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Thread: Limiting second homes to control housing costs

  1. #1
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    Limiting second homes to control housing costs

    New thread. Just wanted to see the debate on this issue:

    Why not limit "2nd, 3rd, 4th...homes" by dictating that a certain percentage of housing units (or at least SFHs) be owner occupied. Or perhaps dictate that a certain pecentage of homes in a city must be owend by residents of the city.

    The effect would be to exclude speculators, home investors, and wealthy out-of-towners from bidding up the price of housing. In the end, the residents of the community who want to buy their only home, which they want to actually live in, can afford to do so.

    Such regulation would best be suited for towns that have limited housing stock, but increasing numbers of "out of town second homers" from bidding up housing prices. If the city is based as a vacation destination (like Jersey Shore, parts of FL, and others that are seasonal towns) this wouldn't really apply because they are built on "vacation homes". Or maybe it still might.

    Vignette: I worked in Paterson, NJ for a non-profit. We were developing a community-driven Master Plan. In the housing portion of that, we noticed that owner occupancy was nil: about 80% of the housing in the city was owned by out of town landlords who rented the lots. Home owntership was horrible. If we said "hey, from now on, if a house goes on the market, only people who intend to live in that house can buy that house. At least until resident home ownership reaches X percent, and then sustain that level." This would change the market of buyers to keep the price much lower and affordable because speculators and investors (who have more money to throw out there) would not bid up the price. Thus, a home in the ghetto which should cost about $200k or less would not be going for $400k +

    My normative argument is that residents who want to buy a home have a right to afford that home BEFORE investors and out-of-towners have a right to buy a second home (or income property) in that community.

    Thoughts? Arguments?

  2. #2

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    Not a new thought. Most planners who have worked in resort communities have been through this discussion. But its always a short discussion because this type of restraint on property ownership is unconstitutional.

  3. #3
    Cyburbian Random Traffic Guy's avatar
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    "Should cost" LOL.

    Yes, it could be quite an impact on the current resident who wants to sell for the best price. Little old lady in front of city council: "I was trying to sell my house to pay for my retirement, but thanks to these rules I have to live in a cardboard box and trap pigeons for food until I die."

  4. #4
    Forums Administrator & Gallery Moderator NHPlanner's avatar
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    I agree with Lee that it's unconstitutional. The only type of housing "discrimination" permitted under Fair Housing Law is for Elderly.

    See - http://www.hud.gov/offices/fheo/FHLaws/yourrights.cfm
    "Growth is inevitable and desirable, but destruction of community character is not. The question is not whether your part of the world is going to change. The question is how." -- Edward T. McMahon, The Conservation Fund

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    Quote Originally posted by Random Traffic Guy
    "Should cost" LOL.

    Yes, it could be quite an impact on the current resident who wants to sell for the best price. Little old lady in front of city council: "I was trying to sell my house to pay for my retirement, but thanks to these rules I have to live in a cardboard box and trap pigeons for food until I die."
    Good point. Then I guess we get into the net social benefit. Weighing that little-old-lady's perspective versus the other person at the city council meeting:

    Working-class joe walks in, "without these regulations, wealthy investors and people from out of town keep bidding up the price of homes. In fact, to afford a home in this community you need to make 230% AMI! Our residents can't even afford to buy in this community anymore. We need regulation!"

    And fact is, the little-old-lady is probably the only resident home owner because she's been there for so long. There aren't even many people in that situation. I cite resort towns and many urban areas where resident ownership is dismal at best. But then we digress into political science: rights of a vocal minorty vs a majorty who has been market-priced out of their own, the "intensity problem," etc.

    Not to mention, we could also be a cynic and say, "screw the present home owners. most of them are from out of town anyways and don't vote in here. we're watching out for our residents who want to own homes." LOL

    Interesting debate, on both sides. Seems to end up directing, like so many things, to normative and ideological axioms though.

  6. #6
    Super Moderator luckless pedestrian's avatar
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    We've done it in a back door method - weekly rentals are no longer allowed on non-homestead properties in residential districts that do not allow transient accommodation. Most people that buy a second home or a condo need to rent it weekly for extra income. There is a grandfathering privilege except for properties with 5 or more units on them It's only transferable from the same kind of owner; that is, a homestead property owner who sells to a 2nd home buyer, that new owner will not be able to rent weekly even if the previous homesteader did. Homestead property owners can rent weekly with only registration forms with the Town. Homestead in Maine (state law, that's where I got the legislative power to do this, we already discriminate in this state with our property tax structure) means you are here at least 6 months plus one day and that you have lived here at least a year.

    this was pretty carefully crafted, I must say - it goes into effect next season, I'll let you know what I did right or wrong.

    If you want the reports and Ordinances that went into this, PM me your email.

  7. #7
    Cyburbian Jeff's avatar
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    This whole idea...from the OP to the "back-door method" just seems really Un-American to me. This is a capitalist society, and if families choose to rent property to provide their income so be it.

    As far as the weekly rentals go...can I rent for 8 days?

    But why try to keep weekly renters out?? It goes without saying that these are vacationers?? Probably families who see a hotel as impractical.....Looking to $pend alot of money in your town. Why keep them out?

  8. #8
    Cyburbian hilldweller's avatar
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    Developers in Florida are begining to limit the percentage that home-flippers/speculators can profit from resales. The developers don't want to compete with the investors I assume.

  9. #9
    Super Moderator luckless pedestrian's avatar
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    Hey, I hear ya Jeff, this was a tough one that the Town has wrestled with for 15 years before I even got here without resolution. This was extremely difficult for me as well in my role here.

    On the one side of the picture, there were people that felt the housing stock for year-round residents was being hindered in price (see posts above) and quantity and that people living in existing neighborhoods were seeing a summer erosion of their neighborhood (especially in the downtown village where the lots are no more than 10k) where they don't know who's there, and the house goes dark in the winter (we called it "no Halloween candy houses") -

    On the other side, an extremely legitimate argument was being made to say first, this is a customary use of a dwelling unit and second, this is a gross control on property rights -

    for years, this issue was polarizing.

    Then, when I got here in 2002, I laid low with it for a couple of years and just watched - but then I saw a lot of appeals to the Appeals Board about it being a commercial operation or a customary use, and the board was back and forth on their interpretaion depending upon who was sitting on the Board, and the Planning Board was approving condo developments in resdiential neighborhoods that they knew were not neighborhoods but really weekly rentals. It was frustrating for all and costly in my legal bills for my department so it reached a head and I needed t step in.

    So, the first proposal the Planning Board made was to define it, then allow it everywhere - put it to a full Town vote and see what happens - I thought it was a good idea but the Council panicked so I hired 2 now burnt out facilitators for 2 tough meetings between the Planning Board and the Town Council, then I took over for 3 more fun evenings before we finally reached the resolution described above.

    the grey area I ran with was that people seemed to agree that people who live here, give out the Halloween candy, should be allowed to move to camp and rent their primary house in the summer for extra income but that people who do it for investment, that aren't here, don't "live" in the house, does have a more commercial ring to it - they can still do it in the business districts and corridors just not in the neighborhoods (and grandfathering still remains for most types of units)

    I called it a back door method to what the orignal post was because that's what it is already doing, as realtors have been complaining to me this summer - it will be intriguing if prices do come down (which they may anyway because of the overall housig market changes) and if this regulation is tested in a higher authority and wins the test of constitutionality

    but my research across the country indicates that limiting this use is okay - even in private condo docs as well as government regulations so we'll see

    is it the best solution from a planning perspective - that's not an easy answer because it clearly addressed the policies of the town and passed with a pretty good margin of over 60% (previous attmepts were split)

    another answer to the original question for this thread is to have an affordable requirement component (even going as high as 150% median income if that segment can't buy a house either - we did up to 120% here but I may go higher in the future), because that requires you to be a first-time home buyer if you set it up that way, so 2nd home buyers couldn't get that unit - we also have this in our PUD

  10. #10
    Cyburbian Jeff's avatar
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    ^^interesting.


    Now on the home flipping thing, it isnt just in FL. Its going on everywhere....though i've questioned how this could actually be enforced. I know work I do, the homes cant be sold for 2 years, what if you move?

    I know one case where the job was phased, an investor bought a whole block of townhomes inPhase 1 for $100K each (an example)...Phase 2 opens, economy is better, townhomes cost $200K each. Pase 1 investor sells his homes (still "new" for all intents and purpose) for $150K, and is competing with the builder....this is what the no "house-flipping" clauses are trying to prevent.

  11. #11
    Cyburbian Random Traffic Guy's avatar
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    Quote Originally posted by MRod305
    Not to mention, we could also be a cynic and say, "screw the present home owners. most of them are from out of town anyways and don't vote in here. we're watching out for our residents who want to own homes." LOL
    But you're not watching out for your present residents (few as they may be), but those folks who want to be residents but do not think it is worth it at the present prices.

    Another issue is how the town (and presumably your job) is funded. If the town taxes are based on the appraised prices, taxes and thus budgets may fall precipitously when the limits are imposed and the value of the properties drops. Planners may like residents, but others town employees may not give a crap for the difference...

  12. #12
    Cyburbian wahday's avatar
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    I posted this recently in another discussion, but feel it fits better here.

    We have a similar problem in Santa Fe (though I live in Albuquerque, partly because I cannot afford to live in SF - see below).

    There, outside buyers, the majority being for 2nd, 3rd, etc. homes, have driven the price up to $477,000 median house value (it has doubled since 2000). The AMI is just under $50,000 for households.

    In this situation, most of these second homes are NOT being rented out to anyone. We're talking about majorly wealthy people (including a good number of celebrities) who really don't care about rental income - its worth it to tie their money up with the real estate and have a place to go to on a moment's notice.

    The city has done two things to try and improve the situation. One is a living wage requirement for employers with more that 25 employees to pay $10.XX per hour by 2008 (this was passed in 2003). It has been challenged at the state level and was recently upheld.

    The city also recently passed an affordable housing requirement such that developers building more than 10 units must make (I think) 10 percent "affordable." I am not sure how they define this, but without incentives, most developers have said they just can't do it and make any kind of profit. The result has been a rash of small projects with under 10 units, such that there has been virtually no additional "affordable" housing stock added.

    One of the interesting dynamics in Santa Fe is that many are attracted to the place because of the culture, the general ethos, the architecture, and the "quaint" and "authentic" (whatever that really means) nature of the place. This sensibility is the product of many generations of Spanish families who originally settled there in the early 1700s and who have maintained traditions that make the place what it is (adobe construction, acequia irrigation practices, Spanish Catholic religious and cultural practices, etc.). These housing trends are forcing many of these families out and so the very quality of life these outsiders crave is being eroded because of their presence. The irony of it all...

    So, how else can you get a handle on this sort of thing? Does it matter (Jeff?)? Should we care? What say you? Bear in mind that Santa Fe is also the state capitol and so state employees (who we need to help run things) are also having trouble affording a place to live.
    The purpose of life is a life of purpose

  13. #13
    Super Moderator luckless pedestrian's avatar
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    wahday - you bring up interesting questions in the world of economics and that is that there is clearly a market demand for affordability but it's a demand to which a supply cannot be provided due to other market forces related to land value, so the question remains is there a role for government in such a situation - if the private sector clearly cannot provide for it, then is it in the public interest to make that provision?

    it's one I have been grappling with since day one in this town and it isn't an easy one - but it's fascinating just the same (that is, if I wasn't house-poor myself living here)

  14. #14
    Cyburbian imaplanner's avatar
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    I agree with Jeff that the idea behind this sort of thing seems completely un-american.

    But it is creating significant problems for communities and I don't know that there is an easy solution.

    This sort of thing can wreckl havok on communities and be bad for local businesses. No clients for extended periods of the year, blue collar workers having to commute significant distances, and a general lack of young people.

    I am very familiar with some communities that have had to close most of their schools and bus kids long distances because all the out of towners buying all the houses resulted in very few kids.

    Its a reflection of the larger problem of the widening gap between the super-rich and the middle-class.

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    Super Moderator luckless pedestrian's avatar
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    ^yes, but what is the role of government [not to hijak this thread, but... ]

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    Cyburbian imaplanner's avatar
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    LP- your situation IMO does not address the overall affordability problem. I have lived and worked in many areas that prohibited weekly rentals in residential zones and honestly they have been some of the most expensive places in the country.

    The whole issue of affordability is a problem that if not started by-is exacerbated by the ever expanding wealth of the very few. Any solution to affordability then needs to be addressed first at the national level IMO.

  17. #17
    Super Moderator luckless pedestrian's avatar
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    Quote Originally posted by imaplanner
    LP- your situation IMO does not address the overall affordability problem. I have lived and worked in many areas that prohibited weekly rentals in residential zones and honestly they have been some of the most expensive places in the country.

    .
    absolutely - I hope I didn't indicate that I think I solved the affordability problem because I think it's more systemic and deeper than the weekly rental issue - I learned this from watching Key West and spent time talking to the planner there -

    again, to justify myself - I came up with the best solution that may address some of the basic issues the public wanted to address while maintaining some constitutional rational basis but I am making no claim to have solved the world's problems -

    I do think, in answer to the original posted question that it may have a sidebar ripple effect on how many dwellings are sold to investors or 2nd home owners because the tradition with these buyers up here is that they do rent them weekly when they aren't here themselves

    next year should be fun when we implement this for the season - I will not be shocked if there's a knee jerk reaction when we start inspecting these places, impose fees, fines for not registering, answer complaints - yeah, it will basically $uck...

  18. #18
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    Quote Originally posted by imaplanner
    LP- your situation IMO does not address the overall affordability problem. I have lived and worked in many areas that prohibited weekly rentals in residential zones and honestly they have been some of the most expensive places in the country.

    The whole issue of affordability is a problem that if not started by-is exacerbated by the ever expanding wealth of the very few. Any solution to affordability then needs to be addressed first at the national level IMO.
    Great debate on this!

    From an economics 101 standpoint: Lets think of a town, and lets call it Anytown, US. Anytown, US used to be affordable to Anytown's residents. Lets say housing was generally available for people at or around AMI.

    Enter investors. Speculators. Celebrities. They have more wealth that is significantly above the residents of Anytown. They see an INVESTMENT opportunity. Cheap housing, and the ability to rent it. Or perhaps they just want a vacation house. In either case, when they enter the market there, they disturb it. They are willing and able to pay much more than the residents of Anytown.

    Now, residents of Anytown, or would-be homeowners/residents of Anytown can't afford housing based on local wages.

    Investors, out of towners, celebrities win. Residents lose because increasingly, new residents and subsequent generations of those residents can't afford to own. They are subject to the rents of those out-of-town landlords.

    Who do we want to fight for here? If you wan't to argue that its "American" to price out people because Gordon Gekko says "greed is good," so be it. But some people think that those residents should have a housing market that is uninterrupted by outside forces. Is this creating a restricted market? Yes. Would a policy that "keeps out of towners out" create a barrier to entry into this market? Yes. Does this disturb the precious vaccum of the free market? Yes. But there may be too much of a negative social consequence to letting the market run rampent. There may be a very positive social consequence to restricing a market.

    Clearly there isn't enough housing supply for everyone and a huge demand for housing. But these investors are pushing the demand curve outwards do to their influence by disturbing that market. It is the nature of capitalism to do so.

    But maybe there is a larger social good in protecting the residents' ability to own property before protecting the investors ability to own his N-teenth property, or vacation home, etc. And frankly, that guy doesn't even live in this city anyways, or vote there, so why should the City care about him so much?

    The "Un-American" chants echo the free-market-at-all-costs attitude. But there is a cost, and that cost is local residents, and their subsequent generations, and potentially new residents, from being priced out of the neighborhoods they once could afford. Do we protect them through government regulation?

    I think we ought to. That's just me though, and I do welcome the great debate.

  19. #19
    Super Moderator luckless pedestrian's avatar
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    another aside to this is that Maine just put in a new state law that limits the taxation on the working waterfront - again, to discriminate the locals versus the ones form away that want waterfront property in that cute little fishing village

    fascinating stuff, really

  20. #20
    The speculative housing bubble is over anyway. Any effort to limit it is too late.

  21. #21
    Super Moderator luckless pedestrian's avatar
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    jaws, I'm disappointed - I've been waiting for you to show up...

  22. #22
    Cyburbian wahday's avatar
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    Quote Originally posted by jaws
    The speculative housing bubble is over anyway. Any effort to limit it is too late.
    Not here in NM. About three weeks ago there was a "how to" article in the LA Times about how to be a real estate speculator and we were near the top of the list of promising markets. We had housing appreciation of 17.7 percent for the year ending last March.

    Three houses in my neighborhood were sold to California buyers within the last year who are renting them out. A friend looking for a house in a new subdivision talked to a guy representing a California buyer who had purchased 20 new homes there.
    The purpose of life is a life of purpose

  23. #23
    Quote Originally posted by wahday
    Not here in NM. About three weeks ago there was a "how to" article in the LA Times about how to be a real estate speculator and we were near the top of the list of promising markets. We had housing appreciation of 17.7 percent for the year ending last March.
    Newspapers are about the worst possible source of news for anything. You can find the latest on housing at http://thehousingbubbleblog.com/

  24. #24
    Cyburbian wahday's avatar
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    Quote Originally posted by jaws
    Newspapers are about the worst possible source of news for anything.
    My point was not so much about it being an information source, but literally encouraging more people to get involved in real estate speculation. Regardless of your opinion of the printed press, the LA Times certainly does have an impact on people's behavior, which in this case was to come to our town and invest in buying houses.

    I will check out the link you included, though.
    The purpose of life is a life of purpose

  25. #25
    Cyburbian DetroitPlanner's avatar
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    As an owner of a second home, I may have a different perspective on this.

    My second home is not a rental, it is strictly a vacation home. I do not want to deal with renters messing up my home by allowing their kids to carve their names into the wooden walls or cieling, or pee in my beds. It is about 700 square feet. My main house is a whopping 850 square feet, making me not exactly a pig when it comes to square footage.

    I can tell you that the County and the township love the owners of secondary properties. In Michigan these are deamed as non-homestead houses, and can be taxed at not only a higher taxable value, but a higher millage as well. In short, these are cash cows as I pay roughly double what a similar priced homestead property would in the property taxes that run the schools and many of the other services of the county. By limiting 2nd homes, you would curb sprawl, but you would also bite the hand that feeds you. You would also limit housing opportunities for those who cannot afford homes, making the only alternatives run by either greedy developers or the state. The small time landlord gives people a third option.

    Northern Michigan's primary industry is tourism. The local economies rely on a transfer of wealth from these properties (I have paid plenty to replace my roof, septic, not to mention steaks and fish frys at the Clear Lake Bar) to local business owners. Without these homes, the area would be a ghost-town.
    We hope for better things; it will arise from the ashes - Fr Gabriel Richard 1805

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