Last week we kicked off part one about the Tahoe housing crisis, and concluded that the most critical cause of today’s housing shortage is the underutilization of existing housing. If you missed part one, I highly recommend reading it now at the link below.
This post will thus begin with the presumption that our primary objective is to increase utilization. If only a fraction of the ~70% of homes that currently sit unoccupied were utilized, we could achieve affordable workforce housing. We ultimately will propose a new solution system aimed at increasing such utilization, and will encourage you the reader to weigh in with your feedback.
Before jumping in, a caveat. For sake of simplicity, I refer to “local governments” throughout this article. While doing so, I acknowledge there are very real complexities and nuances at play. For example, I live in Tahoe City, which is ironically not a city and therefore has no mayor, as an unincorporated town within Placer County. Altogether “Tahoe” contains a multitude of local governments -- 2 states, 5 counties, a regional planning agency (TRPA), a few utilities and improvement districts (e.g. IVGID, TCPUD), and over a dozen CDPs (census designated places). It is therefore beyond the scope of this article to decide which of these entities ought to take action. We’ll save that for a potential part 3.😉
Next, let us consider a broad list of potential solutions for increasing housing utilization in Tahoe. I have grouped these solutions into two categories.
Government or policy-driven solutions:
Vacancy taxes on unoccupied properties (e.g. as proposed in South Lake Tahoe).
Short-term rental (STR) ordinances that constrain STRs and/or incentivize long-term leases.
Down payment assistance programs for eligible employees, often in exchange for deed restrictions on property titles.
Leasing public land to large employers to be subleased to local workers with trailers and campers (e.g. Palisades leasing the Granite Flat campground).
Free-market solutions:
Businesses (e.g. ski areas and rental shops) invest directly in affordable housing, such as by offering high density on-premise housing, or by signing traditional rental agreements and subleasing to staff, or by offering housing subsidies and reimbursements.
Small entrepreneurial businesses like Placemate (previously Landing Locals) provide tenant screening and housing search services for a fee.
Individual homeowners can construct accessory dwelling units (ADUs) on their existing lots, or convert unused living spaces into bedrooms.
Homeowners can offer vacant rooms for rent without leasing the entire property.
For all “free-market” solutions, as rental prices increase, the financial incentive for landlords also increases, which should have the marginal effect of bringing more supply online, and increasing utilization.
Given the severity and duration of Tahoe’s housing crisis, it would be unwise to think that a single silver bullet solution exists. With each solution type, there are predictable pros and cons. Employer sponsored housing is a great option for large profitable businesses, but mostly impossible for smaller family owned businesses like restaurants and bars. Similarly, while support for a vacancy tax has gained some recent traction, it is an intrinsically polarizing topic, as second homeowners rightfully oppose a policy that uniformly punishes them as public enemy #1. Deed restrictions and lease incentives have also shown anecdotal success in Truckee, but have failed to deliver impact at scale. Altogether, each of these solutions have merits, but with tradeoffs. In the remainder of today’s post, we’ll present a new solution that coexists alongside these existing efforts.
Step 1 - Data before Decisions
In any context, good data is a precursor to good decision-making. Accordingly, if our objective is to increase housing utilization and to set measurable goals for improvement, we first need reliable data.
As such, the first phase of my proposed housing solution is for local governments to require property owners to register the occupancy status of their property. Registration will be online and free, but also compulsory. Property owners will choose from one of the following use-cases.
A primary residence -- owner-occupied 180+ days per year.
A short-term rental (STR), whether permitted or unpermitted.
A long-term rental (LTR).
A second home -- (neither an STR nor LTR), and owner-occupied for less than 180 days.
In addition to this free online registration for property owners, local governments will also distribute an employment survey. This second survey’s purpose is to assess the aggregate demand for housing, along with income data to determine the degree to which various housing prices are affordable. Since there is currently no official dataset representing all local employees, distribution of this survey will require a modest public marketing program to generate sufficient reach and awareness. The wage survey intrinsically cannot be made compulsory, but should strive for at least 80% participation. Local workers will be asked to provide the following information.
Name
Current address and employer
Housing status (e.g. master tenant, tenant, homeowner, etc.)
Monthly rent, number of bedrooms, and number of current roommates
Previous 3 months’ income (e.g. AGI filed with federal taxes)
Step 2 - Publication of Tahoe’s first ever Housing Utilization Benchmark (H.U.B.)
With reliable data on housing supply and demand finally available, all that’s needed is some simple spreadsheet magic to produce what I propose to call the H.U.B., Tahoe’s Housing Utilization Benchmark. The H.U.B. will simply be a number between 0 and 200, with a target value of 100. The number will serve a purpose very similar to the Federal Reserve’s fed funds rate, with an indirect but critical ability to impact the local housing economy. Just like the Fed makes interest rate decisions while serving the dual mandate of maximizing employment and maintaining stable inflation, the H.U.B. will exist to maximize housing affordability while maintaining the stability of property values.
The H.U.B. calculation entails some nuance, but ultimately represents the balance between supply and demand for affordable housing. It will be calculated as follows:
Volume of registered LTR bedroom units
Beginning with the second year of the property owner’s occupancy status registration, all long-term leases will be required to be filed with the local governments. The key terms of such lease agreements, such as monthly rent and number of bedrooms, will be summarized to represent the aggregate volume of long term housing supply available for rent, along with the corresponding distribution of rental units by price.
Housing Affordability Line
Housing affordability will also be defined objectively, based on income data. Consistent with conventional wisdom and various federal housing programs, the upper limit of affordable housing shall be defined as one third of rent going toward housing. So we’ll set the line at 33% of the median gross income. For example, if the income survey shows that median monthly income is $3,000 (~$18/hr at 40 hrs per week), then the affordable workforce housing line would be drawn at $1,000 per month, per bedroom. Together with the compiled data on registered LTRs, we can then calculate the total number of LTR units which are deemed sufficiently affordable for workforce housing.
Eligible Workforce Housing Employees
The employment survey represents the demand side of the Tahoe market. The survey will collect monthly incomes from across the greater Tahoe region and its employers. It shall critically include local workers who do not currently reside in Tahoe, since lack of housing affordability is a common reason many such employees commute to Tahoe from places like Reno and Carson City. While this survey may also uncover interesting data points about trends in remote work, we expect that tourism will continue to dominate the Tahoe economy. As such, we believe that the median level of full-time income should represent the income level appropriate for affordable housing. As such, we’ll consider all full-time employees earning up to the median salary to be workforce housing eligible.
Finally, the H.U.B. calculation becomes simple division. Take the volume of registered affordable bedrooms (supply) and divide it by the number of employees in need of affordable housing (demand). An index value of 100 or higher is great. Anything below 100 means that there is a shortage of affordable housing. At the risk of speculation, I suspect today’s initial H.U.B. reading to be close to 50, if not even worse.
Step 3 - Putting the H.U.B. into action.
Will the H.U.B. actually increasing housing utilization? By itself, not quite. By itself, it is simply a key performance indicator (KPI). As such, it will allow local governments to effectively evaluate the success of our many other housing solutions, and allocate resources accordingly. If Truckee offers a $5,000 incentive for converting STRs to LTRs and that program is effective, we would expect to see the Truckee H.U.B. value improve. And since what works in Tahoe City may not work in Kings Beach, the H.U.B. can serve as a universal measure of impact across the region.
Additionally, the H.U.B. will enable at least one new lever not yet in our regulatory toolkit today. As discussed briefly, vacancy taxes have gained recent traction in South Lake Tahoe, but have the predictable downside of polarizing the haves versus the have-nots. In contrast, we suggest using the H.U.B. value to serve as the basis for a supplementary property tax assessment.
Just like the Fed sets a target interest rate, local governments would set a target H.U.B. value at the start of a fiscal year, say 100. At the end of the fiscal year, local governments would then assess a supplemental property tax (or credit) based on the actual observed H.U.B. value. If the index comes in at 80 (missing by 20%), then all property owners would pay a supplement tax equal to 20% of the housing affordability line. For example, if median rents at the affordability line are $12,000 per year, then the 20% tax penalty would amount to $2,400. Those proceeds would be used to fund new local housing programs like down payment assistance or workforce housing subsidies. On the flipside, if the market collectively responds by bringing more supply onto the market and the actual H.U.B. value lands at 120, then all property owners would instead receive a 20% tax credit against their normal property taxes.
It is important to note that this supplemental tax assessment would be applied equally to all property owners, regardless of their current property tax level, income level, or occupancy status. As a collective community wide tax penalty and credit, this type of incentive encourages cooperation rather than polarization. We will lose together, or win together. Will some property owners be more concerned than others? Certainly. The most affluent may look at the risk of a fee and shrug it off. But others will look at it and want to take action. Some may already rent out their spare rooms and want to do more. So they may talk with neighbors who they know have an available room. Perhaps a real estate agent will try harder to engage with that second home owner client that is always open to selling but it’s just never been “the right time.” And perhaps they’ll opt for a deed restriction in exchange for a lump sum bonus. Other homeowners may realize that while they’ve never thought twice about paying their ~$2,000 annual property taxes on the generational second home that was purchased back in 1970, the supplemental fee is enough to nudge them toward renting. Others will also decide that the supplemental fee is simply worth paying, and that they do not want the headaches and risks that come with being a landlord. Because we all love Tahoe, all such responses are okay.
While the actual market responses to the H.U.B. are impossible to predict, its presence would be sure to spark many important conversations and decisions. It will never make sense for every property owner in Tahoe to rent out their home. Nor does it make sense to continue to hope that the free market will magically work itself out. It does make sense that we all share a vested interest in seeing Tahoe provide sufficient affordable housing to house its workers. What do you think? Please share any constructive thoughts in the comments.
Very well put together Brian, I may not agree with everything you laid out but took some time to articulate some thoughts. I'll try and keep this in the order of what you covered:
GOV POLICY DRIVEN SOLUTIONS
- Limiting STR's seems to be a key area of concern, and the model Palm Springs implemented came to mind.
- On 'Leasing Public Land to Employers for Tent/Trailer housing', the CA State Parks system is also an example.
FREE MARKET SOLUTIONS
- Truckee is now providing pre-permitted ADU building plans & forgivable loans up to $50k, will be interesting to see how this pans out. I am concerned that on-street parking becomes an issue particularly in winter - anecdotally most apartment complexes in town were built with inadequate parking for their residents.
H.U.B
- The compulsory surveys can be problematic and result in large error bounds for the H.U.B. calc. Obviously this is just an idea right now, but you would need to estimate this error bound before presenting this as a viable solution.
- How will the proposed financial incentive for converting STR -> LTR be funded?
H.U.B. SUPPLEMENTAL PROP TAX
- This will only put further squeeze on the ‘forgotten middle’ class who may be struggling to maintain a toehold on home ownership, and certainly will not incentivize any Martis Camp residents to start renting out spare bedroom #7.
- If H.U.B. exceeds target, where will funding for tax credit come from?
Closing thoughts:
"I do agree single family homeownership is well beyond the reach of anyone in their 20s and 30s working in the service sector in Tahoe" - idk man, feel like that could be said of anywhere, not just Tahoe... The Bay is an exemplary spaghetti bowl of commutes for folks who can't afford to live where they work, and it may be a problem that will never be solved in whole or in part. As easy as it is to place the blame for our housing crisis on second homeowners and tourists we also need those folks buying our $9 beers to wash down $24 burgers, and putting up barriers that affect RE could have ripple effects... One item of note is local school district funding via Basic Aid (property tax base) instead of the state's LCFF program, which allows Truckee to pay teachers higher wages and thus attract better talent.
Keep these coming, looking forward to your next post.
Interesting read, thanks for posting. I was just reading about the SLT tax stuff. While I applaud the equal taxation approach, I'm seeing the haves vs have nots fight on a smaller scale in our Zephyr Cove HOA -- spreading things evenly is still perceived as unfair as the "haves" should pay more of their share than the have nots. It may be that in our community that is particularly "fair" as it's about 8:1 (non-residents, residents). The non-residents have much bigger monetary incentives and war chests to hire lawyers and to campaign against "socialism". As someone who grew up in ZC and has seen Whittell go from graduating class of 60 students to 6 -- the town has changed, and IMHO certainly not for the better. There are no easy (or at least, quick) solutions -- I suspect re-balancing of housing in Tahoe is going to take tens of years, which is about how long it took us to get into this mess. Even if housing is "fixed" the service business that cater to a residential population are gone and will take 10+ years to return in the right conditions. Tahoe is no longer a great place to live, even if you have money. Lots of people dreamt of living in Tahoe full time for COVID and have retreated to cities with services like health care and quality schools. For now, I think it's more likely that the pendulum continues to swing further towards fewer full time housing units as the remaining holders of property that would have catered to local residents also sell and see their properties converted into less dense and more expensive vacation housing. The story to watch, imho, is Reno/Carson which is also getting to be quite expensive as many Californians have moved there with the hope of a better balance between services and lower cost of living -- and we continue to see people who work in Tahoe travel further, which demands increased wages to commute to Tahoe which in turn causes the people who can afford to go to Tahoe to be wealthier and fewer. I haven't studied how the economies of Aspen and Vail work -- they must have a similar problem that is perhaps a decade ahead of Tahoe? Or perhaps the environment is too different to compare. The only thing I can think of that would reverse or halt the trend Tahoe is on is a Tech Bust where people lose 50-70% of their paper money for a sustained period and we saw massive sales of distressed properties to people who can afford them on current Tahoe Local Salaries.