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Supply, demand and assessments

Wilmington property owners were shocked by their assessments this spring. The average assessment increased by 47%. Unfortunately, this is probably not the end of this trend.

In 2022, North Elba town board member Jason Leon told the Albany Times-Union that “People who won’t admit short-term rentals have at least an effect on housing stock are gaslighting.” (“Adirondack short-term rentals: Nuisance or welcome income stream?” Albany Times-Union, Sept. 26, 2022.) So too with assessments.

Many conversations about STRs focus on anecdotes, but we should also look at these issues through the lense of logic. And when we do, the unavoidable conclusion is that the explosion of short-term rentals in the area at least has an impact on assessments.

How does the Airbnb boom inflate assessments?

The answer is implied in the Times-Union article quoted above. The article profiles an out-of-town family, the Gajdas, who enjoyed visiting Lake Placid and wanted to purchase property in the community. For the Gajdas, “The key to making the purchase affordable was the prospect of income from renting the house out when they’re not using it.”

The Gajdas are not alone.

Assessments are based on recent home sales. Homeowners’ properties are directly compared against property sales in the area.

The technology that gave rise to the “sharing economy,” of which Airbnb is at the forefront, has spurred a rush of investors to purchase second (sometimes fourth or sixth) “homes” in the Adirondacks, with the intent of operating them as businesses. People who couldn’t afford second (or seventh) homes a decade ago are now able to, solely due to revenue derived from Airbnb.

The website AirDNA.co provides a wealth of information to Airbnb entrepreneurs. The website, which ranks towns on a scale of 100 across several categories, gives Wilmington a 95 in “investability.”

AirDNA calculates that the average STR in Wilmington rents for more than $330 a night and that the median STR in Wilmington generates more than $53,000 in annual revenue.

Most tellingly of all, AirDNA also includes up-to-date listings of houses for sale in Wilmington.

According to data compiled by Rarilee Conway, a member of Wilmington’s STR Committee and a former town board member, around 80% of the vacation rental businesses in Wilmington are owned by people who live elsewhere. (“Wilmington STR committee suggests new regulations,” Adirondack Daily Enterprise, Aug. 11, 2023.) There were 51 Wilmington properties listed on Airbnb and VRBO in 2016. There are 196 active VRBO and Airbnb listings in Wilmington today. As with the average revenue generated by a STR and the percentage of vacation rentals owned by far-off investors, these precise numbers can be nitpicked and disputed — but the trends and the logical implications of those trends cannot be.

Also inarguable is that Wilmington has now issued more than 140 STR permits.

In towns such as Wilmington, the housing supply is finite and fairly static. But the ability to operate homes as hotels has unleashed a wave of demand.

When demand is greater than supply, price increases. When demand spikes and supply is static, prices spike. And when real estate prices spike, assessments follow.

Moreover, STR revenue allows entrepreneurs to outbid those who merely want to live on a property — because these businesses generate revenue while their owners are in another house, town or state.

While some are reluctant to recognize the negative externalities of the Airbnb bonanza, others are willing to say what we all know is true.

Essex County Manager Micheal Macarenas made the following statement at a Board of Supervisors committee meeting last month: “We can’t question the fact that sales are what they are. … The problem is who is buying them, and what are those properties turning into? Who is buying them are people that aren’t from here. It’s not our school teachers. It’s not our county workers. It’s not the people that we depend on. … It’s not those folks. It’s people from outside the area that are causing these price hikes that are leading to higher assessed values. … They are second homes and/or they are rentals, which means they are earning income. And they are earning large amounts of income on these properties. The rest of us are not. The rest of us are living here. … I will pay a little more (for) a property if I know I’m going to make money on it, which is driving up everyone else’s assessments, right?”

Right.

The technology that allows investors to operate formerly residential properties as businesses has significantly contributed to an increase in demand for property in Wilmington. Due to the imbalance between supply and demand, the price of real estate has shot up, which drives up everyone’s assessments.

The issue is not the small number of local families Airbnb-ing spare rooms or “accessory dwelling units” in Wilmington. The issue is the wild proliferation of whole-home businesses in formerly residential parts of town.

I do not knock anyone’s hustle, entrepreneurial spirit or desire to make money from a family camp, new getaway or clear-eyed investment. I don’t blame investors for seizing an opportunity and taking advantage of a loophole in municipal zoning codes.

If there is blame, that blame rests with the elected officials who persistently turned a blind eye, awarded whole-home vacation rentals privileged status, and exempted vacation rentals from the rules that apply to similar businesses. (“STRs shouldn’t have special status,” Adirondack Daily Enterprise, Nov. 16, 2022.) What was once a loophole has grown wider by the month. That loophole has swallowed one-fifth of the “housing units” in Wilmington.

As with the housing crisis, more than one factor contributed to increased assessments in the Wilmington region. Airbnb is not the only factor.

But those who claim that the explosion of short-term rental businesses is not at least partially responsible for increased assessments are naive — or they think you are.

Tim Follos is a member of the Wilmington Town Council. He lives in Wilmington.

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