Mammoth Real Estate Q&A — Supply Side Economics, Mammoth Rents Going Down??

The Mammoth Real Estate Q&A appears in the Easter Weekend issue of The Sheet.

Q: I own a small income property in Mammoth and I am concerned that if the Town of Mammoth Lakes builds hundreds of “workforce housing” units in Shady Rest that my current rents will be affected, and not for the better. How do you see it?

A: The year 2018 is a very good time to be a residential landlord in Mammoth Lakes or to be a seller of a residential investment property. Local rents typically bounce around to the supply and demand of the marketplace and demand is in excess of supply right now.

The vibrant tourist economy of the past couple of years has increased the demand for resort-type workers. Construction work isn’t booming like the early 2000s but there will be plenty of work this year. And the Airbnb craze has consumed a good deal of the low-end condo inventory that in the past has supplied affordable rents and ownership to local residents. And cheap ski passes always create additional demand in the bottom of the condo market. Here we go again.

But ultimately it is all about supply and demand and in the microcosm of Mammoth Lakes it is always changing.

The Community Housing Action Plan of 2017 concluded that we need to produce 200 to 300 dedicated workforce housing units over the next five years. With the Town’s acquisition of the  24-acre Shady Rest parcel there is a strong commitment to accomplish that and maybe much more. That could include ~50 zero-lot-line homes for middle income families and ~200+ apartments of various sizes. Besides the Shady Rest development, there should be other efforts and incentives to create or legitimize workforce housing units. Much of it depends on the future Town Council and the new leadership at Mammoth Lakes Housing.

Let’s look at some numbers to also get a good perspective on the market and the potential impact of such developments. The 2010 Census gave us some interesting numbers. There really hasn’t been much development since then and the town demographics have not substantially changed since then. The only real difference that I see is the volume of lower-end condos that have moved from vacation homes and long-term rentals to short-term rentals.

In 2010 there were a total of 9,626 housing units in Mammoth Lakes. That includes single family homes, condo, apartments, mobile/manufactured homes, etc.. And according to the Census there were 3,229 households in town. That includes families, roommate scenarios, single adult households, etc..That would mean that 6,397 of the housing units were not occupied by full-time owners or renters. That’s pretty typical in a mountain resort community like Mammoth.

Of the 3,229 households in town, 46.5% of the households own the real estate they occupy as home. And 53.5% of the households are renting their homes. And 42.1% of the local population own their own home, and 56% of the Mammoth population are renters. Again, really no surprise there.

Ultimately the number that is most relevant to the question is that there are 1,727 (long term) rental units in Mammoth (as of 2010). So if in the next five years there are ~300 new workforce housing units created, percentage-wise that is a substantial increase to the supply. There would be some natural absorption of that increased supply by people who want to live here but simply can’t find housing and aren’t currently living in town (or are living in their car). And there is likely to be some shuffling around as new, more attractive units would become available.

But what is that number likely to be? It might be impossible to say. The consultants seem to think it is pretty substantial, hence the “need.” The town’s population grew by around 1,100 people between 2000 and 2010, and that was a pretty booming decade. And there were dozens and dozens of new workforce housing units constructed during that time. The number of “new” people in town the next five years isn’t likely to be that huge. Unless Alterra has some surprises or the tech boom takes off.

The prudent and long-time local landlords know that the best strategy is to keep rents reasonable for local residents; they can only pay so much (this isn’t LA). These landlords like to minimize vacancies by keeping good tenants for years. Despite the demand, vacancies and other hiccups can easily erode even small rent increases. Mammoth remains a somewhat transient place. But the demand in 2018 is so high that these landlords know they can bump their rents. They do it with a wary eye. They also know that a couple of drought winters or another recession or an earthquake swarm can send rents the other way.

In the meantime I have no doubt that the recent group of investment property buyers believe they can successfully increase rents (they’re smart — rents are undervalued!). We’ve seen this before. Now we are rhyming with 2006. Many of those peak investment property buyers who financed their purchases ended up in foreclosure. Going negative on an investment is not fun. And what about the cash buyers? They will certainly learn the vagaries of the Mammoth multi-family market and the tenant pool. And they will also learn how much snow removal can cost in big winters, and what ice dams are all about, etc..

Historically, the development of major government sponsored housing projects in Mammoth most likely helped in keeping rents stabilized and somewhat suppressed. But it really isn’t about low rents, it is about having available housing for people who will fill jobs needed in the resort. That is the point that we are at right now. There is a clear labor shortage, especially at peak tourism periods. Most non-residents and newcomers probably don’t even know how much of this government sponsored housing exists in Mammoth.

The Bristlecone Apartments behind the Mammoth Tavern was first approved in the 1990’s. Aspen Village is the large project that wraps around the Snowcreek Athletic Club and prominently fronts on Old Mammoth Road. Meridian Court and other assorted Sierra Valley Sites (aka The Ghetto) locations are some of the nicer looking projects in the neighborhood. And there are “deed restricted” units popped into different buildings and projects all over town. These separate deed restricted units often allow developers to gain bonuses for increased densities and/or building heights.

The one sideways project is San Joaquin Villas behind Lopez’s on Main St. It was part of Intrawest’s contribution to affordable housing (that what we use to call it). It was designed as much needed middle-income family housing. But as it came available for locals residents to be able to purchase these units (with assistance) in the late 2000s, the real estate market and economy crashed. The majority of the units eventually came to the open market. Some remain deed restricted by Mammoth Lakes Housing, others have been purchased by local residents, and many are owned by second homeowners. Because the units cannot be rented on a nightly basis, many of these units may eventually end up back as locals housing. That would be good.

So how the anticipated influx (supply) in workforce housing units will exactly affect the rental market is an unknown. There may be a simple reversion to the mean for market rents. Or maybe we are already there? Once again, the general economy will play a large part (like it did in the late 2000s).

And there could also be some unforeseen new demand. What if some major tech firm decided that they wanted a campus here? Or what if some professional hockey teams decided high-altitude training was the new key to success? The overall housing numbers are quite small and  adding a 100 new potential renters would impact the market significantly. Especially if these new renters have higher incomes than the average local resident.

But regardless of where rents go, the new workforce housing is needed to improve the quality of life here. And these units will be certified for local residents of certain income levels. Local employers need these employees. The fire department needs the recruiting base. And on and on. But existing landlords shouldn’t panic. Times are good for now and may stick around. Meanwhile, they should appreciate and respect their quality tenants.