On Local Government: Are STRs contributing to the housing crisis?

by Bob Pinzler

This is not a screed against short-term rentals (STRs), although having one embedded in what is a normally quiet community can be disruptive. It is, however, an expression of concern about the long-range effects of the non-enforcement of the laws of each of the beach cities regarding STRs.

The story that triggered this thought was about Cape Town, South Africa. In that country, Cape Town has proven to be an outlier relative to other major cities, such as Johannesburg, regarding issues that comprise what is generally referred to as “quality of life.” As a result, there has been an influx of two competing groups of people wishing to invest in housing.

One is South Africans, particularly younger people, who wish to establish households in that city. The others are investors, from that country and abroad, seeking to purchase properties to create rental businesses. This competition has driven up the cost of housing, mostly to the detriment of younger potential buyers, causing them to reconsider moving to the city where the most attractive jobs are located. This leaves growing businesses in Cape Town with a smaller pool of potential employees, thereby driving up wages. 

The investors in rental property don’t necessarily face the same issue. Property ownership is an income issue, and they can offset the higher cost of property by charging more rent, which they can easily charge in a city that is as attractive to their customers, such as tourists, as Cape Town.

I mention this because STRs in our cities may have the same effect on housing prices here. The competition for properties between those seeking rental income and those seeking family housing drives up costs. And when long-established family homes, sometimes repurposed for rentals after the original owners are no longer resident, hinder the housing market by never being sold because trusts are designed to protect the next generation from Prop 13 tax increases, the problem gets exacerbated. 

The issue of STRs is not just about noisy neighbors. It may very well be a key element in why our cities have become so unaffordable. The laws regarding STRs need to be either enforced or changed. However, their existence is part of a larger issue we must deal with so that those seeking to establish long-term residence in our cities can be accommodated.