By Avi Sinai
Last month Santa Monica City Council announced that it is considering stricter regulations against ‘medium-term rentals.’ This is just one decision in a long list of problematic solutions that don’t address the root of the city’s severe housing shortage.
What are Medium-Term Rentals?
Medium-term rentals (also known as ‘corporate housing’) are residential term leases that are longer than 30 days but shorter than 1 year. These lease structures become increasingly popular due to the popularity of platforms like Airbnb and millennials’ desire to stay flexible. So if landlords are happy with the higher rents, and renters are happy to pay for flexibility, why is Santa Monica city council taking action? City officials and renter rights advocates argue that corporate housing is taking the place of long term housing units in a city that is already in a deep shortage of affordable housing.
Why did Landlords Turn to Medium and Short Term Rentals?
Citing profits and landlord greed are the easy and obvious reasons, but they don’t paint the whole picture. Landlords make more per month with medium-term rentals, but vacancy gaps, transaction costs, cleaning and extra management fees (not to mention thousands of dollars in furniture cost) can eat up any extra profit quickly.
Apartment building owners, like all real estate investors, would prefer long term tenants if everything else is equal. It requires less management and more predictability of income. In addition, most traditional banks refuse to recognize short and medium term income from home sharing sites. This prompted owners to resort to private hard money lenders for a creative capital solution.
A more complicated reason to avoid long term tenancy is the fear of rent control expansion. A recent state-wide push to expand rent control laws (Proposition 10) was defeated, but property owners are taking note of rising populism and backlash over rising rents. Cities continue to explore ways to expand regulations over the housing market – and landlords shying away from long term tenancies is a proactive step to combat the next regulatory wave.
Alternative Solution to the City’s Housing Shortage
The best way to lower housing costs for renters is to expand the housing supply dramatically, and specifically incentivize developers to provide affordable units to middle-class renters – not just luxury units and low-income units. Tenants should have protections against price gouging and housing stability for young families and seniors should be a priority for any city council – especially in a city where median housing prices are in the top 5 percent of the nation. But 40 years of rent control has done little to stop rents from rising. It only protected those who chose not to move away from their apartment. Stopping medium terms rentals, even if successful – is a band-aid solution where surgery is the right course.
About the author: Avi Sinai is the principal of HM Capital, a Los Angeles company specializes in hard money real estate loan and private lending. To contact HM Capital you can call (530) 436-5630, or email all inquiries to [email protected]