WEBVTT 00:00:00.000 --> 00:00:02.879 I want you to picture a very specific moment. 00:00:03.480 --> 00:00:06.059 It's a moment that, I mean, it really didn't 00:00:06.059 --> 00:00:09.160 exist 20 years ago, but now it's just a universal 00:00:09.160 --> 00:00:12.640 part of the travel experience. You are standing 00:00:12.640 --> 00:00:15.580 on a sidewalk in a city you don't know. Maybe 00:00:15.580 --> 00:00:17.480 it's Lisbon, maybe it's Austin, Texas. You have 00:00:17.480 --> 00:00:20.039 your luggage, you're tired, and you are staring 00:00:20.039 --> 00:00:23.579 at a generic gray door, scrolling frantically 00:00:23.579 --> 00:00:26.480 through your email on your phone, trying to find 00:00:26.480 --> 00:00:29.480 a four -digit code for a keypad. The panic of 00:00:29.480 --> 00:00:31.960 did I save the screenshot or is there cell service 00:00:31.960 --> 00:00:34.659 here? Exactly. You aren't walking into a lobby 00:00:34.659 --> 00:00:36.619 with a chandelier. You aren't being greeted by 00:00:36.619 --> 00:00:40.539 a concierge or a bellhop. You are basically letting 00:00:40.539 --> 00:00:43.100 yourself into a stranger's house using a code 00:00:43.100 --> 00:00:45.159 they texted you an hour ago. And just hoping 00:00:45.159 --> 00:00:47.100 that the photos you saw online, you know, that 00:00:47.100 --> 00:00:49.000 they actually match what is behind that gray 00:00:49.000 --> 00:00:51.100 door. Right. And we take this for granted now. 00:00:51.140 --> 00:00:53.359 We just call it booking a rental. But the stack 00:00:53.359 --> 00:00:54.820 of research and articles you've brought to the 00:00:54.820 --> 00:00:58.100 table today suggest that this simple act swapping 00:00:58.100 --> 00:01:01.780 a hotel key card for a keypad code has triggered 00:01:01.780 --> 00:01:04.640 a global economic butterfly effect that is so 00:01:04.640 --> 00:01:08.400 much messier and more complex than I ever realized. 00:01:08.909 --> 00:01:11.269 It is messy and it is massive. We usually talk 00:01:11.269 --> 00:01:13.590 about short term rentals or STR strictly as a 00:01:13.590 --> 00:01:15.269 vacation thing. You know, where should we stay 00:01:15.269 --> 00:01:17.629 for the wedding or let's find a place with a 00:01:17.629 --> 00:01:20.469 pool. Yeah, it's a consumer product. It is. But 00:01:20.469 --> 00:01:23.189 when you actually dive into the history, the 00:01:23.189 --> 00:01:26.230 economics and the policy, you realize this isn't 00:01:26.230 --> 00:01:28.390 just about travel. It is about housing policy. 00:01:28.629 --> 00:01:31.629 It is about labor laws. And frankly, it is about 00:01:31.629 --> 00:01:34.810 a massive transfer of wealth that is reshaping 00:01:34.810 --> 00:01:36.890 our cities. And that is the mission for this 00:01:36.890 --> 00:01:39.799 deep dive. We're looking past that glossy app 00:01:39.799 --> 00:01:42.079 interface. We want to understand the mechanics 00:01:42.079 --> 00:01:44.180 of this industry. We want to understand the consumer 00:01:44.180 --> 00:01:47.060 savings because, let's be honest, we all love 00:01:47.060 --> 00:01:50.099 a deal, but also the massive impact this is having 00:01:50.099 --> 00:01:53.299 on global housing because the picture the research 00:01:53.299 --> 00:01:56.780 paints is, well, it's stark. It really is. There 00:01:56.780 --> 00:01:59.700 is a fascinating, almost startling duality in 00:01:59.700 --> 00:02:02.620 the material we are unpacking today. On one hand, 00:02:02.620 --> 00:02:05.000 for you, the traveler, these rentals represent 00:02:05.000 --> 00:02:07.519 an incredible value proposition. I mean, it's 00:02:07.519 --> 00:02:10.639 huge. We are seeing data that suggests they can 00:02:10.639 --> 00:02:13.939 be 25 to 50 percent cheaper than hotels for month 00:02:13.939 --> 00:02:16.639 long stays. That is real money in your pocket. 00:02:16.800 --> 00:02:19.259 25 to 50 percent. That is a huge amount of money. 00:02:19.340 --> 00:02:21.939 It is. But on the other hand, the research links 00:02:21.939 --> 00:02:25.020 these exact same rentals to severe rental crises 00:02:25.020 --> 00:02:27.879 in places like Australia. We are seeing reports 00:02:27.879 --> 00:02:30.939 of landlord coercion. I mean, literally pressuring 00:02:30.939 --> 00:02:32.919 low income residents out of their homes just 00:02:32.919 --> 00:02:36.000 to flip the units. Wow. It is a heavy tradeoff. 00:02:36.060 --> 00:02:38.580 Your cheap vacation might be costing someone 00:02:38.580 --> 00:02:41.439 else their lease. It's the classic too good to 00:02:41.439 --> 00:02:45.000 be true scenario, but it's playing out on a macroeconomic 00:02:45.000 --> 00:02:48.379 scale. And we have some really specific. almost 00:02:48.379 --> 00:02:51.280 bizarre case studies to get into later. We are 00:02:51.280 --> 00:02:53.800 going to talk about parking wars in Santa Cruz. 00:02:53.900 --> 00:02:56.159 That one is wild. Which is a wild story about 00:02:56.159 --> 00:02:58.039 weaponized zoning. And then there are these strict 00:02:58.039 --> 00:03:00.800 limits in London and a massive housing shift 00:03:00.800 --> 00:03:03.819 in Tasmania that really puts a fine point on 00:03:03.819 --> 00:03:05.900 all this. All of which paints a picture of a 00:03:05.900 --> 00:03:08.020 system that is, you know, really straining at 00:03:08.020 --> 00:03:10.780 the seams. So here is the roadmap for the next 00:03:10.780 --> 00:03:13.319 hour. We're going to start with the basics, what 00:03:13.319 --> 00:03:15.520 actually is a short -term rental, and where did 00:03:15.520 --> 00:03:19.340 it come from? Because here is a hint. It didn't 00:03:19.340 --> 00:03:22.159 start with a guy in a hoodie coding an app in 00:03:22.159 --> 00:03:24.539 Silicon Valley. Not at all. Then we are going 00:03:24.539 --> 00:03:27.539 to look at the deal for you, the traveler. Why 00:03:27.539 --> 00:03:29.939 is it so cheap? What are you getting? Then we 00:03:29.939 --> 00:03:32.159 switch gears and look at the landlord's calculator. 00:03:33.060 --> 00:03:35.199 We're going to do the math on why property owners 00:03:35.199 --> 00:03:37.419 are doing this. And finally, we will get into 00:03:37.419 --> 00:03:40.219 the dark side. the safety issues, the community 00:03:40.219 --> 00:03:43.099 impact, and how governments are scrambling to, 00:03:43.159 --> 00:03:45.659 well, to try and fix it. Sounds like a comprehensive 00:03:45.659 --> 00:03:47.840 plan. Let's dive in. Okay, let's unpack this. 00:03:47.900 --> 00:03:51.000 Part one, defining the beast. When we say short 00:03:51.000 --> 00:03:53.879 -term rental or STR, what are we actually talking 00:03:53.879 --> 00:03:55.879 about legally and structurally? Is it just any 00:03:55.879 --> 00:03:58.389 rental that's not a year? So at its most basic 00:03:58.389 --> 00:04:00.550 level, yeah, we are defining a short -term rental 00:04:00.550 --> 00:04:03.310 as a dwelling, usually a furnished, self -contained 00:04:03.310 --> 00:04:05.909 apartment or house that is rented for a brief 00:04:05.909 --> 00:04:09.030 period. And brief period is the key here. We 00:04:09.030 --> 00:04:11.500 aren't talking about a 12 -month lease. No, not 00:04:11.500 --> 00:04:13.780 at all. We are talking days to weeks, maybe a 00:04:13.780 --> 00:04:16.120 month or two. And the distinction that is crucial 00:04:16.120 --> 00:04:18.139 here, and the research is very clear on this, 00:04:18.240 --> 00:04:21.860 is that these are explicitly seen as an alternative 00:04:21.860 --> 00:04:25.040 to hotels. They aren't hotels. They don't have 00:04:25.040 --> 00:04:27.740 the staff, the lobby, the room service. But they 00:04:27.740 --> 00:04:30.500 are competing for the exact same customer, the 00:04:30.500 --> 00:04:33.079 same tourist dollar. But here is where it gets 00:04:33.079 --> 00:04:35.240 really interesting. And this was a genuine surprise 00:04:35.240 --> 00:04:38.459 to me in the research. I think most of us, myself 00:04:38.459 --> 00:04:41.220 included, assume this whole industry just popped 00:04:41.220 --> 00:04:43.860 up in the last 10 or 15 years with the rise of 00:04:43.860 --> 00:04:45.800 the Internet and smartphones. Right. The gig 00:04:45.800 --> 00:04:48.100 economy invention story. Exactly. We think it's 00:04:48.100 --> 00:04:50.660 a modern phenomenon, but the research points 00:04:50.660 --> 00:04:53.160 to a completely different origin story. Yes, 00:04:53.220 --> 00:04:55.399 this is a great detail that gets overlooked so 00:04:55.399 --> 00:04:58.399 often. The short stay rental didn't just appear 00:04:58.399 --> 00:05:01.399 out of thin air as a vacation hack. It is actually 00:05:01.399 --> 00:05:03.300 an offshoot of the corporate housing market. 00:05:03.459 --> 00:05:05.560 Corporate housing. That sounds incredibly dry 00:05:05.560 --> 00:05:10.079 and boring. It was. And that's the point. I want 00:05:10.079 --> 00:05:13.600 you to go back to, say, 1995. Imagine you are 00:05:13.600 --> 00:05:16.879 a multinational corporation, a big bank or a 00:05:16.879 --> 00:05:19.279 tech firm. You need to send a vice president 00:05:19.279 --> 00:05:22.060 from New York to London to oversee a merger for 00:05:22.060 --> 00:05:24.639 six weeks. What do you do with him? I assume 00:05:24.639 --> 00:05:26.600 you just put him in a hotel. A nice one probably. 00:05:26.720 --> 00:05:31.699 You could. But a hotel room for 45 nights. It 00:05:31.699 --> 00:05:35.120 is soul crushing. It is. tiny you are eating 00:05:35.120 --> 00:05:37.779 room service every single night it is incredibly 00:05:37.779 --> 00:05:40.480 expensive for the company it is just not a viable 00:05:40.480 --> 00:05:42.699 lifestyle for six weeks you can't live like a 00:05:42.699 --> 00:05:45.240 human being in a 300 square foot room for that 00:05:45.240 --> 00:05:47.819 long you'd go absolutely stir crazy exactly so 00:05:47.819 --> 00:05:50.839 a niche industry developed called corporate relocation 00:05:50.839 --> 00:05:53.100 or service departments these were furnished departments 00:05:53.100 --> 00:05:55.860 specifically for business people and they were 00:05:55.860 --> 00:05:58.220 bland they were beige they were functional no 00:05:58.220 --> 00:06:00.259 personality zero personality they were located 00:06:00.259 --> 00:06:02.160 in business districts they had a kitchenette 00:06:02.160 --> 00:06:07.750 so you could you know make So these are professional 00:06:07.750 --> 00:06:10.829 operations, business to business, B2B. Completely 00:06:10.829 --> 00:06:13.209 B2B. They weren't looking for tourists. They 00:06:13.209 --> 00:06:15.149 didn't want the backpacker or the bachelorette 00:06:15.149 --> 00:06:17.870 party. They wanted the chaos free guaranteed 00:06:17.870 --> 00:06:21.730 payment of a Fortune 500 company. It was a boring, 00:06:21.949 --> 00:06:25.389 stable, high margin business that operated quietly 00:06:25.389 --> 00:06:28.589 in the background of the travel industry. So 00:06:28.589 --> 00:06:31.310 how did we go from. bland corporate apartment 00:06:31.310 --> 00:06:35.069 for a vice president to renting a tree house 00:06:35.069 --> 00:06:38.209 in Bali for a weekend. I mean, how did that leap 00:06:38.209 --> 00:06:40.360 actually happen? It was an evolution, really, 00:06:40.519 --> 00:06:43.139 and a democratization of the model. The concept 00:06:43.139 --> 00:06:46.019 moved from being strictly for corporate use to 00:06:46.019 --> 00:06:48.279 private owners and investors realizing, hey, 00:06:48.300 --> 00:06:50.620 wait a minute, I can do this too. The internet 00:06:50.620 --> 00:06:52.660 was the catalyst. It just lowered the barrier 00:06:52.660 --> 00:06:55.579 to entry to almost zero. Suddenly, you didn't 00:06:55.579 --> 00:06:57.639 need to be a corporate housing firm with 500 00:06:57.639 --> 00:06:59.879 units and a dedicated sales team to play the 00:06:59.879 --> 00:07:01.699 game. You could be a guy with a spare bedroom. 00:07:02.220 --> 00:07:04.959 or a couple who bought an investment condo. The 00:07:04.959 --> 00:07:07.319 online platforms like Airbnb, which the research 00:07:07.319 --> 00:07:09.620 mentioned specifically, came along and just connected 00:07:09.620 --> 00:07:12.180 the supply, the private owners, with the demand, 00:07:12.379 --> 00:07:14.680 which was us. And the demand side shifted, too. 00:07:14.740 --> 00:07:16.899 It wasn't just a VP on a business trip anymore. 00:07:17.240 --> 00:07:19.759 Exactly. It became the backpacker, the family 00:07:19.759 --> 00:07:22.519 reunion, the person relocating to a new city 00:07:22.519 --> 00:07:25.120 for a job. And that relocation piece is actually 00:07:25.120 --> 00:07:27.620 really interesting, too. The research mentions 00:07:27.620 --> 00:07:30.480 popular uses include vacation rental, obviously, 00:07:30.680 --> 00:07:33.889 but also... Relocation as a key category. Which 00:07:33.889 --> 00:07:36.170 makes perfect sense. If you are moving to a new 00:07:36.170 --> 00:07:38.970 city, say you got a new job in Chicago, you can't 00:07:38.970 --> 00:07:41.149 buy a house or sign a lease in a single weekend. 00:07:41.470 --> 00:07:44.370 You need a landing pad. Exactly. You need somewhere 00:07:44.370 --> 00:07:46.829 to live for a month, maybe two, while you hunt 00:07:46.829 --> 00:07:49.750 for a permanent lease or a house. These STRs 00:07:49.750 --> 00:07:52.370 fill that gap perfectly. It's bridging that gap 00:07:52.370 --> 00:07:56.990 between tourist and resident, a temporary home. 00:07:57.470 --> 00:08:00.170 So, okay, let's talk about the deal. Why do we, 00:08:00.230 --> 00:08:02.569 the listeners, the travelers, use them? Why has 00:08:02.569 --> 00:08:05.149 this industry just completely exploded? Because 00:08:05.149 --> 00:08:07.170 usually when a new product comes along, it has 00:08:07.170 --> 00:08:09.610 to be significantly better or significantly cheaper 00:08:09.610 --> 00:08:12.370 to change consumer behavior on this scale. In 00:08:12.370 --> 00:08:14.680 this case, it is often both. It really comes 00:08:14.680 --> 00:08:17.220 down to value. The research is very, very clear 00:08:17.220 --> 00:08:19.639 on this. This industry is seen as the most affordable 00:08:19.639 --> 00:08:22.500 option for month -long stays. And we have a specific 00:08:22.500 --> 00:08:24.079 number on that, right? I want to make sure we 00:08:24.079 --> 00:08:26.759 nail this down because the savings are, well, 00:08:26.819 --> 00:08:29.500 they're staggering. We do. The data states they 00:08:29.500 --> 00:08:32.200 can be 25 to 50 percent cheaper than a hotel 00:08:32.200 --> 00:08:34.259 room. Stop and think about that for a second. 00:08:34.320 --> 00:08:36.320 50 percent. Let's do some quick napkin math. 00:08:37.000 --> 00:08:40.120 If a decent hotel in a major city is, let's be 00:08:40.120 --> 00:08:43.620 conservative and say, $200 a night over a month. 00:08:43.929 --> 00:08:47.009 That's $6 ,000. You're saying I could potentially 00:08:47.009 --> 00:08:50.129 get a full house or an apartment for $3 ,000. 00:08:50.549 --> 00:08:54.049 In many markets, yes. That is not a small margin 00:08:54.049 --> 00:08:56.490 of savings. That is the difference between taking 00:08:56.490 --> 00:08:58.750 the trip and not taking the trip for a huge number 00:08:58.750 --> 00:09:00.970 of people. But it's not just the sticker price, 00:09:01.070 --> 00:09:03.309 is it? There's a whole hidden layer of savings 00:09:03.309 --> 00:09:05.450 that I think people intuitively understand but 00:09:05.450 --> 00:09:07.850 maybe don't calculate out. The lifestyle savings, 00:09:07.970 --> 00:09:10.889 or what I like to call the kitchen arbitrage. 00:09:11.519 --> 00:09:13.620 The kitchen arbitrage. I like that. Break it 00:09:13.620 --> 00:09:16.159 down for us. Well, think about the total economics 00:09:16.159 --> 00:09:18.299 of staying in a hotel for an extended period. 00:09:18.700 --> 00:09:21.840 You are paying for the room, sure, but you are 00:09:21.840 --> 00:09:24.700 effectively trapped in the hotel's economy. You 00:09:24.700 --> 00:09:28.509 wake up, breakfast is a $25 buffet. Or a $30 00:09:28.509 --> 00:09:31.330 room service tray with sad -looking eggs. Exactly. 00:09:31.889 --> 00:09:33.889 Lunch, you have to go to a restaurant. Dinner, 00:09:34.070 --> 00:09:36.049 another restaurant. You want a glass of wine 00:09:36.049 --> 00:09:38.009 at the end of the day, that'll be $15 at the 00:09:38.009 --> 00:09:41.210 hotel bar. It just bleeds you dry one small transaction 00:09:41.210 --> 00:09:43.590 at a time. And don't even get me started on laundry. 00:09:43.750 --> 00:09:46.830 Hotel laundry services are, like, criminally 00:09:46.830 --> 00:09:49.610 expensive. $5 to wash a single pair of socks. 00:09:49.710 --> 00:09:53.500 It's absurd. But in an STR, you typically get 00:09:53.500 --> 00:09:55.440 a kitchen or at least a kitchenette. You get 00:09:55.440 --> 00:09:57.840 a washer and dryer. Even if you only eat breakfast 00:09:57.840 --> 00:09:59.899 at home, you know, eggs and toast from the local 00:09:59.899 --> 00:10:02.779 grocery store and you make a sandwich for lunch, 00:10:02.919 --> 00:10:05.299 you are saving hundreds and hundreds of dollars 00:10:05.299 --> 00:10:08.860 a week per person. It totally explains why families 00:10:08.860 --> 00:10:11.019 with kids gravitate towards them. If you have 00:10:11.019 --> 00:10:13.480 two kids, you are not booking two hotel rooms 00:10:13.480 --> 00:10:15.700 and paying for four restaurant meals three times 00:10:15.700 --> 00:10:18.399 a day. That math just doesn't work for most families. 00:10:18.600 --> 00:10:22.019 It compounds the savings. The 50 % cheaper headline 00:10:22.019 --> 00:10:25.080 is just the rent. The actual total cost of the 00:10:25.080 --> 00:10:28.179 trip might be 60 % or even 70 % cheaper when 00:10:28.179 --> 00:10:29.960 you factor in all the food and services you're 00:10:29.960 --> 00:10:32.220 not paying for. And there is one other factor 00:10:32.220 --> 00:10:34.899 the research mentions that is a total deal breaker 00:10:34.899 --> 00:10:38.190 for a huge segment of the population. Oh, right. 00:10:38.289 --> 00:10:40.870 The absolute desperation of the dog owner traveler. 00:10:41.269 --> 00:10:43.850 Have you ever tried to find a nice hotel that 00:10:43.850 --> 00:10:47.090 takes a large dog or even a medium sized dog? 00:10:47.250 --> 00:10:50.370 It is a nightmare. It is. The fine print is always 00:10:50.370 --> 00:10:53.710 dogs under 15 pounds only. Or they have these 00:10:53.710 --> 00:10:56.379 crazy rules like. No pets allowed on furniture. 00:10:56.759 --> 00:10:59.460 Or they charge a $100 cleaning fee per night. 00:10:59.720 --> 00:11:01.240 It just feels like you were being punished for 00:11:01.240 --> 00:11:03.679 having a pet. It does. But the research notes 00:11:03.679 --> 00:11:06.000 that some short -term rental companies and hosts 00:11:06.000 --> 00:11:09.440 explicitly permit pets. For many travelers, this 00:11:09.440 --> 00:11:11.419 isn't even about the price. It's about viability. 00:11:11.679 --> 00:11:14.059 If I can't bring the dog, I can't go on the trip. 00:11:14.259 --> 00:11:17.379 The STR market realized this massive unmet demand 00:11:17.379 --> 00:11:20.659 and capitalized on it perfectly. So on the surface, 00:11:20.840 --> 00:11:23.379 this sounds amazing. It's cheap. It's convenient. 00:11:23.539 --> 00:11:25.419 You can bring the dog. You have a kitchen. It 00:11:25.419 --> 00:11:28.360 sounds like the perfect product. But, and there's 00:11:28.360 --> 00:11:30.919 always a but on this show, the research also 00:11:30.919 --> 00:11:33.259 gives us a bit of a reality check on the actual 00:11:33.259 --> 00:11:35.580 booking process. It isn't always smooth sailing. 00:11:35.759 --> 00:11:38.519 No, it's not. It's sort of the Wild West of hospitality. 00:11:39.220 --> 00:11:41.379 There are friction points that you just don't 00:11:41.379 --> 00:11:44.000 get with a Marriott or a Hilton where everything 00:11:44.000 --> 00:11:46.940 is standardized. Right. The research lists a 00:11:46.940 --> 00:11:49.279 few things that can really catch people off guard. 00:11:49.600 --> 00:11:51.799 Credit checks, for one. Which you don't usually 00:11:51.799 --> 00:11:53.720 deal with for a standard hotel room. You just 00:11:53.720 --> 00:11:55.299 swipe your credit card at the desk and you're 00:11:55.299 --> 00:11:58.179 done. Exactly. But if you are booking a place 00:11:58.179 --> 00:12:01.080 for a month, some hosts essentially treat you 00:12:01.080 --> 00:12:03.320 like a short -term tenant. They want to know 00:12:03.320 --> 00:12:05.279 you're good for it. They might run a credit check. 00:12:05.580 --> 00:12:08.100 Then there are damage deposits and holding deposits, 00:12:08.299 --> 00:12:10.879 which can tie up hundreds of dollars on your 00:12:10.879 --> 00:12:13.480 card. And the big one, the one that everyone 00:12:13.480 --> 00:12:16.059 complains about on social media, the departure 00:12:16.059 --> 00:12:19.419 cleaning fee. Oh, the dreaded cleaning fee. You 00:12:19.419 --> 00:12:21.840 see a room is listed for what seems like a great 00:12:21.840 --> 00:12:24.139 price, maybe $100 a night. You think, wow, what 00:12:24.139 --> 00:12:27.240 a deal. You click book, you go to the final checkout 00:12:27.240 --> 00:12:29.899 screen, and suddenly the total for your two nights 00:12:29.899 --> 00:12:34.080 is $400. And there's a $200 fee in there. The 00:12:34.080 --> 00:12:36.639 research notes this is often a departure cleaning 00:12:36.639 --> 00:12:39.299 fee, which implies it's a fixed cost regardless 00:12:39.299 --> 00:12:42.120 of whether you stay for one night or 10. It completely 00:12:42.120 --> 00:12:44.419 changes the math. If you stay for one night, 00:12:44.519 --> 00:12:48.179 a $150 cleaning fee more than doubles your cost. 00:12:48.379 --> 00:12:50.620 If you stay for a month, it's negligible. It's 00:12:50.620 --> 00:12:52.740 just spread out. It almost feels like a hidden 00:12:52.740 --> 00:12:56.039 tax. But it's also a behavior modification tool 00:12:56.039 --> 00:12:58.159 from the host's perspective. What do you mean 00:12:58.159 --> 00:13:00.899 by that? Well, hosts use high cleaning fees to 00:13:00.899 --> 00:13:03.019 discourage one night stays without explicitly 00:13:03.019 --> 00:13:05.779 banning them. They want the longer bookings because 00:13:05.779 --> 00:13:08.419 it's less work, less turnover, less risk. That 00:13:08.419 --> 00:13:10.320 makes sense. But there is a bigger risk than 00:13:10.320 --> 00:13:12.899 just the f***. I call it the real estate catfish. 00:13:12.980 --> 00:13:16.019 The catfish. Yes, it's a real thing. The research 00:13:16.019 --> 00:13:18.539 explicitly warns that online photographs and 00:13:18.539 --> 00:13:21.240 descriptions can be misleading. You see a picture 00:13:21.240 --> 00:13:23.179 of a palace, you show up and it's, well, it's 00:13:23.179 --> 00:13:25.039 not a palace. It's a basement apartment with 00:13:25.039 --> 00:13:27.639 a window facing a brick wall. It is a genuine 00:13:27.639 --> 00:13:31.000 risk because unlike a hotel chain where room 00:13:31.000 --> 00:13:34.600 202 in Chicago looks exactly like room 202 in 00:13:34.600 --> 00:13:38.120 Seattle. These are all unique properties. You 00:13:38.120 --> 00:13:40.700 are relying on photos taken by the owner possibly 00:13:40.700 --> 00:13:44.100 five years ago, possibly with a super wide angle 00:13:44.100 --> 00:13:46.399 lens that makes a closet look like a ballroom. 00:13:46.500 --> 00:13:49.080 Or they conveniently don't photograph the massive 00:13:49.080 --> 00:13:51.620 construction site next door that starts jackhammering 00:13:51.620 --> 00:13:54.639 at 6 a .m. every morning. Exactly. The research 00:13:54.639 --> 00:13:56.600 actually gives some actionable advice here that 00:13:56.600 --> 00:13:59.080 I think is really valuable, though I bet 90 percent 00:13:59.080 --> 00:14:01.779 of people, myself included, don't do it. What's 00:14:01.779 --> 00:14:04.840 the recommendation? Make direct contact. The 00:14:04.840 --> 00:14:06.919 text recommends making contact with the landlord 00:14:06.919 --> 00:14:09.620 or the agent before you book. To verify reality. 00:14:09.899 --> 00:14:12.059 To check if they're a real person. Basically. 00:14:12.419 --> 00:14:14.679 To make sure a human is on the other end and 00:14:14.679 --> 00:14:16.419 that the details align with what is promised. 00:14:16.659 --> 00:14:19.299 Ask a very specific question. Is the wifey fast 00:14:19.299 --> 00:14:22.159 enough for me to do Zoom calls for work? Or is 00:14:22.159 --> 00:14:24.200 there a dedicated street parking or is it a free 00:14:24.200 --> 00:14:26.559 -for -all? Yeah, good point. If they take three 00:14:26.559 --> 00:14:28.340 days to answer you before they have your money, 00:14:28.480 --> 00:14:30.519 imagine how long they'll take to answer you when 00:14:30.519 --> 00:14:33.200 the toilet overflows at 10 p .m. You are vetting 00:14:33.200 --> 00:14:34.940 the host as much as you are vetting the house. 00:14:35.039 --> 00:14:38.320 That is solid, solid advice. You are pre -screening 00:14:38.320 --> 00:14:41.019 your customer service experience. Precisely. 00:14:41.080 --> 00:14:44.120 Okay, so that is the consumer side. We get it. 00:14:44.159 --> 00:14:46.360 It's cheap. It's convenient. It offers amenities 00:14:46.360 --> 00:14:49.059 you can't get in a hotel. But you have to watch 00:14:49.059 --> 00:14:52.340 out for fees and misleading photos. But now... 00:14:52.679 --> 00:14:54.659 I want to flip the script. Let's look at the 00:14:54.659 --> 00:14:56.179 person on the other side of this transaction. 00:14:56.559 --> 00:14:59.879 The landlord. This is where we get into the economics 00:14:59.879 --> 00:15:02.919 of conversion. This is really the engine that 00:15:02.919 --> 00:15:05.519 is driving this entire industry. Because presumably. 00:15:06.430 --> 00:15:08.850 Landlords aren't just doing this out of the kindness 00:15:08.850 --> 00:15:11.210 of their hearts to offer us cheap vacations. 00:15:11.289 --> 00:15:13.789 They are not running charities. Definitely not. 00:15:13.950 --> 00:15:16.169 They are doing it because the math is incredibly, 00:15:16.190 --> 00:15:19.129 incredibly compelling. The research states very 00:15:19.129 --> 00:15:21.929 clearly that through short -term rentals, landlords 00:15:21.929 --> 00:15:24.610 can make upwards of 30 % more than they would 00:15:24.610 --> 00:15:27.710 on a rent -controlled property. 30 % more. In 00:15:27.710 --> 00:15:30.490 the investment world, that is not a small increase. 00:15:30.789 --> 00:15:33.210 That's a massive delta. It is huge. It's a game 00:15:33.210 --> 00:15:35.690 changer. But we need to unpack why that gap. 00:15:35.720 --> 00:15:38.179 exists the text is very specific it compares 00:15:38.179 --> 00:15:40.639 it to a rent controlled property that's not an 00:15:40.639 --> 00:15:43.679 accident right explain the difference for us 00:15:43.679 --> 00:15:45.860 what is the yield gap here what does that mean 00:15:45.860 --> 00:15:48.480 so imagine you own a small apartment building 00:15:48.480 --> 00:15:51.360 in a city with strong tenant protections like 00:15:51.360 --> 00:15:55.080 New York or San Francisco or Berlin you might 00:15:55.080 --> 00:15:58.210 have a tenant who has been living there for 10, 00:15:58.269 --> 00:16:01.450 maybe 20 years. Because of rent control or rent 00:16:01.450 --> 00:16:04.149 stabilization laws, they might be paying, say, 00:16:04.350 --> 00:16:07.509 $1 ,500 a month for an apartment that, if it 00:16:07.509 --> 00:16:09.610 hit the open market today, could easily rent 00:16:09.610 --> 00:16:12.330 for $3 ,000. So the landlord is sitting there 00:16:12.330 --> 00:16:14.789 looking at that unit on their balance sheet and 00:16:14.789 --> 00:16:16.950 feeling like they're actively losing $1 ,500 00:16:16.950 --> 00:16:19.090 every single month. Yeah. They see it as a loss. 00:16:19.350 --> 00:16:21.389 Exactly. It's an opportunity cost. They see the 00:16:21.389 --> 00:16:23.789 opportunity cost staring them in the face. Now, 00:16:23.809 --> 00:16:25.750 compare that to the short -term market. That 00:16:25.750 --> 00:16:27.600 exact same unit, if they can get... get it back, 00:16:27.820 --> 00:16:29.759 furnish it with some IKEA furniture and put it 00:16:29.759 --> 00:16:33.080 on an app, might fetch $150 a night. Okay, so 00:16:33.080 --> 00:16:36.259 let's run those numbers. $150 a night. If you 00:16:36.259 --> 00:16:39.059 rent it for just 20 nights a month, which is 00:16:39.059 --> 00:16:42.320 a reasonable 66 % occupancy rate, that's $3 ,000 00:16:42.320 --> 00:16:44.879 in revenue. You've just doubled your revenue 00:16:44.879 --> 00:16:47.379 compared to the long -term rent -controlled tenant. 00:16:47.919 --> 00:16:50.039 Even if you factor in the cleaning costs, the 00:16:50.039 --> 00:16:52.580 utilities, which you now have to pay, the platform 00:16:52.580 --> 00:16:55.259 fees, which can be significant. you're almost 00:16:55.259 --> 00:16:57.919 certainly clearing significantly more than that 00:16:57.919 --> 00:17:01.320 stable $1 ,500 check. That 30 % figure in the 00:17:01.320 --> 00:17:03.879 research is probably conservative in some really 00:17:03.879 --> 00:17:06.420 hot tourist markets. It could be much higher. 00:17:06.579 --> 00:17:08.720 So if you are a landlord and you are looking 00:17:08.720 --> 00:17:11.180 at a spreadsheet, the choice seems completely 00:17:11.180 --> 00:17:13.759 obvious. Pure capitalism dictates you choose 00:17:13.759 --> 00:17:16.079 the short -term model every single time. And 00:17:16.079 --> 00:17:18.480 that choice, that calculation happening thousands 00:17:18.480 --> 00:17:21.000 of times over in cities around the world is what 00:17:21.000 --> 00:17:23.059 leads to what the research calls the conversion 00:17:23.059 --> 00:17:25.400 phenomenon. The conversion phenomenon. That sounds 00:17:25.400 --> 00:17:27.779 like a sci -fi movie title. It's a little dystopian 00:17:27.779 --> 00:17:30.119 when you really think about it. Landlords are 00:17:30.119 --> 00:17:32.599 actively converting properties into STR units. 00:17:33.309 --> 00:17:35.849 They are taking housing stock that was built 00:17:35.849 --> 00:17:38.690 for people to live in permanently, to raise families 00:17:38.690 --> 00:17:41.390 in, to work from, and they are turning it into 00:17:41.390 --> 00:17:43.990 housing stock for people to visit for a weekend. 00:17:44.190 --> 00:17:47.329 They are turning homes into hotels. de facto 00:17:47.329 --> 00:17:51.690 unregulated hotels. Yes. And the inevitable consequence 00:17:51.690 --> 00:17:54.789 of that, logically, is that there are fewer long 00:17:54.789 --> 00:17:57.190 term housing options available for permanent 00:17:57.190 --> 00:18:00.390 residents. It is a zero sum game in a city with 00:18:00.390 --> 00:18:03.130 limited space. You can't have the same apartment 00:18:03.130 --> 00:18:06.029 be both a full time home for a local family and 00:18:06.029 --> 00:18:08.309 a full time tourist rental for visitors. This 00:18:08.309 --> 00:18:10.490 is where the rubber really meets the road. It's 00:18:10.490 --> 00:18:13.029 not just adding new supply for tourists. It's 00:18:13.029 --> 00:18:15.890 swapping the type of supply that exists. Exactly. 00:18:16.140 --> 00:18:18.200 But it gets darker than just supply and demand 00:18:18.200 --> 00:18:20.539 curves. The process of that conversion isn't 00:18:20.539 --> 00:18:23.559 always polite. It isn't always clean. Yeah, this 00:18:23.559 --> 00:18:25.119 part of the research was tough to read. It's 00:18:25.119 --> 00:18:27.740 pretty disturbing. It is. The research highlights 00:18:27.740 --> 00:18:30.599 that to achieve this conversion, to unlock that 00:18:30.599 --> 00:18:33.859 30 % profit bump landlords sometimes have to 00:18:33.859 --> 00:18:36.259 get the current tenants out. You can't convert 00:18:36.259 --> 00:18:38.279 an occupied unit. So what do they do? You can't 00:18:38.279 --> 00:18:40.559 just kick someone out, can you? Well, the text 00:18:40.559 --> 00:18:43.380 says landlords pressure and coerce people out 00:18:43.380 --> 00:18:45.799 of their homes. Pressure and coerce. That is 00:18:45.799 --> 00:18:48.200 very strong language. We aren't just talking 00:18:48.200 --> 00:18:50.220 about waiting for a lease to naturally expire. 00:18:50.440 --> 00:18:53.369 No. We are talking about, in some cases, harassment. 00:18:53.789 --> 00:18:56.509 We are talking about neglecting essential repairs 00:18:56.509 --> 00:18:59.190 so the place becomes unlivable, hoping the tenant 00:18:59.190 --> 00:19:01.450 will just give up and leave. We are talking about 00:19:01.450 --> 00:19:04.329 cash for keys offers where they dangle a bit 00:19:04.329 --> 00:19:06.130 of money to get you to leave quickly without 00:19:06.130 --> 00:19:08.609 a fight. We are talking about the threat of eviction 00:19:08.609 --> 00:19:12.009 based on minor technicalities. And who is being 00:19:12.009 --> 00:19:14.730 targeted here? Is it the wealthy tenants in the 00:19:14.730 --> 00:19:17.519 penthouse? Generally not. The research notes 00:19:17.519 --> 00:19:19.700 that this pressure is particularly directed at 00:19:19.700 --> 00:19:22.500 residents who are low income. And why them specifically? 00:19:23.140 --> 00:19:25.859 Vulnerability. They are less likely to have the 00:19:25.859 --> 00:19:28.160 financial resources to hire a lawyer to fight 00:19:28.160 --> 00:19:31.180 an illegal or semi -legal eviction. They are 00:19:31.180 --> 00:19:33.240 less likely to know the nuances of tenant law. 00:19:33.720 --> 00:19:35.859 They might be more willing to take a small cash 00:19:35.859 --> 00:19:37.539 payout because they need the money immediately. 00:19:38.319 --> 00:19:41.059 They are, sadly, the path of least resistance 00:19:41.059 --> 00:19:43.519 for a landlord looking to flip a unit to the 00:19:43.519 --> 00:19:45.680 more lucrative short term market. So the most 00:19:45.680 --> 00:19:48.200 vulnerable populations are the ones being actively 00:19:48.200 --> 00:19:51.539 pushed out to make room for vacationers. That 00:19:51.539 --> 00:19:53.440 is what the research indicates. It's a direct 00:19:53.440 --> 00:19:56.119 displacement. You're taking a home from a low 00:19:56.119 --> 00:19:58.660 income resident and giving it to a middle class 00:19:58.660 --> 00:20:01.039 tourist because the tourist pays more per night. 00:20:01.119 --> 00:20:04.099 That is. That's heavy. It really frames that 00:20:04.099 --> 00:20:06.279 cheap vacation in a completely different light. 00:20:06.400 --> 00:20:09.259 When you save 50 % on your stay, that discount 00:20:09.259 --> 00:20:11.720 is coming from somewhere. It has a cost. It is 00:20:11.720 --> 00:20:13.819 coming from the efficiency of the online market, 00:20:13.900 --> 00:20:16.400 sure, but it is also potentially coming from 00:20:16.400 --> 00:20:18.579 this displacement. It's a hidden subsidy. So 00:20:18.579 --> 00:20:20.079 what does this all mean for the big picture? 00:20:20.220 --> 00:20:22.039 I mean, if this is happening building by building, 00:20:22.140 --> 00:20:24.579 landlord by landlord, does it actually ripple 00:20:24.579 --> 00:20:27.819 out to affect the macro market? Or is it just 00:20:27.819 --> 00:20:30.380 a collection of anecdotal stories? It absolutely 00:20:30.380 --> 00:20:33.180 ripples out. And this leads us to part three 00:20:33.180 --> 00:20:35.720 of our roadmap, the ripple effect, the housing 00:20:35.720 --> 00:20:38.359 crises and global examples. We have some really 00:20:38.359 --> 00:20:40.380 specific examples in the research of where this 00:20:40.380 --> 00:20:42.779 has come to a head. This isn't theoretical anymore. 00:20:43.039 --> 00:20:45.339 No, we have hard data now. The research explicitly 00:20:45.339 --> 00:20:47.859 links short -term rentals to the rental crisis 00:20:47.859 --> 00:20:50.859 in Australia. Australia seems to be the canary 00:20:50.859 --> 00:20:53.160 in the coal mine for this entire issue. It really 00:20:53.160 --> 00:20:55.619 is. Specifically, the rental crisis occurring 00:20:55.619 --> 00:20:59.380 in 2022. Now, the expert in me has to point out 00:20:59.380 --> 00:21:01.519 a nuance the research provides here, which is 00:21:01.519 --> 00:21:03.940 important for accuracy. We have to look at the 00:21:03.940 --> 00:21:06.339 timeline carefully. What's the nuance? The research 00:21:06.339 --> 00:21:08.519 notes that the number of STRs actually diminished 00:21:08.519 --> 00:21:11.400 during the COVID -19 pandemic, which was roughly 00:21:11.400 --> 00:21:14.859 2019 to early 2022. Which makes total sense. 00:21:15.200 --> 00:21:17.359 Yeah. No one was traveling. The borders were 00:21:17.359 --> 00:21:20.500 closed. If you owned an Airbnb in Sydney in 2020. 00:21:21.130 --> 00:21:23.509 you were making zero dollars you had an empty 00:21:23.509 --> 00:21:26.509 expensive asset right and what happened many 00:21:26.509 --> 00:21:28.609 of those units actually went back to the long 00:21:28.609 --> 00:21:30.329 -term rental market during the pandemic because 00:21:30.329 --> 00:21:33.390 landlords desperately needed cash flow any rent 00:21:33.390 --> 00:21:35.630 was better than no rent so for a brief moment 00:21:35.630 --> 00:21:37.970 the housing supply for locals actually went up 00:21:37.970 --> 00:21:40.740 in some places it did but And this is the key 00:21:40.740 --> 00:21:43.940 point. Despite that temporary dip, the research 00:21:43.940 --> 00:21:46.519 still attributes the broader rental crisis that 00:21:46.519 --> 00:21:49.720 hit in 2022 partially to the influence of short 00:21:49.720 --> 00:21:51.880 term rentals. So what happened as soon as the 00:21:51.880 --> 00:21:54.130 borders opened? The landlords just kicked the 00:21:54.130 --> 00:21:56.150 long -term tenants out again and put the vacation 00:21:56.150 --> 00:21:58.990 signs back up. In many cases, yes. The structural 00:21:58.990 --> 00:22:01.250 damage to the market was real. The potential 00:22:01.250 --> 00:22:03.569 for that higher yield never went away. So that 00:22:03.569 --> 00:22:05.470 inventory was always at risk of being pulled 00:22:05.470 --> 00:22:07.869 back out of the long -term pool the second tourism 00:22:07.869 --> 00:22:10.269 returned. It created incredible instability. 00:22:10.789 --> 00:22:13.430 And there is a study from Tasmania that really 00:22:13.430 --> 00:22:15.809 drives this whole point home. This felt like 00:22:15.809 --> 00:22:18.549 the smoking gun to me. This study is crucial. 00:22:19.049 --> 00:22:21.670 Tasmania, the island state off the coast of Australia. 00:22:22.049 --> 00:22:24.529 It's a relatively contained market, which makes 00:22:24.529 --> 00:22:27.410 it perfect for this kind of economic study. A 00:22:27.410 --> 00:22:30.289 study found that most Airbnb style short rentals 00:22:30.289 --> 00:22:33.650 in Tasmania used to be long term leases. Wow. 00:22:33.849 --> 00:22:35.670 Let's just pause on that for a second. So it's 00:22:35.670 --> 00:22:37.910 not that they built new houses for tourists. 00:22:38.069 --> 00:22:40.269 They didn't build a new wing of apartments to 00:22:40.269 --> 00:22:43.109 cater to this market. They took existing long 00:22:43.109 --> 00:22:45.890 term houses and just flipped them. Exactly. It 00:22:45.890 --> 00:22:48.450 proves the cannibalization theory. The argument 00:22:48.450 --> 00:22:50.650 from the industry is often we are just using 00:22:50.650 --> 00:22:53.089 spare capacity. We are using rooms that would 00:22:53.089 --> 00:22:56.049 otherwise sit empty. But the Tasmania data says, 00:22:56.190 --> 00:22:58.730 no, that's not true. You are taking homes that 00:22:58.730 --> 00:23:00.869 families were living in. The housing market isn't 00:23:00.869 --> 00:23:02.950 growing fast enough to accommodate both residents 00:23:02.950 --> 00:23:05.769 and a huge influx of tourists wanting homes. 00:23:05.890 --> 00:23:08.329 So the short term market is literally eating 00:23:08.329 --> 00:23:10.980 the long term market. That is the definition 00:23:10.980 --> 00:23:13.779 of cannibalization. And when you remove that 00:23:13.779 --> 00:23:16.299 much supply from the long -term market, basic 00:23:16.299 --> 00:23:18.720 economics tells you what happens. Prices for 00:23:18.720 --> 00:23:21.160 everyone else go up. It contributes to the crisis 00:23:21.160 --> 00:23:24.599 where locals, nurses, teachers, service workers 00:23:24.599 --> 00:23:27.319 can't afford to live in their own towns. That 00:23:27.319 --> 00:23:29.380 is incredibly sobering. So we have the economic 00:23:29.380 --> 00:23:31.240 displacement. We have the physical displacement 00:23:31.240 --> 00:23:33.579 of tenants. But there's another layer to this, 00:23:33.640 --> 00:23:36.940 which is the social displacement, the vibe of 00:23:36.940 --> 00:23:39.000 the neighborhood, if you will. The stake in the 00:23:39.000 --> 00:23:41.539 community argument. It's a huge point of contention. 00:23:41.700 --> 00:23:44.579 Right. Part four, the neighborhood and safety 00:23:44.579 --> 00:23:47.720 void. The research talks about neighborhood community 00:23:47.720 --> 00:23:51.319 groups voicing serious concern. What is their 00:23:51.319 --> 00:23:53.819 beef exactly? Is it just a case of not in my 00:23:53.819 --> 00:23:56.440 backyard? No, it's about the degradation of the 00:23:56.440 --> 00:23:59.220 social fabric of a place. Put yourself in the 00:23:59.220 --> 00:24:01.359 shoes of a permanent resident for a minute. You 00:24:01.359 --> 00:24:03.519 live in a quiet cul -de -sac. You know your neighbors. 00:24:03.759 --> 00:24:06.769 You know their kids, their dogs. Suddenly, the 00:24:06.769 --> 00:24:09.130 house next to you is sold to an investor who 00:24:09.130 --> 00:24:11.369 lives three states away. And now it's just a 00:24:11.369 --> 00:24:14.089 revolving door of strangers. Every Friday, a 00:24:14.089 --> 00:24:16.490 new group shows up. Sometimes it's a nice couple 00:24:16.490 --> 00:24:19.069 on a quiet getaway. Sometimes it's eight guys 00:24:19.069 --> 00:24:21.069 for a bachelor party who were there to party 00:24:21.069 --> 00:24:24.289 until 4 a .m. You have no idea who is coming 00:24:24.289 --> 00:24:26.849 or going. Right. The argument from the community 00:24:26.849 --> 00:24:29.490 groups, as outlined in the research, is that 00:24:29.490 --> 00:24:32.609 these temporary residence tourists, transients, 00:24:32.710 --> 00:24:35.920 do not have a stake. They aren't going to be 00:24:35.920 --> 00:24:38.259 there for the PTA meeting next week. They aren't 00:24:38.259 --> 00:24:39.700 going to be there for the neighborhood block 00:24:39.700 --> 00:24:42.000 party. They don't care if the local school board 00:24:42.000 --> 00:24:44.500 is underfunded or if the park needs a cleanup. 00:24:44.640 --> 00:24:47.730 Or even just the absolute basics. Knowing when 00:24:47.730 --> 00:24:50.329 trash day is, understanding the local parking 00:24:50.329 --> 00:24:53.430 rules, being considerate about noise late at 00:24:53.430 --> 00:24:56.049 night, the research says they are less likely 00:24:56.049 --> 00:24:58.130 to be conscientious about how their behavior 00:24:58.130 --> 00:25:01.009 affects their temporary neighbors. If you are 00:25:01.009 --> 00:25:03.630 only there for three days and you are never coming 00:25:03.630 --> 00:25:05.650 back, do you really care if the person next door 00:25:05.650 --> 00:25:08.250 hates you? Probably not. You're on vacation mode. 00:25:08.589 --> 00:25:10.970 Your mindset is different. You want to stay up 00:25:10.970 --> 00:25:13.089 late, play music on the porch, have a drink. 00:25:13.559 --> 00:25:16.000 Exactly. But for the person living next door 00:25:16.000 --> 00:25:18.759 who has to get up for work at 6 a .m., it's a 00:25:18.759 --> 00:25:21.099 recurring nightmare. It fundamentally changes 00:25:21.099 --> 00:25:23.740 the neighborhood from a community of neighbors 00:25:23.740 --> 00:25:27.099 to a community of strangers with you caught in 00:25:27.099 --> 00:25:28.759 the middle. And the research highlights that 00:25:28.759 --> 00:25:31.759 for a long, long time, there was no one to call. 00:25:32.059 --> 00:25:34.960 It was a regulatory Wild West. There was no accountability. 00:25:35.359 --> 00:25:37.839 This is a massive loophole regarding responsibility, 00:25:38.119 --> 00:25:40.779 and it's by design. Unpack that for us. Who is 00:25:40.779 --> 00:25:42.980 actually responsible when things go wrong? Well, 00:25:43.200 --> 00:25:46.460 the platforms and the STR properties often place 00:25:46.460 --> 00:25:48.759 the responsibility of following local zoning 00:25:48.759 --> 00:25:51.140 and municipal requirements onto the residents 00:25:51.140 --> 00:25:53.160 using the services. Wait, hold on. So if I book 00:25:53.160 --> 00:25:55.700 a place for a weekend, I'm responsible for knowing 00:25:55.700 --> 00:25:57.859 the local zoning laws about short -term rentals. 00:25:57.920 --> 00:26:01.500 That seems completely absurd. It is absurd. But 00:26:01.500 --> 00:26:03.539 the platforms often have these long terms of 00:26:03.539 --> 00:26:05.559 service that nobody reads that say something 00:26:05.559 --> 00:26:08.500 like hosts and guests must comply with all local 00:26:08.500 --> 00:26:11.720 laws and regulations. They legally shift the 00:26:11.720 --> 00:26:14.220 liability away from themselves. The landlord 00:26:14.220 --> 00:26:16.440 might be remote living in another state or another 00:26:16.440 --> 00:26:18.720 country. So if the police show up because of 00:26:18.720 --> 00:26:21.220 a noise complaint at midnight, who gets the ticket? 00:26:21.400 --> 00:26:24.759 The guest. And this structure, this lack of oversight. 00:26:25.150 --> 00:26:28.390 leads to what the research calls widespread illegal 00:26:28.390 --> 00:26:31.849 short -term rentals. Yes. Because there is no 00:26:31.849 --> 00:26:34.369 central oversight and because it is so profitable, 00:26:34.589 --> 00:26:37.150 many listings just ignore the rules entirely, 00:26:37.390 --> 00:26:39.589 assuming they won't get caught. Illegal in what 00:26:39.589 --> 00:26:41.710 way? What rules are they breaking? Well, because 00:26:41.710 --> 00:26:43.549 these are technically commercial operations, 00:26:43.730 --> 00:26:45.450 they're businesses running in residential zones, 00:26:45.650 --> 00:26:48.150 they often avoid all the safety checks and regulations 00:26:48.150 --> 00:26:51.430 that a legitimate hotel has to follow. The research 00:26:51.430 --> 00:26:55.259 lists them out. Fire codes. Safety codes. Hotels 00:26:55.259 --> 00:26:57.720 have incredibly rigorous fire inspections. They 00:26:57.720 --> 00:27:00.359 need sprinkler systems, lighted exit signs, clearly 00:27:00.359 --> 00:27:03.019 marks escape routes, limits on occupancy. Right. 00:27:03.140 --> 00:27:05.579 A private home being rented out might have none 00:27:05.579 --> 00:27:07.680 of that. You might be sleeping in a convert basement 00:27:07.680 --> 00:27:10.759 with one small window as an exit and no smoke 00:27:10.759 --> 00:27:14.019 detector. If a fire starts, you are in a much, 00:27:14.079 --> 00:27:16.220 much more dangerous situation than you would 00:27:16.220 --> 00:27:18.730 be in a Marriott. And it also mentions that illegal 00:27:18.730 --> 00:27:21.289 rentals often avoid paying workers benefits for 00:27:21.289 --> 00:27:23.789 the cleaners and any staff they hire. It's the 00:27:23.789 --> 00:27:26.490 gig economy problem all over again. The cleaners 00:27:26.490 --> 00:27:28.549 are often paid under the table or they're treated 00:27:28.549 --> 00:27:31.069 as 1099 contractors with no health insurance, 00:27:31.329 --> 00:27:34.190 no protections, no minimum wage guarantees. And 00:27:34.190 --> 00:27:36.990 crucially for the cities, they avoid paying transient 00:27:36.990 --> 00:27:39.750 occupancy taxes. This is the big one for any 00:27:39.750 --> 00:27:42.750 local government. Hotels pay massive taxes on 00:27:42.750 --> 00:27:44.910 every room they rent, sometimes 10, 12, even 00:27:44.910 --> 00:27:48.039 15 percent on top of the room. rate, that money 00:27:48.039 --> 00:27:50.680 goes directly to the city to pay for roads, schools, 00:27:51.119 --> 00:27:55.000 police, firefighters. Illegal STRs often just 00:27:55.000 --> 00:27:58.119 skip this step. So they're undercutting legitimate 00:27:58.119 --> 00:28:00.960 hotels, not just by having lower overhead, you 00:28:00.960 --> 00:28:03.519 know, no staff, no lobby, but by actively skipping 00:28:03.519 --> 00:28:05.640 the taxes and safety regulations that hotels 00:28:05.640 --> 00:28:08.619 must follow by law. Precisely. They are playing 00:28:08.619 --> 00:28:11.660 the game on easy mode while legitimate hotels 00:28:11.660 --> 00:28:14.779 are stuck playing on hard mode. And in doing 00:28:14.779 --> 00:28:18.220 so. They undercut those businesses and the research 00:28:18.220 --> 00:28:21.420 argues they potentially endanger guests who are 00:28:21.420 --> 00:28:24.299 unknowingly staying in unregulated and possibly 00:28:24.299 --> 00:28:27.359 unsafe properties. That is a dangerous combination. 00:28:27.660 --> 00:28:29.700 So naturally, cities aren't just sitting back 00:28:29.700 --> 00:28:31.400 and watching this happen anymore. They're starting 00:28:31.400 --> 00:28:34.180 to fight back. They are. And this is the policy 00:28:34.180 --> 00:28:37.000 battleground. This is part five. Local lawmakers 00:28:37.000 --> 00:28:40.900 are facing this massive policy challenge. How 00:28:40.900 --> 00:28:43.099 do you keep the tourism dollars? Because tourists 00:28:43.099 --> 00:28:45.539 do spend money at local restaurants and shops, 00:28:45.680 --> 00:28:47.819 but stop the housing bleed and the neighborhood 00:28:47.819 --> 00:28:50.299 chaos. It's a very delicate balancing act, but 00:28:50.299 --> 00:28:52.680 we have two very different and I would say very 00:28:52.680 --> 00:28:55.519 creative examples of how cities are tackling 00:28:55.519 --> 00:28:57.380 this in the research. Let's start with London. 00:28:57.519 --> 00:28:59.619 London went for the hard cap. They looked at 00:28:59.619 --> 00:29:01.539 the profitability model that we discussed earlier, 00:29:01.740 --> 00:29:04.440 the math that drives landlords to convert properties, 00:29:04.680 --> 00:29:06.839 and they decided to just break that math. How 00:29:06.839 --> 00:29:08.910 did they do it? The research notes that as of 00:29:08.910 --> 00:29:11.490 2019, London restricted short -term rentals to 00:29:11.490 --> 00:29:15.210 90 days. 90 days total per year. Yes. The total 00:29:15.210 --> 00:29:16.849 number of nights you can rent out a property 00:29:16.849 --> 00:29:20.250 on a short -term basis cannot exceed 90 days 00:29:20.250 --> 00:29:22.750 in a single calendar year. Okay, so walk us through 00:29:22.750 --> 00:29:26.490 the logic there. How does that 90 -day cap actually 00:29:26.490 --> 00:29:29.490 fix the problem? Well, remember that 30 % profit 00:29:29.490 --> 00:29:32.250 premium we talked about? That relies on high 00:29:32.250 --> 00:29:34.990 occupancy throughout the year. It relies on renting 00:29:34.990 --> 00:29:38.869 the place out for maybe 200 or 250 nights a year 00:29:38.869 --> 00:29:41.029 to make it more profitable than a long -term 00:29:41.029 --> 00:29:43.779 lease. Right. If you are legally capped at only 00:29:43.779 --> 00:29:46.259 90 nights, you can only generate revenue for 00:29:46.259 --> 00:29:48.380 three months of the year. And for the other nine 00:29:48.380 --> 00:29:50.299 months, the place just sits empty and costs you 00:29:50.299 --> 00:29:52.680 money. Exactly. And most investors can't afford 00:29:52.680 --> 00:29:55.119 to have an expensive asset in London sit empty 00:29:55.119 --> 00:29:57.279 for nine months. It completely destroys the yield. 00:29:57.559 --> 00:29:59.859 So it forces the landlord's hand. They have to 00:29:59.859 --> 00:30:01.700 say, well, the math doesn't work as a full time 00:30:01.700 --> 00:30:03.660 hotel anymore. I can't leave it empty. So I might 00:30:03.660 --> 00:30:05.440 as well put it back on the long term rental market 00:30:05.440 --> 00:30:08.849 and get a stable year round income. It forces 00:30:08.849 --> 00:30:11.910 the inventory back to the residents. That is 00:30:11.910 --> 00:30:15.269 incredibly smart. It's a surgical approach. It 00:30:15.269 --> 00:30:17.450 is. It tries to distinguish between someone who 00:30:17.450 --> 00:30:20.309 is casually renting out their own home while 00:30:20.309 --> 00:30:22.049 they're on vacation for a few weeks, which... 00:30:22.400 --> 00:30:25.559 easily fits under the 90 day limit versus a commercial 00:30:25.559 --> 00:30:28.019 investor who buys up a portfolio of apartments 00:30:28.019 --> 00:30:32.000 just to run them as hotels, which needs 365 days 00:30:32.000 --> 00:30:35.299 of availability to maximize profit. It targets 00:30:35.299 --> 00:30:37.319 the commercial operators without hurting the 00:30:37.319 --> 00:30:40.000 casual host. OK, now the second example is from 00:30:40.000 --> 00:30:43.220 Santa Cruz, California, and this one is. It's 00:30:43.220 --> 00:30:46.900 creative. It's almost petty, but in a genius 00:30:46.900 --> 00:30:50.299 way, it involves parking. The parking wars. Yes, 00:30:50.359 --> 00:30:52.880 this is a great example of a local government 00:30:52.880 --> 00:30:54.839 using whatever tools they have available when 00:30:54.839 --> 00:30:56.759 they can't easily ban the activity itself for 00:30:56.759 --> 00:30:58.519 political or legal reasons. What do they do? 00:30:58.660 --> 00:31:01.000 The research says local supervisors in Santa 00:31:01.000 --> 00:31:03.220 Cruz discussed implementing parking restrictions 00:31:03.220 --> 00:31:05.880 in neighborhoods that had a high density of short 00:31:05.880 --> 00:31:08.559 -term rentals. Parking restrictions, like no 00:31:08.559 --> 00:31:11.430 parking for tourist signs. Basically, yeah. They 00:31:11.430 --> 00:31:14.029 created residential permit zones. If you are 00:31:14.029 --> 00:31:15.890 a resident of that street, you get a sticker 00:31:15.890 --> 00:31:17.789 for your car. You can park on the street, no 00:31:17.789 --> 00:31:20.349 problem. If you don't have that sticker, you 00:31:20.349 --> 00:31:22.450 can't park there, maybe for more than an hour 00:31:22.450 --> 00:31:24.970 or two. And since short -term guests aren't residents, 00:31:25.230 --> 00:31:27.690 they can't get a sticker. Their rental car is 00:31:27.690 --> 00:31:31.140 out of luck. Exactly. The stated goal, according 00:31:31.140 --> 00:31:34.180 to the research, was to discourage people from 00:31:34.180 --> 00:31:36.980 staying there and to prioritize the local residents' 00:31:37.140 --> 00:31:39.359 ability to park their own cars in front of their 00:31:39.359 --> 00:31:42.799 own homes. That is fascinating. It's not banning 00:31:42.799 --> 00:31:45.000 the rental itself. It's not saying you can't 00:31:45.000 --> 00:31:47.059 rent this house. It's saying, sure, you can rent 00:31:47.059 --> 00:31:49.039 it, but your guest is going to have to park three 00:31:49.039 --> 00:31:51.339 miles away and take a bus. It makes the product 00:31:51.339 --> 00:31:54.400 significantly worse. It's a form of weaponized 00:31:54.400 --> 00:31:57.279 zoning. If you're a tourist and you can't park 00:31:57.279 --> 00:31:59.299 your rental car, you might look at that Airbnb 00:31:59.299 --> 00:32:01.220 listing and say, you know what, this is too much 00:32:01.220 --> 00:32:03.259 hassle. I'll just book the Holiday Inn down the 00:32:03.259 --> 00:32:05.700 street that has its own parking garage. It effectively 00:32:05.700 --> 00:32:08.079 pushes the demand back toward the traditional 00:32:08.079 --> 00:32:12.220 regulated hotel industry by making the STR product 00:32:12.220 --> 00:32:15.630 inconvenient and less appealing. It shows just 00:32:15.630 --> 00:32:17.589 how desperate some communities are to reclaim 00:32:17.589 --> 00:32:20.250 their neighborhoods. When you start messing with 00:32:20.250 --> 00:32:22.410 parking permits as a tool to solve a housing 00:32:22.410 --> 00:32:26.009 crisis, you know things have gotten really, really 00:32:26.009 --> 00:32:30.470 tense. It really does. Wow. We have covered a 00:32:30.470 --> 00:32:32.490 massive amount of ground here. They've gone all 00:32:32.490 --> 00:32:34.730 the way from the corporate housing origins, the 00:32:34.730 --> 00:32:37.210 boring service departments of the 90s to the 00:32:37.210 --> 00:32:39.730 modern app explosion. Right. We've looked at 00:32:39.730 --> 00:32:42.210 the massive savings for travelers, that incredible 00:32:42.210 --> 00:32:45.549 25, 50 percent cut. But we balanced it against 00:32:45.549 --> 00:32:47.529 the 30 percent profit incentive for landlords 00:32:47.529 --> 00:32:49.369 that is driving this whole conversion phenomenon. 00:32:49.450 --> 00:32:52.359 And we have seen the fallout from that. The supply 00:32:52.359 --> 00:32:54.519 crunch in the housing market, the coercion of 00:32:54.519 --> 00:32:57.099 low -income residents, the safety loopholes, 00:32:57.240 --> 00:33:00.140 and now the regulatory backlash in places like 00:33:00.140 --> 00:33:02.660 London and Santa Cruz. It's a classic cycle, 00:33:02.680 --> 00:33:05.059 isn't it? Innovation creates a new value proposition. 00:33:05.380 --> 00:33:08.279 That value creates greed. Greed creates a host 00:33:08.279 --> 00:33:11.039 of social and economic problems. And those problems 00:33:11.039 --> 00:33:13.589 eventually create regulation. Perfectly put. 00:33:13.970 --> 00:33:16.430 And we are currently deep in the regulation fizzing 00:33:16.430 --> 00:33:18.869 of that cycle. The Wild West days are, for the 00:33:18.869 --> 00:33:21.769 most part, ending. So as we wrap up this deep 00:33:21.769 --> 00:33:23.569 dive, I want to leave the listener with a final 00:33:23.569 --> 00:33:26.109 provocative thought. We know the current state 00:33:26.109 --> 00:33:28.430 of play. We see the battle lines being drawn. 00:33:28.829 --> 00:33:31.549 But where is this all going? That is the big 00:33:31.549 --> 00:33:33.430 question. And if we connect this all back to 00:33:33.430 --> 00:33:35.230 the beginning, back to the value proposition 00:33:35.230 --> 00:33:38.079 for the traveler, I think we have to ask. If 00:33:38.079 --> 00:33:40.960 cities continue to clamp down, if more places 00:33:40.960 --> 00:33:44.279 adopt London's 90 -day limit or Santa Cruz's 00:33:44.279 --> 00:33:46.519 parking bans or other new creative restrictions, 00:33:46.839 --> 00:33:49.759 what happens to that price advantage? Right. 00:33:49.859 --> 00:33:52.400 If the supply of short -term rentals gets capped 00:33:52.400 --> 00:33:54.779 or legally restricted, basic economics says the 00:33:54.779 --> 00:33:56.740 prices of the remaining legal ones will go up. 00:33:56.900 --> 00:34:00.839 Exactly. Will that 25 -50 % savings just... disappear? 00:34:01.019 --> 00:34:03.700 Are we watching the end of the golden era of 00:34:03.700 --> 00:34:05.799 cheap, convenient travel that we've all gotten 00:34:05.799 --> 00:34:08.039 used to? It's a very real possibility. It is. 00:34:08.059 --> 00:34:10.300 It's very possible that in 10 years, short -term 00:34:10.300 --> 00:34:12.239 rentals will turn back into what they started 00:34:12.239 --> 00:34:15.039 as a luxury niche product or a corporate necessity 00:34:15.039 --> 00:34:17.739 for that VP on a long assignment rather than 00:34:17.739 --> 00:34:20.380 the budget alternative for the masses. The days 00:34:20.380 --> 00:34:22.800 of finding a dirt cheap two -bedroom apartment 00:34:22.800 --> 00:34:24.739 in the city center for a weekend might just be 00:34:24.739 --> 00:34:27.199 numbered. That is a fascinating thing to mull 00:34:27.199 --> 00:34:29.980 over. The cheap weekend getaway as we know it. 00:34:30.320 --> 00:34:32.579 might be an endangered species. It might be. 00:34:33.159 --> 00:34:36.119 But if the tradeoff for that is more stable, 00:34:36.239 --> 00:34:38.599 affordable housing for local residents, maybe 00:34:38.599 --> 00:34:40.320 that's the correction the market needs. It's 00:34:40.320 --> 00:34:43.199 a complicated balance. Well, on that cheery note. 00:34:43.340 --> 00:34:45.360 No, seriously, thank you for breaking this all 00:34:45.360 --> 00:34:47.820 down with us. This was truly eye -opening. My 00:34:47.820 --> 00:34:50.780 pleasure. It's a complex topic. And to you listening 00:34:50.780 --> 00:34:54.510 right now. The next time you are scrolling through 00:34:54.510 --> 00:34:57.210 those listings for a trip, maybe take a closer 00:34:57.210 --> 00:34:59.889 look. Maybe check the parking situation. Maybe 00:34:59.889 --> 00:35:02.809 check if the host has one listing or 50. Just 00:35:02.809 --> 00:35:04.489 think a little bit more about the neighborhood 00:35:04.489 --> 00:35:07.150 you are essentially buying into for the weekend. 00:35:07.329 --> 00:35:09.630 Knowledge is power, even when you're on vacation. 00:35:09.949 --> 00:35:12.550 Exactly. Thanks for listening to this deep dive. 00:35:12.769 --> 00:35:14.289 We will catch you on the next one.