Friday, January 15, 2016

Jefferson-Jones on Short-Term Rental Arrangements and Home Values

JJJJamila Jefferson-Jones (UMKC) has posted Can Short-Term Rental Arrangements Increase Home Values?: A Case for Airbnb and Other Home Sharing Arrangements (Cornell Real Estate Review) on SSRN.  Here's the abstract:

The sharing economy or “new economy” has redefined consumption in the housing context in a manner that impacts traditional notions regarding home values and neighborhood integrity. Housing sharing allows owners to share some of the benefits of property ownership -- namely use and enjoyment -- while shifting some of the burdens of ownership -- particularly, the economic burdens. With the advent of the sharing economy, there is a brewing conflict between this new economy and the realities of economic regulation. Thus, in the housing context, we see this conflict playing out in the tension between growing patterns of home sharing and existing regulations that prohibit such sharing. Many state and local governments, relying on their inherent police powers, regulate short-term housing. In particular, certain land use legislation overtly prohibits occupation by short-term renters. One prominent justification for such prohibitions is the maintenance of property values and neighborhood character.

I argue that, despite short-term housing prohibitions and the underlying policies supporting them, such exchanges can actually help to preserve property values by providing income to homeowners that can be used to offset mortgage and maintenance costs -- in other words, by allowing owners to share the burdens of ownership. Thus, rather than frustrating the goals and purposes for which old economy regulations were designed (e.g., the preservation of property values and neighborhood character), housing exchanges may instead aid in achieving these aims. Specifically, if homeowners are able to do so, they are more likely to be able to maintain their homes in the short-term and, in the long-term, to maintain ownership.

Policies that curtail short-term rental housing are of a bygone era and are ill-suited to address the modern sharing economy. The number of online platforms designed to link property owners with potential short-term lessees has grown rapidly over the last few years. For instance, Airbnb dot com (“Airbnb”) -- the most well-known of these platforms -- boasts that it has connected over twenty-five million guests with hosted properties in 34,000 cities in 190 countries since its founding in 2008.

Sharing and bartering housing resources is not new. Historically, the concept has long existed in the context of lodging purchased on a time- or space-limited basis in inns and boarding houses, rooms for rent, housing cooperatives, and informal arrangements. The catalyst for such sharing has often been the quest for affordability, coupled with housing scarcity. In the contemporary context, we see a home sharing proliferation the catalyst of which is also the scarcity of resources -- both affordable housing itself and the monetary resources with which to maintain home ownership. What is unique to home sharing in the new economy is not the sharing, but rather the way in which such sharing is facilitated by technology and how the use of such technology is causing innovation in sharing to outpace changes in housing regulation.

This Article focuses on the question of whether short-term rental arrangements negatively impact neighborhood character and home values. Part I gives an overview of the character of and justifications for municipal short-term leasing restrictions. Part II examines the Airbnb controversy in New York City. Finally, Part III argues that municipalities may actually be doing themselves a disservice when they prohibit these new economy housing exchanges because they may be missing out on an opportunity to reap enhanced economic benefits from permitting such exchanges.

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