THE IMPACT OF SHORT TERM RENTALS ON AFFORDABLE HOUSING IN OAKLAND: A REPORT AND RECOMMENDATIONS PREPARED BY DESSI MIA CARBAJAL CCoommmmuunniittyy FOR COMMUNITY ECONOMICS, INC EEccoonnoommiiccss AND EAST BAY HOUSING ORGANIZATIONS DECEMBER 2015 aa nnoonnpprrooffiitt ccoorrppoorraattiioonn REPORT RECOMMENDATIONS 1. The City should collect the full 14% Transient Occupancy Tax (TOT) from short-term rental businesses in Oakland with a requirement for full disclosure of all rental trans- actions. 2. The City should allocate 11% of TOT collected to the City’s Affordable Housing Trust Fund. 3. The City should enforce existing regulations on short-term rentals such as licensing and business registration, as well as compliance with local zoning laws. 4. City Council should support SB593 (Sen. McGuire) requiring short term rental compa- nies to make regular reports to cities and counties about which homes in each jurisdic- tion are renting rooms, for how many nights and how much money the homeowners are collecting from short-term rentals. 5. The City should study and consider further regulations, such as limiting the number of nights per year an entire unit may be rented. TABLE OF CONTENTS Background and Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Data and Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Oakland’s Airbnb Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 North Oakland Under Seige . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Oakland’s Affordability Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 How Other Cities are Addressing the Impacts of Short Term Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 About Community Economics: Community Economics (CEI) provides non-profit organizations and public agencies with expert technical assistance in the financing and development of affordable housing. Through that technical assistance and through involvement with local, state, and national housing policy is- sues, CEI has been at the forefront of the affordable housing movement, developing creative solutions and resources to meet the housing needs of low income households. About East Bay Housing Organizations: East Bay Housing Organizations (EBHO) is a non-profit membership organization dedicated to working with communities in Alameda and Contra Costa counties to preserve, protect and ex- pand affordable housing opportunities for the lowest income communities through education, advocacy, organizing, and coalition building. Founded in 1984, EBHO is the leading voice for affordable housing in the East Bay. We would like to thank Frances Kwong of HKIT Architects for donating graphic layout services. Snapshot of Oakland Airbnb Listings from InsideAirbnb. Dots marking Entire Homes are in red, Private Rooms in green and Shared Rooms in light blue. (Source: Webscrape of Airbnb website prepared by Murray Cox, June 2015) 4 $25.5 billion and rising3, outcompeting hotel industry giants like Background and Introduction the Hyatt ($8.4 billion) and Wyndham ($9.3 billion)4. The compa- Short term rentals in the San Francisco Bay Area are generating ny profits by charging hosts a three percent commission on each major controversy because of their impact on the regional hous- booking and charging travelers a fee of between six and twelve ing crisis. Led by Airbnb, by far the largest of the group, these percent, adding up to a total yield of anywhere between nine online rental companies have burst onto the scene with thou- and fifteen percent for every rental.5 sands of listings throughout the Bay Area. Concerned that these tourist accommodations conflict with local ordinances and de- Airbnb has made major inroads in Oakland in the past two to crease housing availability, several local communities including three years. This report analyzes its activity and impact on the San Francisco and Berkeley are considering how to regulate this scarce supply of affordable rental housing in the City. This report rapidly growing market. Efforts to limit the number of nights a relies primarily on an in-depth website called Inside Airbnb, de- unit is available on the short term rental market, and to collect signed and maintained by an independent analyst named Mur- Transient Occupancy Tax have been hampered by Airbnb’s refus- ray Cox. The data-rich resource has become the go-to site for al to disclose information about their hosts and occupancy rates. Airbnb facts and analysis. Cox includes details on Airbnb hosts, prices, listing locations, and listing types. These data sets provide Oakland is experiencing a rapidly growing demand for hous- valuable insight about the Airbnb landscape in the City of Oak- ing and space to accommodate newcomers and visitors alike. land. This report focuses on Airbnb because of its predominance At this year’s Oakland Annual Tourism Breakfast, Visit Oakland in the short term rental market. Of course, their competitors also President & CEO, Alison Best, noted that Oakland’s hospitality contribute to the impact. Therefore all recommendations in the industry surpassed national averages in lodging benchmarks, in- report refer to the short term rental industry as a whole. cluding a 79% overall hotel occupancy, compared to the nation’s 62% occupancy rate.1 Short term rental companies like Airbnb An Airbnb snapshot on June 22, 2015 identified 1,155 Airbnb list- and its competitors VRBO, Flipkey, and HomeAway have created ings for rent in Oakland, with several significant attributes: a business model that relies on incentivizing landlords and ten- 1. The majority of these listings (57%) are entire ants to transform residential units into tourist accommodations. homes, as opposed to “private rooms” and “shared A leader among so-called sharing economy enterprises, Airbnb room” listings that make up an almost negligible por- connects residents looking to enter the short term rental market tion of the market. This proportion is similar to San to tourists around the globe via their website. The essence of Francisco, Los Angeles, and other major markets for the company is best summed up in the following passage from a which data are available, disproving the Airbnb claim comprehensive report produced earlier this year by Los Angeles that their “hosts” are mostly just people occasionally Alliance for a New Economy (LAANE): renting out a spare room to help pay their mortgage “Airbnb sells itself as a platform akin to a community costs.6 bulletin board. However, unlike most community bulle- 2. On average, Oakland Airbnb units are available 237 tin boards, the company takes a percentage out of every nights out of the year. Such high availability implies transaction, has centralized control over all listings, and that these units probably do not have the owner maintains a global scope of operations. In other words, present, could be violating local zoning ordinances Airbnb is a hotel company. It may be deregulated and prohibiting short term rentals in certain areas - and decentralized, embedded within countless apartment more importantly, are removing rental-housing stock buildings, bungalow courts and leafy suburban streets, in an extremely tight market. but the company’s primary function is to make a profit accommodating guests.”2 3. The majority of Airbnb listings are located in neigh- borhoods in North Oakland, which seem not coin- Airbnb’s sky-high valuations have placed the company among cidentally to be communities with high and rapidly the ranks of hospitality industry giants, with a market value of increasing rents. The concentration of entire homes The Impact of Short Term Rentals on Affordable Housing in Oakland 5 Listing Types by City 4% 3% 3% 32% 34% 40% Shared Room Private Room Entire Home / 64% Apartment 62% 57% Los Angeles San Francisco Oakland Figure 1: Distribution of Airbnb Listings that are Entire Homes, Private Rooms or Shared Rooms by City available for short term rental through Airbnb in tels have not been subject to this TOT. Based on the revenue es- neighborhoods with high median rents and high-in- timates above, Oakland lost a potential for several million dollars come earners questions the validity of Airbnb’s claim in TOT up to July of 2015 by not assessing the tax on these short to help people afford rent or mortgage. By removing term rental businesses. rental housing supply in these already tight markets, Airbnb could very well be contributing to rising hous- We understand from the City of Oakland’s 2015-2017 proposed ing costs in impacted neighborhoods. budget and from Airbnb’s website that Oakland’s City Adminis- trator executed a contract with Airbnb that took effect July 1, Based on the methodology in the following section, we conclude 2015. Despite a public records request as well as requests from from the Inside Airbnb dataset and our own analysis that the multiple Councilmembers, we have not been able to review that Airbnb Oakland market has generated revenues of somewhere contract. We know that Airbnb is now collecting 14% TOT from between $4.9 million and $35 million between the time they their “guests” on every transaction in Oakland. From the analysis came on the scene in July 2009 and July 2015. This doesn’t count in this report, we believe their current level of business should the revenues from other short term rental companies like VRBO. yield between $688,000 and $2.32 million in TOT annually. The Further, given that renters were leaving reviews in June 2015 at Oakland budget shows only $500,000/year in the 2-year budget least three times the rate as the previous year, it can be conclud- cycle. Working with incomplete information, we are concerned ed that Airbnb is generating more revenue than ever before from the contract does not require full payment of the TOT or full dis- its Oakland market (Figure 2). closure of all rental transactions. The City of Oakland collects a 14% Transient Occupancy Tax This report demonstrates the clear nexus between private short (TOT) from every person (transient) occupying any hotel/motel term rentals and the limited and shrinking supply of housing less than thirty (30) consecutive days.7 Oakland’s voter-approved stock in Oakland. We cannot afford to continue to lose both Measure C in 2009 allocated 3% of TOT income to cultural arts housing stock and tax revenues that could help the City address programs, leaving 11% for the general fund. Airbnb and other the current housing crisis. short term rental businesses providing the same service as ho- 6 1,500 1,000 s w e i v e R 500 0 Jul OctJan Apr Jul OctJan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2009 2010 2011 2012 2013 2014 2015 Date Figure 2: Monthly Airbnb Online Reviews from July 2009 through June 2015. (Note: Reviews do not equal total bookings, as not all renters leave reviews.) The Impact of Short Term Rentals on Affordable Housing in Oakland 7 Data and Terminology the amount of estimated rentals by the minimum re- quired stay for a given listing.9 For example, if Joe’s Previous research indicates that while Airbnb’s marketing strat- “Cute cottage in Rockridge” has 22 guest reviews, In- egy presents the company as a champion of home sharing by side Airbnb assumes Joe’s listing has been booked 22 focusing on private and shared room listings, the reality is that times. To account for rentals without a review, Inside the company’s marketplace is dominated by entire home/apart- Airbnb increases estimated bookings by 50%, or in ment listings. Without regulations, this raises the stakes for the this case, to 33 estimated bookings. If Joe requires a conversion of entire residential homes into private hotels. The minimum 3-night stay per booking, it can be assumed difference between entire homes and the other two listing types that at this listing has been occupied 99 nights out of that make up Airbnb’s business model are as follows: the year (33 estimated bookings x 3 –night minimum required stay). Assuming the reviews are legitimate, 1. Entire home/apartment units (or “whole units”): An entire home rental, in which the host is not pres- this methodology represents a realistic value for a ent during the guest’s stay. listing’s number of nights of occupancy.10 2. Private rooms: An accommodation within the host’s Methodology home with the expectation of some degree of priva- cy. Host lives in and is present in the dwelling during This report uses data from listings that have been filtered to the guest’s stay. The guest is essentially a short-term meet the availability and rental rated metrics to inform Airbnb’s housemate. impact on Oakland and to generate revenue estimations from Airbnb’s market. Table 1 illustrates the three factors (number of 3. Shared room: Guest and host occupy the same living units, estimated booking nights, and average price) used to cal- space, with little expectation of privacy. culate revenue generated by Airbnb between July 2014 and July 2015. Inside Airbnb compiles data from short term rentals in cities around the world to examine how Airbnb impacts local hous- Frequently Rented Listings ing markets. “Web scraping” is a term used for various data ex- There are 577 Oakland listings that meet Inside Airbnb’s clas- traction methods that use software to collect information from sification as frequently rented (estimated booking nights > 60 a website. Murray Cox, creator of Inside Airbnb, has performed nights per year) and recently reviewed (reviewed in the last 6 web scrapes on Airbnb markets in over twenty cities around the months11). This selection is also reflected on Inside Airbnb’s in- world, including ten in the United States. Data from the Oakland teractive online display of the Airbnb market within the City of web-scrape was compiled on June 22, 2015. Oakland. The first two columns in Table 1 divide the 1155 total Oakland listings between the 557 that are frequently rented and Cox uses “high availability” and “frequently rented” metrics to the 598 that are not. Different estimations are then applied to assess the impact of Airbnb on residential housing. These met- each category. rics are defined as follows: Booking Nights per Year 1. Highly available listings are available for short term rental on Airbnb more than 60 days per year. This Frequently rented listings are multiplied by the minimum and is determined by a host’s calendar, which shows what average booking nights per year in the first two columns, respec- days or weeks their listing is available. tively. Since 60 nights/per year is the minimum amount of esti- mated booking nights required to meet the frequently rented 2. Frequently rented listings have estimated book- metric, that value was used for the minimum estimate. Mean- ing nights of more than 60 nights per year. To de- while, the average available nights per year for frequently rent- termine a listing’s estimated booking nights, Inside ed units (247) was converted into estimated booking nights in Airbnb converts online reviews to estimated rentals.8 the second column to illustrate the greatest booking potential The length of stay is the determined by multiplying for frequently rented listings. For the remaining 598 listings, we 8 Revenue Generated by Airbnb’s Oakland Market Maximum Estimate Adjust- Minimum Estimate Adjust- Adjusted for Average ed for Average Available ed for Frequently Rented Available Nights per Year for Nights per Year for All Listings Frequently Rented Listings Listings Number of Listings 557 557 1,155 (1,155 total) Estimated Booking Nights 60 247 237 per Year Average Listing Price $112 $112 $128 Estimated Revenue for Fre- $3,743,040 $15,408,848 quently Rented Listings Number of Listings Not Frequently Rented 598 598 (1,155 total) Estimated Booking Nights 20 20 per Year Average Listing Price $98 $98 Estimated Revenue for List- $1,172,080 $1,172,080 ings Not Frequently Rented Total Estimated Revenue $4,915,120 $16,580,928 $35,038,080 Total Estimated Revenue $668,116 $2,321,329 $4,905,331 Generated by 14% TOT Total Estimated Revenue Generated by 11% TOT for $540,663 $1,823,902 $3,854,188 Affordable Housing Table 1: Revenue Estimates Adjusted for Frequently Rented Listing per Year and Average Available Nights per Year applied an estimated booking nights rate of 20 in both columns mize bookings by listings their units on Airbnb with a nearly year- to provide a conservative estimate of their potential earnings. round availability. The final column shows the maximum estimate based on total Oakland’s Airbnb Landscape number of listings and the average available nights per year for all units (237). The overall average availability is just slightly less The analysis from this report reveals a concentration of Airbnb than the value for frequently rented units. According to the data, units in the rapidly gentrifying neighborhoods of North Oakland the majority of Oakland Airbnb listings (86%) are marked as high- and around Lake Merritt. Airbnb listings in East Oakland are not ly available, which resembles the rate of listings in Los Angeles as prevalent and tend to be a combination of private rooms and (85%), New York (82%), and San Francisco (76%).12 These figures entire homes scattered around highland neighborhoods like Up- indicate that the majority of Airbnb hosts are looking to maxi- per Dimond, Upper Laurel, Millsmont, and Redwood Heights. The Impact of Short Term Rentals on Affordable Housing in Oakland 9 Airbnb’s Top Revenue Generating Neighborhoods in Oakland Entire Homes Listed on Total Units Listed on Revenue from Entire Neighborhood Airbnb Airbnb Home Listings Bushrod 41 75 $151,006 Lakeside Neighbor- hoods (Trestle Glen, 53 66 $246,116 Lakeshore and Cleve- land Heights) Rockridge 42 58 $208,680 Temescal 38 51 $152,614 Longfellow 18 42 $65,741 Adam’s Point 26 42 $78,099 Shafter 26 35 $259,976 Total Revenue $1,162,232 Table 2: Airbnb’s Top Revenue Generating Neighborhoods in Oakland Meanwhile, the North Oakland census tracts where most of Oak- With average nightly rates of $123 for Airbnb entire home list- land’s Airbnb activity is taking place are some of the City’s most ings in Temescal, a landlord could earn up $3,690 a month at full desirable neighborhoods. occupancy, which is 14% higher than the average monthly rent for the area in June 2015.14 Airbnb entire units in Oakland’s high- In neighborhoods like Bushrod, Rockridge, and Adams Point, est yielding areas already make up the majority of the listings, median household incomes are higher than those in other parts and generate a significant portion of the revenue. If these hosts of the city, which is consistent with short term rental trends in were the “primary residents” of the homes they’re listing and other cities. Moreover, entire units in Airbnb’s top 10 revenue are just looking to earn extra money while vacationing, as Airb- generating Oakland neighborhoods yield over a third of the to- nb repeatedly claims15, revenues and availability for these entire tal revenue for the City (see Table 2), which shows how Airbnb’s home listings should not be so high. profits rely heavily on entire home listings. There are 250 entire residential units, mostly clustered in Oakland’s upscale neighbor- North Oakland Under Seige hoods, which show signs of being converted into Airbnb hotels. These units are available for rent 268 days per year, and have Oakland’s northern neighborhoods have been disproportionate- been booked 157 estimated nights annually, on average. ly impacted by private short term rentals. Three separate snap- shots of Airbnb listings in Oakland at the neighborhood level re- Conversions imply that landlords and property owners, in search veal that North Oakland has the greatest number of listings for of greater profits, have opted to operate traditional apartments a given month, weekend, and day.16 According to the data, the as short term rentals. In Oakland, where landlords are subject to presence of entire units is overwhelmingly concentrated in this rent adjustment ordinances, choosing to list a unit on the Airbnb part of town. market could mean potentially greater earnings without the has- sle of regulations. In neighborhoods like Temescal, nightly short Oakland’s Bushrod neighborhood makes up two small census term rental rates are rising alongside the rising median rents, tracts in North Oakland, but has a cluster of 75 units listed on which rose by over 20% from the beginning to the end of 2014.13 Airbnb with over half being entire homes. Geographically, the 10