.
Similarly in New York City, the NYC Council is proposing a bill that would require short-term rental companies to provide them with the addresses of all local listings.
The registry would provide the data needed to review active listings and penalize and/or shut down those who are operating illegally. In turn, the number of available multifamily housing units would increase, helping to regulate pricing in an already competitive market.
Short-Term Rental and the Future
As we look into the future, the experts at Valbridge Property Advisors know that the multifamily real estate industry is all about maximum utilization of the property in question.
We believe that we’re going to reach a place where we will see an evolution of monetization of unutilized capacity and shared space. Once the consumer experience can be simplified, the industry can create a whole of host of experiences around these actual living spaces that will create cross-pollination among the short-term rental experience and the multifamily real estate industry.
We’ll call this future phenomenon the co-mingled asset, and the short-term rental is a foretaste of the coming sea change. The question is who is going to control it and who will manage it?
Both vacationers and those traveling for business have expressed an increased interest in staying in homes rather than hotels. Although this may in the short-term cause a decline in hotel tax revenue in some cities, a well-thought-out taxing scheme for the sort of short-term rentals that are prevalent in the sharing economy can provide cities and states with a means of recouping these tax revenue losses while providing greater benefits in stabilizing existing ownership – even within multifamily properties.
The ability to rent one’s property – even in the short-term – may be a tremendous aid to struggling homeowners. By providing short-term rentals, owner may shift and share the burden of home ownership. This shifting can help to defray mortgage, homeowners association, and real estate tax costs.
Take the Next Right Step
Are you a homeowner, multifamily owner or investor, or someone navigating the next decision to make in the real estate market? Valbridge specializes in appraising all types of property. We produce custom, consistent appraisal reports across the U.S. market for apartments, multifamily units, hotels, and lodging, among other sectors.
The experts at Valbridge can help you determine the next-best step to take to ensure a profitable RIO when it comes to your real estate investment. Contact us today!