Short-term rentals are partly to blame for the shortage of homes on the market, a Federal Reserve president said.
In a blog post about the soaring cost of housing in New Jersey, Patrick Harker, president and CEO of the Philadelphia Federal Reserve, said that housing supply in the U.S. was constrained due to a rise in people buying homes to turn into vacation rentals.
“Short-term rentals have gobbled up a significant portion of the housing supply, particularly at the Shore, for instance,” Harker stated.
recently announced that Ocean City, New Jersey, was its most booked American destination. (Did I mention that we had the best beaches?),” he added.
To be clear, home prices have also soared in the Garden State due to a rise in median wages, and Jersey residents’ proximity to high-wage work.
“New Jersey has the highest share of all states of people aged 18 to 34 living with their parents.”
— Patrick Harker, president and CEO of the Philadelphia Federal Reserve
Plus, New Jersey has the highest share of all states of people aged 18 to 34 living with their parents, Harker added, “the state desperately needs to build more affordable homes.”
But when Airbnbs pop up in residential neighborhoods, that hits housing supply as it takes away properties from the long-term residential market into the short-term travel market, a 2019 report from the Economic Policy Institute said.
And that in effect ends up pushing home prices up, the EPI added.
One home shopper told MarketWatch that her last home was sold to an Airbnb investor.
When Erin Piedmont, who is looking for a home in Savannah, Ga., went to an open house, she was told that a potential buyer was looking into purchasing the home she was viewing with the intention to turn it into an Airbnb.
“It’s the cutest little family home. … and all these people are gonna have to deal with an Airbnb in a neighborhood where like families have lived for a really long time,” she said. “It just seems like it’s kind of destroying the housing market.”
Piedmont’s former home in Alabama, where she had previously resided, was also sold to an Airbnb investor.
Short-term rentals are an ‘important part’ of vacation destinations
There is another side to the story, an Airbnb spokesperson told MarketWatch. Airbnb hosting — or short-term renting — offers a way for homeowners to make money at a time when inflation is still high, they said.
Additionally, only 0.4% of the housing stock in New Jersey was listed on Airbnb, they added.
They acknowledged that while the country has not built enough housing for its people, making short-term rentals the culprit for the housing shortage isn’t entirely fair, they argued.
“The reality is that home sharing has been an important part of the fabric of vacation destinations for decades,” they added.
Other solutions to boost housing supply
Jenny Schuetz, a senior fellow in Brookings Metro and author of the new book, “Fixer-Upper: How to Repair America’s Broken Housing Systems,” said that Harker’s assessment of short-term rentals seizing market share from potential homeowners was “ambivalent.”
Schuetz noted that in his blog post, Harker also suggested that local zoning rules be modified to allow homeowners to rent out garages and basements, creating Accessory Dwelling Units, or ADUs, to improve housing supply.
In California, after the law allowed for homeowners to build ADUs, or granny flats or backyard homes, a building boom followed. As of last year, according to M. Nolan Gray, a research director at California YIMBY, a community of neighbors, one in seven homes permitted to build in California was an ADU. In Los Angeles, that share is even higher — one in four homes built last year in L.A. was an ADU.
“Encouraging homeowners to create these types of accessory dwelling units is one important way to increase overall housing supply,” Schuetz said, “even if some of them are used as short-term rentals.”
More broadly, Harker also talked about reforming overall zoning laws to pave the way for more multi-family units to be constructed — like townhomes, or apartments.
By that, he referred to local zoning laws across the country that prohibit developers from building multi-family units, or apartments, and instead being forced to only build single-family homes. “Many towns in New Jersey are … zoned for single-family homes,” he said.
Schuetz noted that New Jersey actually offers a variety of approaches to address housing affordability.
For instance, Jersey City and Hoboken have built a large number of apartments, “which has helped offset some of the pressures in the larger NYC region,” she explained. Yet, as Harker said, many affluent suburbs have very restrictive zoning, which prices out middle- and low-income households.
Build workforce housing
Harker also suggested developing housing for workers near their employers. “Areas dominated by tourism like the Jersey Shore are starved of housing for workers,” Harker wrote.
“Incentivizing workforce housing could begin to ease these supply shortages,” he added. “And in those same tourist-heavy regions, local governments could look to limit the number of short-term rentals to ensure that local residents have places to live.”
There are efforts underway to address the housing shortage.
There are a record number of homes under construction that will eventually hit the market. According to the U.S. Census Bureau, 1.7 million homes were under construction as of August, which is 20.5% above last year’s level, as seen in the chart below.
It also happens to be an all-time record.
Housing units under construction across the country, according to the federal government.
Source: U.S. Department of Housing and Urban Development
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at firstname.lastname@example.org