Tag Archives: Airbnb

P2P, Mortgage Market Messiah?

Posted on by

Monty Python's Life of Brian

As this is my last post of 2015, let me make a prediction about the 2016 mortgage market. Money’s Edge quoted me in Can P2P Lending Revive the Home Mortgage Market? It opens,

You just got turned down for a home mortgage – join the club. At one point the Mortgage Bankers Association estimated that about half of all applications were given the thumbs down. That was in the darkest housing days of 2008 but many still whisper that rejections remain plentiful as tougher qualifying rules – requiring more proof of income – stymie a lot of would be buyers.

And then there are the many millions who may not apply at all, out of fear of rejection.

Here’s the money question: is new-style P2P lending the solution for these would-be homeowners?

The question is easy, the answers are harder.

CPA Ravi Ramnarain pinpoints what’s going on: “Although it is well documented that banks and traditional mortgage lenders are extremely risk-averse in offering the average consumer an opportunity for a home loan, one must also consider that the recent Great Recession is still very fresh in the minds of a lot of people. Thus the fact that banks and traditional lenders are requiring regular customers to provide impeccable credit scores, low debt-to-income (DTI) ratios, and, in many cases, 20 percent down payments is not surprising. Person-to-person lending does indeed provide these potential customers with an alternate avenue to realize the ultimate dream of owning a home.”

Read that again: the CPA is saying that for some on whom traditional mortgage doors slammed shut there may be hope in the P2P, non-traditional route.

Meantime, David Reiss, a professor at Brooklyn Law, sounded a downer note: “I am pretty skeptical of the ability of P2P lending to bring lots of new capital to residential real estate market in the short term. As opposed to sharing economy leaders Uber and Airbnb which ignore and fight local and state regulation of their businesses, residential lending is heavily regulated by the federal government. It is hard to imagine that an innovative and large stream of capital can just flow into this market without complying with the many, many federal regulations that govern residential mortgage lending. These regulations will increase costs and slow the rate of growth of such a new stream of capital. That being said, as the P2P industry matures, it may figure out a cost-effective way down the line to compete with traditional lenders.”

From the Consumer Financial Protection Bureau (CFPB) to Fannie and Freddie, even the U.S. Treasury and the FDIC, a lot of federal fingers wrap around traditional mortgages. Much of it is well intended – the aims are heightened consumer protections while also controlling losses from defaults and foreclosures – but an upshot is a marketplace that is slow to embrace change.

SF’s Airbnboom

Posted on by

Brian Johnson & Dane Kantner

The Christian Science Monitor quoted me in San Francisco Votes Down Airbnb Limits: Can Competing Interests Be Balanced? It reads, in part,

A defeated ballot measure in San Francisco, which would have imposed further restrictions on users of Airbnb and similar websites, is a sign of how the issue of short-term housing rentals is vexing city governments in the United States and beyond.

From Fort Lauderdale, Fla., to Los Angeles, lawmakers and residents alike are struggling to balance the power of technological change with the many critics of the home-sharing industry: homeowners who complain about deterioration in the quality of life in residential neighborhoods, hotels that fret about lost revenues, and activists who say that short-term housing is stripping the marketplace of affordable long-term units.

Yet even some of the trend’s most ardent critics suggest that more restrictions are not necessarily the answer. Better enforcement of current laws would go a long way toward balancing the conflicting interests, they say.

*     *     *

On the other coast, just as many cities are struggling. New York City is still up in the air about how to handle the sharing economy, says Brooklyn Law School professor David Reiss, who has followed Airbnb’s evolution.

This week, Airbnb promised to provide detailed data to the New York City Council, he notes. “The company is doing this in part to fend off [legislation] that would severely limit their reach in NYC,” he says via e-mail. One piece of proposed legislation increases penalties for violations of existing laws, and another mandates that the city track illegal apartment conversions, according to Professor Reiss.

Still, the sharing economy is with us for the long term as consumers continue to vote with their wallets, he says. “The bottom line is that we are in a period of transition. And while it is unlikely that we will return to the pre-sharing economy, it is also unlikely that we will have a sharing economy that is driven just by market actors, without government regulation,” he adds.

Wednesday’s Academic Roundup

Posted on by

Airbnb in NYC

Posted on by

Airbnb latte

New York Communities for Change/Real Affordability for All have issued a housing report, Airbnb in NYC. This is an advocacy piece that raises important questions about how Airbnb is changing the nature of housing markets in a hot destinations. The report states that

A new independent analysis of Airbnb’s website by www.InsideAirbnb.com shows that nearly 16,000 or just under 60% of Airbnb listings are entire homes or apartments for rent (in violation of state law and/or NYC zoning laws), and that they are available for rent an average of 247 days a year. To put that in perspective, those 16,000 Airbnb listings that are not available for everyday New Yorkers would be the equivalent of a loss of approximately one full year of Mayor de Blasio’s ten-year plan to build and preserve 200,000 affordable housing units, negating nearly all of the affordable apartments the administration has financed in the past year.

Despite Airbnb’s claims that the nearly 90 percent of their listings are from regular New Yorkers renting out spare rooms to make extra cash, the InsideAirbnb.com data show that nearly one-third of Airbnb listings come from hosts with multiple units, such as commercial landlords. (3)

While Airbnb has criticized the methodology of this report, it does appear to undercut Airbnb’s characterization of its hosts.

Opponents of the sharing economy will find a lot in this report that confirms their concerns. For instance, in the top 20 Airbnb zip codes in NYC, “housing units are rented on Airbnb for rates equivalent to more than 300% of the neighborhood’s average rent.” (5)

But supporters of the sharing economy will also find much to confirm their own views: “In 20 different zip codes in Manhattan, Brooklyn and Queens, entire/home/apartment Airbnb listings comprise at least 10% of total rentals.” (5) Supporters will say that the people have spoken with their pocketbooks — the sharing economy is here to stay, notwithstanding what the law says.

The sharing economy continues to shake up the old economy. The fact that so many Airbnb listings in NYC appear to violate the law means that the controversy over its appropriate role will probably come to a head sooner rather than later. The outcome of that controversy will then spill over and permeate the hottest residential neighborhoods in the hottest cities in the U.S.

Money on Airbnb

Posted on by

Three's_Company_roommates_1977

I was quoted in Money magazine in an article about Airbnb, Thinking About Renting a Room to Travelers? Here’s What You Need to Know. The article reads, in part,

Of all the categories shaken up by the sharing economy, few are as transformed as lodging. For travelers, ditching the hotel for Airbnb can be a more affordable way to go. And on the flip side, offering your own home or apartment to vacationers can earn you cash—$100 to $150 a night on average, according to Airbnb, much more in some popular destinations.

That can be fairly easy money. Unless something goes wrong, in which case it can be a disaster. You need to protect yourself from legal and financial risks. Here’s what home sharers should know.

*     *     *

Play It Safe

Don’t just rely on the home-sharing site’s standard insurance plan, because the coverage is generally too ambiguous, says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. Your existing homeowners policy may cover you for a single rental of less than two weeks, but call to ask.

More than that and you’ll need to switch to a commercial policy, which covers paying guests and typically costs an additional $500 per year, says Scott Wolf of CBIZ Property & Casualty.

Or try home swapping. For a small annual fee, sites such as HomeLink and HomeExchange connect people who want to visit each other’s location; because no money changes hands, you may avoid tax and liability issues. Still, check with your insurer—and of course, you need to be extremely cautious about who you let into your house. As a rule, none of these sites conducts background checks, so do your own by Googling guests and searching their social media accounts.

“Five years from now, the laws and the insurance policies will have caught up with the sharing economy,” Reiss predicts. “For now, though, it boils down to how risk averse you are.”

Wednesday’s Academic Roundup

Posted on by

Airbn-Beffudled

Posted on by

ox

MainStreet quoted me in Is Airbnb Making It Impossible For You To Rent That Dream Apartment?. It opens,

The accusation is blunt: Airbnb, say some, is sucking up apartment units that otherwise would be available to renters. In San Francisco, that claim is spoken so loudly – by so many politicians – a city agency just filed a report on it.

Similar claims are heard in Santa Monica, Calif., in Manhattan and some Brooklyn neighborhoods, a few areas in Seattle and also a sliver of Boston and adjacent Cambridge. True? False? Is that Airbnb host putting vacationers up in what should be your prime Greenwich Village flat?

Some think such accusations are just distracting from the main issue at hand: housing inventory shortages.

“It’s a diversion,” says Richard Green, the Lusk Chair in Real Estate at the University of Southern California. “Politicians are not dealing with what they should be dealing with to address housing unavailability so they are singling out Airbnb.” His nuanced point is that in most markets the number of Airbnb units is trivial and so whatever impact it has on apartment availability is minimal.

The San Francisco government report does not disagree: “the Budget and Legislative Analyst estimates that between 925 and 1,960 units citywide have been removed from the housing market from just Airbnb listings. At between 0.4 and 0.8%, this number of units is a small percentage of the 244,012 housing units that comprised the rental market in 2013.”

Read the San Francisco report. It said that under 1% of apartments have been removed from rental channels due to Airbnb. How important is that? What does it mean?

What is unique about San Francisco – also Manhattan and a few other places – is that apartment vacancy rates are fiercely low. In a recent survey, it stood at 4.1% in San Francisco and that means this is the type of town where would-be renters get in line early whenever a decent unit goes up for rent. Add back in those Airbnb units and, yes, that might be a happy day for some tenants. But not many.

The other unique feature: San Francisco, Manhattan and a very few other places attract large tourist populations, especially Millennials, and that has been a sweet spot for sharing economy rentals. Take tight supply, add in high hotel prices and a flood of tourists and there is the recipe for cries about any apartment that seems to be lost to the longterm tenant market.

In a lot of markets – from Phoenix to Houston – vacancy rates are already high, tourist numbers are low and nobody really thinks Airbnb is having any impact on local rentals.

But in some cities it just may be. Harry Campbell, TheRideShareGuy.com, said of Airbnb: it is “having a huge impact in coastal communities [of Los Angeles] like Venice/Santa Monica where mid level chain hotels can run upwards of $300-$400 a night. It just doesn’t make much sense for landlords to rent their apartments out traditionally when the profits are so much higher using Airbnb.” (Santa Monica, in mid May, enacted legislation banning short-term rentals such as Airbnb. Nobody knows how it will be enforced or if it will withstand legal challenges.)

At least one Portland, Ore. Airbnb host emailed Mainstreet to admit that two apartment units that had been rented to regular tenants are no longer. Explained that host: “From the point of view of a former landlord, the Airbnb experience is far superior. Airbnb guests are, on the whole, responsible, considerate and never late with rent since this is collected in advance by Airbnb.”

Either way, however, the calculus is not one-sided, not even in those premium markets like San Francisco. Green added: “You could also say that Airbnb is increasing the stock of affordable housing units by letting some keep their apartments by occasionally renting them out. It’s entirely possible Airbnb produces as many units as it loses.”

In that regard, listen to Kip (last name withheld) — a self-described 60+ woman living alone in Beverly Hills in a two bedroom apartment. A few times a month, said Kip, she rents it out through Airbnb. “That helps me with the cost of living,” she said. She stressed she would never take in a roommate but is happy with having guests a few nights a month. “It’s helped me boost my flagging income,” she said.

Christopher Nulty, an Airbnb spokesperson, had fighting words in response to the San Francisco report in particular.

“This comes from the same people who want to ban new housing in the Mission [a San Francisco neighborhood], ban home sharing and make San Francisco more expensive for middle class families,” he said. “Home sharing is an economic lifeline for thousands of San Franciscans who depend on the extra income to stay in their homes.”

So, who’s telling the truth?

“When evaluating claims about Airbnb, it is important to keep in mind whose ox is being gored,” said David Reiss, a professor at Brooklyn Law School. His point: In some cases, maybe Airbnb brings some harm. In other cases, it does good. Matters just aren’t simple or black and white.