GALVESTON

The three vacation rentals Heather MacBeth-Estrada owns are booked for Thanksgiving week.

It’s not uncommon anymore for vacationers to pour into Galveston during what was once off-season. Many prefer to stay in home-like settings, MacBeth- Estrada said.

“Families love to come,” she said.

That desire for vacation housing other than hotels and motels and the ease of finding and booking through online brokers such as Airbnb created a global cottage industry, as it were, pumping huge investment into real-estate markets and burning the phrase short-term rental into the vocabulary of public debate from Texas to Timbuktu.

Galveston’s short-term rental industry ballooned in recent years as tourists sought more authentic local experiences and the annual tourist tally grew to a whopping 7 million people. Those forces pulled the short-term rental industry from its traditional West End base into residential mid-city and East End areas, plopping vacationers in the middle of established neighborhoods.

For some, the rise of short-term rentals is exacerbating a longstanding Galveston problem by taking quality houses off the market, pushing up property taxes and housing costs in general through investment, forcing residents of modest means and even middle-income workers to move off the island.

They worry the industry is driving, or at least accelerating, the transition of Galveston from an authentic, diverse city to a tourist destination.

But the short-term rental industry argues its investment has actually enhanced neighborhoods by salvaging scores of substandard houses, increasing their taxable value and contribution to public coffers through both property and hotel tax revenue. And a leading researcher said he doubts short-term rentals are the main force behind ballooning housing prices.

Galveston’s tourism industry has mushroomed over 10 years. In 2009, the year after Hurricane Ike devastated the island, 4.5 million visitors crossed the causeway. In 2019, the most recent full year free of COVID-19 static, brought 7.2 million visitors, a 60 percent increase.

That growth corresponded with the rise in companies such as Airbnb and Vrbo, which list vacation properties and manage bookings.

Meanwhile, COVID-19 added fuel to the market as vacationers sought to get away from home but stay away from crowds and as hotels and motels struggled under government-imposed restrictions.

THE PERFECT MIX

That mixture of cheap, post-Ike property, global marketing and booking services available to every owner and a pandemic-driven market shift set off explosive growth in short-term rentals in Galveston and elsewhere. In probably less than 10 years, the inventory of short-term rentals in Galveston grew from likely dozens, or maybe a few hundred all on the West End, to about 4,000 operating everywhere.

And that has inspired fear about the future among many islanders and set conflicts among residents and operators, both attempting to get the most from their properties.

MacBeth-Estrada, a sixth-generation Galvestonian, can understand that fear, she said.

“I don’t like that there are so many short-term rentals,” MacBeth-Estrada said. “I almost wish Galveston would cap the number we have. I don’t know how you would do that. It is true it takes away homes from buyers.”

And tourism is one of the city’s biggest industries, employing an estimated 9,000 people.

“It’s a tourist town,” MacBeth-Estrada said. “I think it’s good we have Airbnbs here, as long as they’re top-notch. I wish there was more for the homebuyers.”

The rise of short-term rentals, to some, has been encouraged by public policies that aren’t favorable to residents, said Keath Jacoby, former CEO of community planning organization Vision Galveston.

“We have made a lot of improvements, and I think those improvements were for tourists or business enhancements,” Jacoby said. “The development here is not family centric.”

Jacoby worries policies are focused on the visitors, at the expense of those who live here.

NATIONAL TREND

Short-term rentals aren’t new to Galveston, which has long offered beach homes to visitors, but it’s relatively new to have so many vacationers in the residential urban core, said Betty Massey, who has worked on housing issues for years. Massey is vice chairwoman of the Galveston Housing Authority and on the board of Vision Galveston.

“I don’t think there were a lot of second-home owners or vacation rentals going on in the urban core of Galveston,” Massey said.

But that’s changed as visitors’ perceptions of Galveston have over time shifted from an industrial, manufacturing town to an aesthetic, vibrant city, she said. More people became interested in living in or investing in a second home on the island, she said.

“It has opened the market,” Massey said. “As we improved Galveston, more people wanted to be here. That’s not necessarily a bad thing.”

But it has pushed home prices up, she said.

Galveston’s 3,800 short-term rentals are just some of the millions across the country that have come into communities as the industry grew.

Community members in many of these places have argued rentals produce noise and litter and their guests take up street parking, an issue those in the industry say is limited to a few bad apples.

On a more philosophical level, residents of these areas with concentrations of short-term rentals are concerned the rental homes are taking up housing stock.

Some researchers have found that a 1 percent increase of Airbnb listings in a community can be associated with a 0.018 percent increase in rental rates and a 0.026 percent increase in housing prices, according to the Harvard Business Review.

Although limited, data on short-term rentals shows a correlation between higher concentrations of the rentals and jumps in housing and rental rates, said Davide Prosperio, assistant professor of marketing and business administration at the University of Southern California, who studies the effects of short-term rentals on communities.

“It also reduces some of the supply that was part of the long-term rental market,” Prosperio said. “Basically, some landowners will decide to switch from long-term rentals to short-term rentals. This new option is potentially more profitable.”

A PROFITABLE PURSUIT

Many Realtors and developers will attest the market is crazy right now, and at least some have noticed new short-term rental owners scooping up some houses.

Beau Yarbrough, chief financial officer for developer DSW Homes, has noticed more homes going to the vacation rental industry, he said.

“I think a lot of these single-family houses south of Broadway, walking distance to the beach are vacation rentals,” Yarbrough said.

The return on short-term rentals is just higher than for long-term rentals, he said.

“Where you could drive $1,500 a month for a single-family house, you could get $250 a night for a short-term rental,” Yarbrough said. “That’s what it appears to me.”

TOURISM VS. LOCAL BALANCE

Galveston for years has talked about how to balance the needs of tourists with those of people who live here.

The city in 2015 created an R-0 zoning district, which allows a neighborhood to petition the Galveston City Council with signatures from 75 percent of the residents to ban short-term rentals in their area. About six neighborhoods have such a designation.

It’s a zoning restriction local short-term rental owners generally have supported, citing the need to balance visitors and residents.

LOCAL FIX

That balance is important to many short-term rental owners because they, too, are residents, said Randall Kopfer, president of the Short Term Rental Owners Association of Galveston.

“They work here” Kopfer said. “They live here. Then there are corporate and most of those are located out on the West End.”

To Kopfer, short-term rental owners enhance neighborhoods where they operate.

“They took a lot of dilapidated houses off the market and fixed them up,” Kopfer said. “Prices do go up because the neighborhood’s improved. Overall, the market has been really strong on top of it.”

That’s definitely a trend on the island, said V.J. Tramonte, Realtor and owner of Joe Tramonte Realty.

“There are a lot of nasty-looking properties on the island that got purchased by vacation rental people, who fix them up,” Tramonte said.

The market really started taking off when Galveston started to recover from the 2008 devastation of Hurricane Ike, he said.

“People were picking up these little houses that weren’t in the best of shape, fixing them up and putting them on the tax rolls,” Tramonte said.

That’s why MacBeth-Estrada got into the short-term rental business, she said. She poured hours of work into updating rooms and appliances in the units she owns.

“We love the fixing-up part,” MacBeth-Estrada said. “It’s fun to do it. I think it’s good for the city to fix things up.”

MacBeth-Estrada has had other short-term rentals in the past and eventually will sell the properties she owns now. Most of the rentals she has sold in the past actually have gone to families who intend to live in the homes they purchased, she said.

When short-term rental owners renovate homes, it increases property values, which can be good for nearby homeowners, according to data Prosperio collected.

“It is true that now these platforms lead to more residential investment, which is good,” Prosperio said. “You see an increase in taxes for the city.”

OCCUPANCY RATE

That the number of vacation rentals in Galveston is going up isn’t really a question.

Traditional hotels for decades made up the largest share of hotel occupancy tax revenues — money collected from the 15-cent tax on all overnight stays.

During the 2019 fiscal year, short-term rentals made up only 28 percent, $3.44 million, of the $12.3 million collected in hotel taxes locally, according to data from the Galveston Park Board of Trustees. In FY 2021, which ended in September, the vacation rental industry contributed a whopping $4.19 million, 45 percent of the $9.3 million collected, according to park board data.

Galveston always has been a high-rent market and has a low owner-occupancy rate compared to the rest of Texas.

Of the city’s 34,259 housing units, only about 68 percent, 23,375, are occupied by the owner, according to census data. In Texas, 90 percent of the 11.6 million housing units are owner-occupied, a relatively consistent rate since 2010, when the occupancy rate was 89.4 percent statewide.

Galveston’s owner-occupancy rate has grown since it was 61.6 percent in 2010. At that time, only 19,943 of the 32,368 units were occupied by the owner, in large part a result of a city-wide exodus after Hurricane Ike.

City officials have guessed this low rate is because of second homes, vacant houses and vacation rentals.

Galveston’s housing stock also has grown at a slower rate than the rest of Texas, only 6.2 percent in 10 years compared to the statewide rate of 16.1 percent.

THE SECOND HOME

But how many of those are short-term rentals — that’s hard to pinpoint, some local Realtors said.

More people are interested in buying second homes on the East End of the island, a trend that once was almost exclusive to the West End, said Alicia Swartz, sales manager at Sand ‘N Sea Properties.

“We used to drive buyers around the West End,” Swartz said. “Now the historic market is definitely greater than it was. There’s a huge appeal to be down on the East End, in walking distance of The Strand. The curb appeal of the city has improved.”

Investors also have been pouring into Galveston and scooping up properties, said Claire Reiswerg, co-owner of Sand ‘N Sea.

“It’s investors,” Reiswerg said. “Buy a house. They fix it up and flip it.”

The flipped houses the investors resell inevitably will be more expensive and contribute to higher values, she said.

THE VACANT HOMES

Kopfer argues a significant part of the problem is vacant homes. If the houses now sitting empty were renovated and put back into the market, the city could have more available homes, he said.

“There’s a ton of houses that have been in families for generations: They’re vacant,” Kopfer said. “Some owe taxes for three years. The city needs to do something about getting those back in the housing stock.”

‘WON’T even BREAK EVEN’

The short-term rental industry has become popular, but how many new buyers actually stay in it is another thing, said Anne Reiswerg, co-owner of Sand ‘N Sea.

Between upkeep, fees, cleaning and hotel tax payments, the short-term rental business isn’t the cash cow many think it is, she said.

“It’ll help with the taxes and insurance and a little bit more,” Anne Reiswerg said. “You won’t even break even. People think they’re making money hand over fist and they’re not.”

So, for people who buy homes just to rent them out — not as an investment property to move into eventually — the gig may not work out long-term, she said.

‘IT’S COMPLICATED’

Nevertheless, at least some islanders are worried about the long-term future of a city too heavily focused on tourists.

People getting priced off the island are, in some cases, the same people working in hotels and restaurants and other tourism-related jobs, said Patricia Toliver, long-time housing advocate and recently appointed Galveston Housing Authority commissioner.

“They take housing and apartments off the market,” she said.

“What’s going to happen to your people who are born and raised here and supported Galveston for 40 years? It shouldn’t be like that.”

Prosperio said he doubts vacation rentals are the root of Galveston’s affordability crisis.

“Airbnb is making it a little bit worse, but I think Airbnb is not the primary driver of housing affordability,” Prosperio said. “The primary driver is regulations, single-family zoning.

“If you cannot create density, there is going to be less supply,” he said. “If you cannot build up vertically, there’s going to be less supply, which means higher prices.”

Whether short-term rentals ultimately are good or bad for communities is a good question but hard to answer, Prosperio said.

“I don’t know,” Prosperio said. “I’m not sure. There are some news articles about it, but in terms of research, I don’t think there is much yet.”

Short-term rentals still are a relatively new worldwide phenomenon and the data to make that kind of conclusion just doesn’t exist yet, he said.

“It’s not a simple yes or no answer,” Prosperio said. “It’s complicated.”

The housing crisis didn’t arise just with the increased popularity of short-term rentals, Claire Reiswerg said. When the island native returned home after living out of the city, housing already was a problem, she said.

“When I came back to Galveston in 2004, there were business leaders talking about how there was no workforce housing,” Claire Reiswerg said. “This is something that has been going on in Galveston for almost 20 years.”

Kopfer wonders whether the island is just transitioning. Maybe people who are starting their families just won’t be able to afford living here, he said.

“I think it’s pretty much the way it’s going to be,” Kopfer said. “Galveston will always be expensive — until the next hurricane hits.”

Keri Heath: 409-683-5241; keri.heath@galvnews.com or on Twitter @HeathKeri.

Locations

Recommended for you

(7) comments

Raymond Lewis

Good article Ms. Heath.

Paula Flinn

Thank you for the article. No mention about school enrollment declining in a small city, such as Galveston, that has thousands of STR’s. Middle income housing needs to be available for people to buy (or rent) live on this island and raise their families here. Many teachers & staff live off the island, but work here. They cannot find affordable housing here.

The STR owners fix up houses and make the neighborhoods look nice, but there are downsides you hardly mentioned.

One of the effects of having STR’s in neighborhoods is that it hardly seems like a neighborhood to the residents here, with strangers moving in and out every weekend or every week or so. The house across the street just sold to an “investor.”

Jim Casey

[thumbup]

Donna Spencer

Short term rentals in previously quiet East Galveston neighborhoods are creating an increasing amount of problems. We moved to a neighborhood with neighbors, but now we have an increasing number of homes with vacationers. There are enough rentals in neighborhoods at this point. The city must limit the growth if they want to protect their residents quality of life. The Silk Stocking Historic District CAN NOT legally petition the city to further restrict such rentals. The minority of second home and vacation home owners have more power than the majority here that own their own homes. That's ridiculous. The Council and Mayor need to get involved in this and stop the growth in the East Galveston residential areas.

Bill Keese

👍 Donna, we agree with you completely. Open your eyes, Council. Look what’s going on in other tourist cities like Savannah or Charleston.

Jim Casey

Good article.

As a long-time resident of Galveston, I am concerned about the lack of affordable housing for the people who work here. That includes low-cost rentals and houses that young families can buy.

I'm also concerned that the thousands of people who have well-paying jobs on the island choose to live elsewhere, but I can't change their minds.

On the other hand, I am glad that investors are fixing up houses that have been abandoned or neglected. I don't believe it's appropriate for the city council to set limits on STRs or otherwise try to micromanage what investors do with their capital.

It's obvious that a few STRs are problematic because they are being rented as party houses—despite the owners protesting that they don't do that. Someone in authority needs to make that practice unrewarding for the owners who do it.

George Laiacona

Give it time and it will look just like parts of FtLauderdale. That is, the east end homes are in the part of the island that was originally laid out as a city, not a country setting like the west end. Each house has only two parking spaces on the street. Granted some have driveways or garages, but most short term renters have more than two vehicles. This means that the two spaces are filled with the first two guest s, the rest of the party is taking up parking spaces that belong to the neighbors homes. If a parking ordinance was implemented to address the problem then short term rentals would be limited to the west end where parking is not a problem. In parts of FtLauderdale where two parking spaces were in front of the homes, the landscaping was altered so that as many as five vehicles could be parked perpendicular to the house. I think we can expect to see this same situation form in front of the east end homes.

Welcome to the discussion.

Real Names required. No pseudonyms or partial names allowed. Stand behind what you post.
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.

Thank you for reading!

Please log in, or sign up for a new account and purchase a subscription to read or post comments.