Property taxes are typically described as a wealth tax – they are taxes levied on assets held rather than transactional taxes like income taxes (applied to wages as earned) or sales taxes (applied to goods when purchased). Property taxes are applied to the same property each year.
Back in 1978 Proposition 13 was passed in California to place a limit on property tax increases. Per Wikipedia, Section 1. (a) of Proposition 13: “The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.”
Proposition 13 also placed some rules on how the value of a property is assessed or re-assessed. Again, per Wikipedia: “Proposition 13 declared property taxes were to be assessed their 1975 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done.”
I was curious about the impact of Prop 13 on property taxes in San Diego after seeing some listings on Redfin and Zillow that had astoundingly low property taxes. For example, the Banker’s Hill property shown below, currently for sale for $1,697,955, carries an annual property tax levy of $136.97. That effective tax rate of .008% is far below the 1% established under Proposition 13.
I decided to take a look at the property values and property taxes on my block in North Park. The houses are all pretty similar (outside of one empty lot that was purchased by a local church and razed for a small and scarcely used parking lot). Below are the property values (per Zillow Zestimate) and property taxes paid (per San Diego County Treasurer website). I’ve listed all the properties on both sides of the street but removed the addresses for privacy reasons.
Despite the homes on the block having pretty similar property values the amount of taxes paid and effective tax rate vary quite a bit. I found it interesting to see the differences in a very small area of town summarized together.
Last month a press conference was held to release a study done on the economic impact of short-term rentals in San Diego for HomeAway / Expedia by Xpera Group. The report follows a similar study commissioned by Airbnb and done by National University in October 2015. Both full reports are included on this post for anyone interested in this issue.
A few highlights from the new study:
Total of $500M of impact in City of San Diego ($300M direct spending, $200 induced and indirect spending)
3,00 jobs in City of San Diego
Transient Occupancy Tax (TOT or “hotel tax”) estimated to be $19M or more in 2017, a 200% increase over 2015 when the TOT from short-term rentals total $9.6M
In 2016, City of San Diego TOT was $202.8M of which $15.6M was from short-term rentals, a 7.7% share.
“Short term lodging guests tend to be much younger than hotel guests and have a higher percentage of females than hotels.”
Short-term guests typically stay longer than hotel guests, “roughly half of short term lodging room nights coming from trips of seven days or longer”
7,436 total short-term lodging listings in City of San Diego, estimated (as of June 2017). 11,530 estimated for San Diego County.
In 2016 San Diego County had 30.4 million visitors, 17.4 million overnight visitors. That would be an average of 47,671 overnight guests per night in the County.
The short-term rental issue continues to be a hot topic in San Diego and a good explainer for the current status can be found here on Voice of San Diego (from Nov 1, 2017). A full City Council hearing is expected to be held on December 12 although a recent hearing was cancelled on short notice in October so we’ll see how the December hearing plays out.
I’ve been thinking about vacant housing units in San Diego for some time and recently was reading about the issue in Vancouver, Canada. The data provided was much more thorough than anything I found locally so I wanted to use it to estimate what the numbers might be in San Diego. Following is my take and links to the underlying information from Vancouver. If you have information on this topic I’d love to connect or hear your input.
This article from the Vancouver Sun from February 2017 lays out some good information about vacant housing units in that city, which in recent years has been often in the news for quickly rising housing prices. Included is the following:
The figures from “2016 show there were 25,502 unoccupied or empty housing units in the City of Vancouver” (below graph from article shows the growth in this number from 1986 to 2016, a period during which Vancouver real estate prices skyrocketed)
This figure is for the City of Vancouver, not the region, and represents 8.2 per cent of total housing units
Per City of Vancouver, there were 309,418 total dwelling units in the municipality as of 2016. This total supports the above calculations (309,418 x 8.2% yields 25,372 or roughly the same amount as show in bullet one)
In response to the high housing prices in Vancouver, the city levied a 1% property tax surcharge on vacant units to push owners to add the units to the housing supply for renters or other owners.
I’ve been trying to find vacant number estimates or similar studies in San Diego and have asked various reporters, housing industry experts, random Twitter users, and other avenues to seek this information. The answers I have received have been all anecdotal but mostly consistent – there are a lot of Downtown condos and probably a fair share of other units that are mostly vacant but it’s hard to ballpark the percentage.
Vancouver is a relatively similar city to San Diego, located on the west coast of North America and with high housing prices and demand. Below are some basic demographic and economic factors – San Diego is larger but in the same ballpark, a large regional hub in a developed country.
Poplulation (metro) – Vancouver = 2.3M, San Diego = 3.3M
Poplation (city) – Vancouver = 647,520, San Diego = 1.4M
Housing units (city) – Vancouver = 309,418, San Diego = 526,663 (1/1/2015)
Since I can’t find a good local estimate for vacant units I thought Vancouver would be a reasonable estimate, or at least a starting point for conversation and hopefully the SD City Council, EDC, Chamber of Commerce, or other party could commission a study to quantify this aspect of housing stock in San Diego. (I would guess the amount would be higher in San Diego than Vancouver given the long history as a vacation destination, the warmer weather, and the presence of large population centers nearby – Los Angeles, Phoenix, Las Vegas, etc.)
The SANDAG numbers may best reflect the number of vacant units, but it’s worth looking at a portion of the above referenced Vancouver Sun article which notes that the private study produced a vacancy rate more than double existing city estimates.
“The census numbers of unoccupied units are more than double an estimate released by city hall last year because a completely different set of criteria and data were used.
Assessing the extent of empty or underused homes can differ depending on “your measurement tools,” said Yan.
While the census might count a greater number of folks who are, say, on extended vacation during the census period, the city’s estimate was criticized for likely missing the number of units used for only short, seasonal periods, perhaps one or two months in the summer, but then are left vacant for the rest of the year.”
So, based on SANDAG’s vacancy rate of 5.2% we would have 27,386 vacant units in San Diego. Using the Vancouver vacancy rate of 8.2% would estimate 43,186 vacant units here. And if we thought that the government estimates are off by half due to sampling methodology, as they were in Vancouver, we could use a rate of 10.4%, yielding 54,773 vacant units in San Diego.
Given the large impact that property tax rules in California can have on homes held for long periods (Prop 13 being most prominent) I would think the vacancy number in San Diego would be at the high end of the above numbers, probably 50,000 or higher, maybe much higher. Prop 13, over time, can result in incredibly low property tax burdens for long-time owners. Prop 13 allows properties like the amazing home below, currently for sale for $1.7M, to pay a total of $136.97 in total taxes a year – a rate of .008% rather than the approx 1.05%, $17,850 a year, if taxes were applied on market value at existing property tax rates. When holding costs are essentially nothing, there’s greatly decreased incentive to sell and little cost to holding an empty property. It’s probably a large part of the reason the house across the street from me in desirable North Park, which is worth around $750k, has sat completely empty for the 4 years I’ve been in the neighborhood.
I’m not advocating for an empty house tax as Vancouver did, but seeking to get an estimate of vacant units in San Diego to consider a similar or other action. Being involved in the short-term rental (aka Airbnb) debate here the impact of short-term rentals on housing availability and prices frequently comes up. It’s undeniable that increased demand has an upward effect on housing prices. However, short-term rentals produce economic activity for owners, businesses, and the city whereas empty units do none of those things. Upper estimates of short-term rental units in San Diego are around 15,000 (I would guess it’s around half that number) – likely far dwarfed by empty units in our city. We would be much better served putting vacant units on the market rather than reducing economic activity, entrepreneurial opportunity, and property rights by greatly restricting short-term rentals.
I use my bike mostly for function – getting to and from places, shopping, going to dinner, etc. One of the best purchases I’ve made was getting pannier bags, which make it easy to carry items and more comfortable than using a backpack or handheld bag. Pannier bags attach to a basic bike rack (front or rear) and are a convenient way to carry goods, or to carry camping supplies if going for a long recreational trip.
A couple of years ago I bought a used set of Avenir pannier bags for $10 a piece. They have some nice features like:
Reflective trim to increase visibility
Two bottle holders
One large pouch for large items (I’m usually carrying a laptop or papers) with clip straps to secure and expand or shrink height
Small zippered pouch for easy access to wallet, keys, etc.
Clips to secure bag to bike rack and reduce chances of falling off
Waterproof with drawstring tie on opening
I went to the grocery store the other day and took some photos to show what a shopping trip by bike looks like. I sometimes see newspaper articles or comments online about how non-functional it is to buy food items on a bicycle. I strongly disagree – the parking is usually much easier, it’s cheaper than driving, and with a couple of good bags carrying your items home is a breeze.
Here’s my bike with two pannier bags full of groceries – I didn’t put the chips in the pannier bags for fear of crushing them although there was room in the expanded upper portion if I wanted to use it.
On returning home, I unpacked the bags on our table and took this photo to show the amount of food that can easily fit in a pair of bags. We were cooking for a get-together so some of the items are in bigger quantities than usual but overall a pretty good idea of an average grocery shopping trip for me by bicycle.
We’re fortunate to live in an area with a number of grocery stores within a mile. I often walk instead of biking, but often pick up a couple of items in other areas when I’m coming home from work or other activities. Pannier bags are a great addition to any bike and I highly recommend getting a pair.
This morning a number of media outlets are reporting on a new proposal by four San Diego City Councilmembers regarding short-term rentals. Below is a copy of the memo released that was included in the Voice of San Diego Morning Report today. I wanted to share as I received a few messages about this today – I haven’t had time to read through yet but with the City Council likely to have a hearing on this issue in October or November it sounds like another option that will be on the table for discussion.
I’ll try to do a summary post in the next day or two but wanted to put up the full document for the meantime.
I recently read Dream Hoarders – How the American Upper Middle Class Is Leaving Everyone Else In The Dust, Why That Is A Problem, And What To Do About It by Richard Reeves of the Brookings Institution. Despite having a very long and unwieldy title it was a very good read about the “Top 20%” in the United States. The book calls out unfair advantages that the upper class has carved out for itself and how these advantages have created “mobility stickiness” at the top – if you’re born in the top 20% you’re likely to remain there, more so than your chances of remaining in the bottom 20% if you are born there.
Reeves criticizes practices like legacy admissions at elite universities, college savings plans, nepotistic internship placing practices, the interplay of zoning and access to public goods like schools, and more. The book is a quick read and very informative.
Below is an example of the sort of information presented in the book. I really enjoyed the graphic presentation of data throughout, as well as the casual and plainspoken writing style. It makes the subject matter easier to grasp and relate to. I also enjoyed Reeves’ perspective as a non-native American – he was born in Britain and frequently refers to that land of dukes, dames, and queens and how his perception of America as a more meritocratic place has been challenged through his research on wealth and social mobility.
If you have a chance to pick up this book at your local library or purchase online I’d highly recommend it. It’s important for those of us in the Top 20% to recognize unfair practices and work to create a more fair playing field for our children and future generations.
I’m sending out these books as part of my “Sharebook” campaign – my personal project to send out books I’ve enjoyed and start a number of book chains to continue them being passed after I first ship them.
I’ve been using custom online guidebooks from Hostfully for about a year to share recommendations and property information with our guests in San Diego. I really like the platform and functionality, especially the ability to send a PDF, print, or link to the guidebook for easy guest use.
Hostfully recently started a regular series of articles featuring hosts using the platform – the “Hostfully Host Spotlight” and this week they decided to feature our property in North Park and some favorite recommendations in San Diego.
You can check out the profile article at the below link. Cheers!
(If you’re an Airbnb or VRBO host in San Diego and interested in Hostfully please feel free to drop me a line and we can chat.)
I was curious about the overall impact of the venue on the neighborhood in terms of patrons and dollars – how many people are attending concerts and bringing energy, liveliness, and money to North Park. I live a couple of blocks away and it seems to be quite popular but I hadn’t seen any numbers about the average attendance, etc. Here’s the response I got from an Observatory representative (received on 8/11/2017) on this topic:
“Our capacity is 550 seated or 1100 standing. We do between 12-25 shows per month with the average of most shows being about 80% sold.”
Let’s do a bit of math to get a monthly estimated total of attendees:
Average capacity: 825[(550 + 1100)/2] (assuming half seated shows and half not)
Average shows per month: 18.5 [(12 + 25)/2]
Average attendance per concert: 660 (825 x 80%)
Total attendance per month: 12,210 (660 *18.5) ———>> In a year that would be an estimated 146,520 attendees.
What does this mean for the larger North Park economy? As a rough estimate, this infographic from event organizer / platform Eventbrite is what a quick Google search yielded. It’s a bit dated, from January 2015, but as I don’t currently have a data analyst on staff I’m going to run with it.
Based on the above, the average non-ticket spending (snacks, drinks, transportation) would be $47 per person, in addition to the average $35 ticket. Multiplying the annual attendance by this $47 per person in spending would yield a direct economic impact to North Park of $6,886,440. A good portion of this, especially the drinks category, may occur inside the Observatory venue or attached West Coast Tavern. The wide variety of restaurants, cafes, and bars in North Park would also receive some of this money.
Prior to Observatory opening there wasn’t a major concert venue in North Park and I’m glad there is a place where music lovers can attend a wide variety of performances. (I’m not much of a concert goer myself and haven’t attended a performance at Observatory other than the Christmas program for Jefferson Elementary, for which the venue donated the space and support services.) I see Observatory as the type of place that most neighborhoods would pay lots of money or tax breaks to attract – a place bringing money, jobs, and attractions. Hopefully Observatory will continue to listen to neighborhood concerns as well as operating as a top-notch place to enjoy a night out in San Diego.
New Airbnb Feature Likely To Be A Boon For The Platform
Airbnb has a feature currently only available in a number of cities around the world – Co-Hosting. The current list, below, includes 25 cities although additional cities are being rolled out per my conversation with an Airbnb representative this week.
So what is the Co-Host program about? Basically, it’s a way for a property owner (a “Host” in Airbnb parlance) to add another Host (the “Co-Host”) to a listing. You can tap a friend, relative, neighbor, or experienced Airbnb huser to manage your property for you. This is a huge growth opportunity for the platform and one I’m surprised is not getting more publicity. I’d guess this is because they’re currently in test mode and working out any bugs in the program. In addition to assigning management rights to an Airbnb listing, the Co-Host option allows users to set fees (management fees as a percentage of gross earnings or fixed fee, cleaning fees, etc.) and the platform will automatically split earnings and distribute to both the Host and Co-Host per the Co-Host settings.
There are a number of reasons why someone might want a co-host for their property. The hassle of managing a property isn’t for everyone and to be able to hand off some or all of that responsibility will be attractive to some. For others, travel schedules or work demands might necessitate a co-host for short periods of time or seasonally. I can see myself wanting to add one of my children as a co-host to our listings in the future and giving them limited management rights to gradually give them control and responsibility for their own business.
In addition to existing Airbnb Hosts it’s easy to see how the Co-Hosting option could enable landlords to allow long-term tenants to utilize Airbnb in a monitored and responsible way. Between landlords, existing hosts, and the growth in the number of hosts in general I see a lot of growth potential for co-hosting. It should also allow Airbnb to retain hosts as there’s an option to avoid the hassles of managing a listing but still have the earnings, flexibility of schedule, and other benefits the platform provides. Airbnb has built a huge user base complete with reviews and other data and strengthening that base and building on it will be a competitive edge for the platform against the many competitors in the field.
I recently became a Co-Host here in San Diego and am excited for the opportunity. As one of the most experienced SuperHosts in the area I’m comfortable with taking on another listing to manage and hopefully the Host will see a benefit from the reduced workload for the property. If you are considering a Co-Host in San Diego you can find my profile at the below link. I’d be happy to talk with you about co-hosting and my experience and expertise.
Wondering if Airbnb offers Co-Hosting in Your Area? You can find out by logging in, and checking at the bottom of the menu bar. If Co-Hosting is an option for you, there will be a section labeled “Management” with a sub-section “Co-hosts” on your menu bar. You can directly invite someone you already know as a Co-Host or use the “Find a co-host” option to search by location for experienced hosts.
Below is a Facebook post I shared in August but am updating and adding some links and additional text. Next Tuesday the San Diego City Council will have a special meeting to consider changes to the Municipal Code which would eliminate nearly all short-term rentals in the city. The changes will address whole unit rentals of less than 30 days, as home-sharing (a room in a home rather than a whole unit) is essentially already banned. For more in-depth detail and the legal mumbo jumbo I’d recommend reading this great post by Omar Passons from earlier this week.
The following are my thoughts on Airbnb / short-term rentals, why I support short-term rentals in our city, and where I see the industry going in the future.
I am an Airbnb host and have been for a few years. When our family travels it’s basically exclusively what we use. We’ve had a great experience on both sides of the equation and I’ve never tried to hide that. I’m a supporter, user, money maker, etc. Next month we’ll be taking our family to Mexico City for a week and look forward to staying in an Airbnb property there. Here’s a photo of the property we’ll be staying at.
Locally and globally Airbnb has experienced massive growth since being launched in August 2008, this wouldn’t be possible unless it was affording an opportunity for the millions of hosts on the platform. (Potentially this could be due to hotel rooms being artificially capped by zoning / permits / etc but I think it’s mostly because these platforms are accessing non-standard rooms and properties in authentic neighborhoods that provide superior value.) Pair the desire for non-standard rooms / neighborhoods and value with the growth in travel globally and you have a massive opportunity.
However, the growth to date is likely to be dwarfed by the growth to come. PriceWaterhouseCoopers (PWC) issued a report in 2015 on the “sharing economy” including a variety of sites across industries including Uber, onefinestay, Airbnb, Feastly, and many more. As of the report date, only 7% of the U.S. population had participated in the sharing economy as a provider. PWC predicted that five major sharing economy sectors – travel, car sharing, finance, staffing, and music / video streaming – would grow from $15 billion in 2015 to $335 billion in 2025, a growth rate of approx. 36.4% annually.
What does the current opportunity and projected growth mean for hosts? Money. I know of few people that open their homes to strangers for free – even CouchSurfing is predicated on the give & get premise so there’s a benefit or exchange of value derived. There’s an economic opportunity for people to utilize and they are taking it – great. They’re doing so on a widespread, individual basis and connecting one-to-one with guests – even better.
I think a lot of the blowback is about “punk” millenials like me that are just saying “screw the rules” and “i do what i want, the system is the one with a problem”. Based on my interactions with other hosts I think this far from the truth. It’s widely covered that millenials don’t have much money, have major debts, live with their parents at historically unprecedented levels, and mostly don’t own property.
Who does own property? Boomers. And older members of Gen X and the Greatest Generation. (And Millenials that inherited from those groups or have had above average successes.) Additionally, for many years the average house size has been growing while the average household size has been shrinking. Per the American Enterprise Institute, from 1973 to 2014 the average number of persons per home declined from 3.01 persons to an all time low of 2.54 persons. Over the same period the median home size increased from 1,525 square feet to a record high of 2,506 square feet.
So today home sizes in the US have never been higher and family size has never been lower. Meaning? There are tons and tons of empty rooms – completely unused, spider web covered. I live across from an entirely empty house (next to a surface level parking lot in a residential neighborhood) in the heart of San Diego’s hippest neighborhood of North Park. Empty rooms are the real opportunity of the short-term rental industry – for both host and community.
Many articles focus on flip young people (me and my brethren punk millenials) boasting about having 10 units and how the money is so easy putting properties on VRBO, Flipkey, or Airbnb. It’s probably true, to some extent. This is a new opportunity with a ton of excess demand not currently being met. This excess demand will be met due to the incentives created – there is real money on the table.
The idea and model of web-based room renting is fairly new – even a few years ago it was unknown or fringe. (Though boarding houses and room letting has existed for centuries.) Today people from all age groups use it widely, though as the PWC report points out there is much room to grow. Think of the evolution of users of Facebook – young first adopters, then a broader segment of the populace, and today with a huge amount of older frequent users. That’s where this model is going – both on the user and host sides. The same with uptake of private room vs. whole home. When I started hosting our guests were 70-80% foreign, today that’s about 15%. The idea of staying in someone’s home was odd to Americans but more familiar to foreigners. This trend will continue and even now I hear a lot of commentary about preference for private room vs. whole home. The personal connection is much greater – part of the “live like a local” push that is the current Airbnb media slogan.
As all of these trends come together the biggest opportunity – empty rooms – will take over. This will be driven by the biggest owners of property in the US, Boomers. Those multiple property “owners” (quotes because the multiple property hosts are often lessors that use Airbnb as a sublet opportunity) will be crushed by home-owning Boomers. Especially in California the advantage is huge – no mortgage, property taxes fixed at a very low level thanks to Proposition 13, and more empty rooms than a younger family with kids at home. Someone paying $700K for a 2 bedroom today can not possibly compete with someone offering a room in the same 2 bedroom bought for $70K in 1975. In a similar vein will be people with changing situations and spare rooms – couples about to have their first child and build a family, older couples that recently sent their children to college, etc.
What else is the economic opportunity doing? It’s spurring people to add units – increasing supply of total housing. That’s a good thing. Attic and garage conversions, adding separate entrances to bedrooms, building grandma flats, even building new units with purpose built areas for use as short-term rentals – when there is opportunity people respond. It’s the same reason you see cranes everywhere in San Diego today and none in 2010 – if there’s no opportunity no one is going to commit capital and take risk. Today many (maybe most?) of these sorts of new units may be going to short-term rentals. That won’t always hold true and when total supply goes up there is more flexibility in the market and potentially a decrease in average cost. (Potentially because demand also fluctuates.)
This post doesn’t even touch on non-economic factors – the personal connection is enormous and underplayed. Many of our guests are moving to SD, want to move here, are interviewing for jobs or academic opportunities – they instantly have a local perspective on the region, a connection for the future, and a guide. This is a huge deal. San Diego is the best place to live in America and I love sharing why with others. I know many other San Diegans feel the same. Our residents can connect and relate to guests from around the globe 100x better through short-term rentals than the biggest ad campaign, Comic-Con, or other paid marketing can accomplish. Opponents of STRs use the term “Short Term Vacation Rentals”, I prefer short-term rentals as many guests are not here to party and play at the beach, there are a host of reasons people visit San Diego and top of my priority list is attracting talent to our city.
I have a feeling that short-term rentals are likely to be banned soon in San Diego. Many other California cities have taken this path and it’s hard to blame them. We’re looking at all-time highs for rents, property prices, etc. Our population continues to boom. The economy grows, but mostly at the top. It is not a pretty picture for those looking to buy or rent and short-term rentals are undoubtedly a part of that growth in prices (although based on number of units I would say a very small part). But giving people an economic opportunity is a good thing and taking it away by dictat is a bad one.
I’m proud of the hosts / property owners I’ve met. We are committed to addressing real issues. We have proposed a number of specific, meaningful regulations to avoid negative impacts for San Diegans – an increasing fine scale including prohibition of use, dedication of TOT funds from short-term rentals for enforcement, an annual registration fee with funds for enforcement, posting of contact information and a required response time (or additional fine). These are meaningful suggestions and address complaints from opponents. We are happy to come to the table and discuss other aspects of the debate.
I didn’t come from money, we didn’t inherit our house. The opportunity from short term rentals enabled us to purchase our home in North Park as well as have a parent at home during the early years for our children. That was huge, huge, huge for us. If others don’t want to have a stranger in their home or yard – that’s absolutely their choice. But to take away that opportunity from future home buyers and others we should not do. Good times come and go – not long ago many in SD were underwater on their homes. More opportunity and more flexibility is great and should be embraced. I hope that short-term rentals will continue to provide an opportunity for San Diegans of all backgrounds, means and neighborhoods.
I hope you agree and will let your City Council Member know.