Paul Sieving: Short-term rentals and real estate values
There has been a fair share of hand-wringing, finger-pointing and personal agendas exposed in our community this election season, especially in Nevada City over Measure Y, an initiative crafted to restrict the beneficial use of private property for short term rentals (STR) in our predominantly tourist economy.
This beneficial use contributes to the economic well-being of the property owners, the rest of the business community (retail, hospitality, dining) and local government. Property owners are able to maximize beneficial use of their real estate investments in difficult economic times. Other business owners see increased sales due to visitor traffic. Our local governments receive income from this activity in the form of sales taxes, room taxes (TOT) and business license fees.
Then there is the issue of the rental units themselves, which cover a wide range of physical/structural situations. Many of the spaces (though there are few, only about a dozen so far) are much more suitable for STR than for long-term rental. STR also tends to yield higher overall income for property owners and lead to less wear, physical depreciation and maintenance costs. This is because the spaces are cleaned and repaired very frequently between guests, rather than a major project when a long-term tenant moves out.
Some would argue that these units are critical components of our low-income housing inventory and ought to be reserved for that. I wonder if the folks making this argument would prefer low-income tenants in these units. It’s a rather hollow argument for a couple of reasons.
First, low-income housing is not economically viable when spread out, as opposed to concentrated in an apartment house or similar, since the economies of scale realized in the concentrated projects are indeed critical for these to pencil out.
Second, the folks doing the hand-wringing and finger-pointing would be very unlikely to prefer the social aspects of this use, when compared to the typical tourists using the STR lodging model, who are generally in good financial condition and bring many economic benefits to the community.
Nevada City has suffered a significant loss of TOT income over the last dozen years, due to both loss of lodging rooms and overall economic decline. This also has secondary effects of decreasing sales tax and business license income, as tourists stay elsewhere and spend their money where they stay. Allowing this beneficial use of private property will help turn this decline around.
The sharing economy is a new feature, brought about by the general economic decline and the high costs of the old-style lodging model, as well as economically challenged property owners just trying to get by. While there is not a lot of data to support the assertion that STRs tend to increase real property values, some noted economic scholars have put their minds to it and conclude that over-regulation of STRs does indeed lead to decline of property values on a regional level.
It’s just basic economics and the contribution of cash flow to real property valuations. When property rights are restricted or over-regulated, a decline in value generally follows.
We want to pay attention to political efforts to distract us from keeping the economic health of the entire community in mind. If there was ever a time to look at our strengths in a weak economy, this is probably it. There is a new economy and it is about using what we already have to do more.
Bottom line is that this is not a political issue, it is an economic one. If we can have the discussion outside of politics on these divisive issues, our chances of maintaining a viable local economy in the challenging times ahead are increased.
A No vote on Measure Y is a Yes vote for our economy.
Paul Sieving is a Realtor with MacLeod Sierra Realty, a former director and MLS chair of NCAOR, past president of the Nevada City Chamber of Commerce, Grass Valley Chamber and has served our community as a real estate professional for 17 years.
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I was a Republican for decades. The party chased me out with ideology that was good for the Republican Party but very bad for our country.