Shortly after Mitch Landrieu delivered his second inaugural speech in 2014, I wrote a rather tl;dr-ish post about the direction the city was likely to take. The jokey introduction has gone stale. But if you skip through that, the rest of it is worth referring back to. I tried to address the worsening effect of economic inequality in New Orleans and the stark disconnect between those effects and the priorities of the city's political class.
I bring it up today because, two and a half years later, we're still seeing the same tendencies. The most recent evidence of this can be found in the debacle last week at City Council over the short term rental question. Just so you don't have to read through too much of it, what I tried to show in that post were the following points.
1) Affordable housing is being crowded out by asset investment opportunities.
But it's imprecise to say simply that the problem is we're looking to "transplants" to expand the tax base. More to the point, we're looking to big money buyers (granted, mostly from out of town) to radically bid up housing prices.2) The rise of the so-called "sharing economy" is not only a sign of the desperation that arises from this crowding out. It also facilitates the process.
But what was once a leisurely inspection has become, in some cases, a feeding frenzy. Agents now bring their clients in tow. Offers are sometimes discussed outside; agents describe offers being scribbled out on the hoods of cars.It's hard to imagine a sale like that going through solely for the purpose of maintaining an existing rental property. New Orleans, particularly in its historic neighborhoods, is an investment now. The wage earners and rent payers have to be moved out of the way in order for the asset traders to flourish.
Last week, one of the properties open on the tour was 1015 Arabella St. -- a double being rented out to tenants. By Friday morning, the listing agent, Lynne Ann Fowler of Latter and Blum, said the owner had received three offers and already accepted one that was "close" to the asking price of $375,000, although she said she couldn't say the exact offer while the contract is pending.
She said the house is in need of some renovation, depending on whether the new owners want to convert it to a single and live in it, or keep using it as rental property.
This shouldn't come as a surprise. Renters and wage earners have become more or less structurally irrelevant people over the past 20 or 30 years. Going back as far as the late 1970s, as automation and globalization began to seriously affect the manufacturing sector of the economy, wages became uncoupled from productivity meaning a great deal of wealth could be produced while wages remained largely stagnant. Again, I'll refer you to that conversation between Lapham and Frank for some insight as to what happened next.
as long ago as 1985 or 1986, the money earned in the United States, the income earned from wages on one hand and income earned from rents which would be real estate, stocks, dividends and interest — together they’re considered rents. But the first time in the history of the United States, either in 1984 or 1985, that rentier income surpassed the income earned from wages. And we are developing right now a really, an extremely opulent rentier class. If you think of the profits that have been made in the stock market in the last 30 years and you think of the compound interest, that is why you now have apartments selling for $95 million. So we are getting a rentier class. There’s no question about that. The numbers are all there.If you aren't a member of a highly specialized profession or some sort of asset speculator... in other words, if you're not a part of what Mitch Landrieu euphemistically calls the "knowledge economy" there really isn't much of a place for you.
While it's fine for the mayor to act as the city's booster-in-chief, it's important to note that the proliferation of "entrepreneurial innovation" he's celebrating can also be a sign of distress.3) Local political leaders turn a blind eye to these stresses focusing instead on the needs of the investor class justified by what they see as easy technocratic solutions to government revenue problems.
Some of these new companies are obviously helpful to the economy. But when you look at the kinds of businesses getting started, and who is starting them, it becomes clear that lots of entrepreneurship in the last few years has been symptomatic of our sick job market.This is most especially a concern when it comes to the entrepreneurial activity that takes place within what is now known as the "sharing economy."
A huge precondition for the sharing economy has been a depressed labor market, in which lots of people are trying to fill holes in their income by monetizing their stuff and their labor in creative ways. In many cases, people join the sharing economy because they've recently lost a full-time job and are piecing together income from several part-time gigs to replace it. In a few cases, it's because the pricing structure of the sharing economy made their old jobs less profitable. (Like full-time taxi drivers who have switched to Lyft or Uber.) In almost every case, what compels people to open up their homes and cars to complete strangers is money, not trust.New Orleans does not have Uber or Lyft yet but it does produce a lot of action on Airbnb. An extensive feature on Airbnb's local impact ran in the March issue of Antigravity. While the service can seem like a godsend to marginalized homeowners struggling to keep up with bills, in the aggregate it's yet another constricting force acting on the housing market.
For one thing, it puts renters in New Orleans into direct competition for space with an endless churn of visitors able to pay $50 to $200 a night. For another, it subjects residential neighborhoods to wave after wave of super-short-term outsiders, a potent disruptive and destabilizing force in areas still fighting their way back to some semblance of stability. Tourists have no understanding of the neighborhoods they’re invading, and unlike longer-term residents, they have no incentive to get along with or respect those who live in the neighborhood. They’re here to party and enjoy themselves, and it’s in the Airbnb host’s economic interest to ensure they’re able to do so. On a NOLA.com article about the city’s ongoing failure to enforce the laws against illegal short-term rentals, one commenter said his experience of living next door to an illegal guesthouse was like “living next to a frat house.”
Also at issue, from the city's perspective, is the potential for lost revenue. After all Airbnb is basically one big off-the-books hotel. The city welcomed a near-record 9.28 million visitors last year. A key challenge for the mayor and his new council faced with a severe budget crisis is figuring a way to capture the highest possible revenues from the city's most vital industry.So what we have is a worsening situation for poor and working class New Orleanians exacerbated by a totally unresponsive political elite. Fast forward to last week's showdown over STR and here is what the Urban Conservancy's Dana Eness observed about that.
The hotel/motel tax hike is already meeting with significant static in the legislature. I can't help but wonder, then, if this might help explain the dramatic rise proposed for property taxes. Think about it. The housing market in New Orleans is on fire right now. A lot of the pricier properties are already part time second homes. A lot of property owners are getting into the illegal short-term rental business. It could be that the idea here is to pay off the consent decree and fire pensions by indirectly taxing this off-the-books activity.
If this is what they're thinking, I have to admit it's kind of ingenious. Leaving the illegal rental market alone keeps the real estate market hot. This means more house flipping, less blight, and, as neighborhoods seek to cultivate more tourist-friendly amenities, it means more "vibrancy." The city can reach its goal of 13 million annual visitors and not one extra cent in hotel taxes need be raised. It basically hits all of the Landrieu sweet spots and takes a fiscal load off the city's back in the process.
Of course that for whom, against whom question remains troublesome. Rents, utilities, and other fees continue to rise. "Old" New Orleanians will have to stretch their entrepreneurial acumen to its limits in order to keep up.
As I looked around the council chambers on Oct. 20, I tallied the thousands of dollars in parking fees paid and and work time sacrificed by people in the room, citizens who in good faith had prioritized dedicating several hours of their day to a public process, only to have legislation ramrodded through without any opportunity to review it in advance. Hard copies of the amendments to the recommendations were made available at the Council meeting — the first time the public had been allowed a look at them.As Eness points out, there is zero transparency regarding the negotiations process between the city and "the platforms" these regulations apply to. But we do know the voices of "the platforms" were heard by councilmembers even if those of the public were not. Guidry's homestead exemption amendment would have gone the furthest toward allaying the fears of residents that their neighborhoods would be scooped up by STR investment companies by the blockfull. "The platforms" made it clear to councilmembers that was a non-starter. Guess who they listened to.
The citizens weren’t the only ones denied sufficient time to review the Administration’s amendments; the same was true for councilmembers, who got them shortly before the meeting. Indeed, as the hearing got underway, Councilmember Susan Guidry’s staff was drafting an amendment that would have reinserted the owner-occupancy requirement for whole-house rentals. The hastily drawn amendment failed — as might be expected when bills are cobbled together at the eleventh hour. It’s unfair to everyone and undermines public confidence.
In the absence of transparency, we can only speculate about what drove Thursday’s outcome. Perhaps it was for expediency’s sake, to do something rather than nothing. Perhaps the council believes that whole houses constitute the bulk of short-term rental properties in New Orleans and if legalized, would pay for an enforcement program and generate city revenues. Perhaps it was a condition imposed by the booking platforms like Airbnb that hold the data that City Hall needs if rules are to be enforced effectively.
Head: there's no question having a homestead exemption is a good thing ... but it won't happen if we want to get platforms on board.— The_GambitLIVE (@The_GambitLIVE) October 20, 2016
In exchange, The Platforms agree to share data with the city for enforcement purposes. At least that's what they say. Nobody actually trusts them to do that. Maybe Ryan Berni does. Maybe.
Berni says the city has worked out a plan for Airbnb and other platforms to share their data through quarterly reports. Opponents are skeptical, as the industry has been reluctant to share data despite similar attempts in cities across the U.S. — and the city will be relying on four-month-old data in a city where STRs continue to mushroom. The companies are happy.The companies are happy and that's what counts. Well, also, LaToya is happy.
Cantrell: Made sure the neighborhood housing investment fund would get enough money (from platforms) to fund improvements— Jeff Adelson (@jadelson) October 20, 2016
The Neighborhood Housing Investment Fund, in case you are wondering is LaToya's pet blight reduction project.
Money from the fund has traditionally been used to pay for code enforcement, supporting city inspectors and attorney costs in addressing blighted structures around the city. The change the council made Thursday dedicates the fund to actual home improvements and affordable housing efforts. It would help owners pay to correct potential code violations, rather than fining them.The "affordable housing" language there is basically just platitudes. NHIF only touches that insofar as it funds the ongoing and thus far inconsequential process of developing a housing plan, though not necessarily any specific policy. What NHIF does mostly is help cover some of the cost of code enforcement. That can be nice. But it doesn't do anything to alleviate the housing crisis. It does secure funding for Cantrell's project and the friends and supporters of hers who take an interest in its operation. The Platforms did right by her. And now they can continue to do right by her father-in-law, no doubt.
Councilwoman LaToya Cantrell authored the amendments to the NHIF ordinance.
"By updating the ordinance, we have two tremendous opportunities. First, we can begin to follow the law and use money as intended by voters ..." she said. "Second, we can use this opportunity to tie badly needed resources to affordable housing and special needs housing that are right now being identified in the (New Orleans Consolidated) Housing Plan.
And this brings us back to the point we made earlier this month when we figured we could see the writing on the wall. What that writing says is they don't care about you. That's why we lost. We were always going to lose. We lost because the political process we think we are participating in does not regard us as stakeholders. The actual players are the elected decision makers, their wealthy friends and family, and the business interests affected by the policies they choose. The rest of us are all just cannon fodder.