Some weeks the Nashville subreddit has a steady stream of visitors asking locals to share the city’s “hidden gems.”
The phrase is so overused that some redditors began using the typographical taunt “hIDdeN GEmS,” implying cluelessness and a lack of research. The online forum was so frequently asked the same tourist questions that moderators removed them and set up a new channel called “Visiting Nashville,” where tourists could ask Nashvillians to share favorite local places.
It was really flattering to be the “It City.” Nashville is so cool – come see how cool we are! After many “Nashville is cool” stories online, reddit users began disagreeing on whether to share local favorites.
How does it benefit locals to share our neighborhood places, the old apartment buildings, the guerrilla parking, the hiking trails, tiny shops, clubs and bars with quirky bartenders?
There’s actually a word for intense curiosity about the lives others live in their spaces. “Sonder” is the sensation of the lives and narratives of others swirling around you, parallel but different, entirely other, so close but so opaque.
That’s precisely the space that a boutique-y short term rental company called Sonder slots into. The company’s early property acquisitions in Nashville and other tourist destination cities were older, smaller and slightly funky, like the places Nashvillians lived for generations.
The flagship for that aesthetic is Sonder Euclid Court, located across 30th Ave. North from Bricktops. Funky with a capital F. There’s also Sonder The Stat, a cleverly named building in “Hospitalville,” the area around TriStar, Ascension and the old Baptist Hospital. Nearby is Sonder the Elliston. Downtown is Sonder LC SoBro.
Did Sonder just invent a magical new idea for hospitality? Or was pandemic-era property acquisition the move of the moment that also drove up real estate prices in desirable tourist destinations? And, maybe more important, do short-term rental benefits accrue to most Nashvillians?
Sonder, the startup
Though the company looks like a giant now, the Sonder concept is just 12 years old, and the actual company just 10 years old. CEO Francis Davidson was in business school when he started “Flatbook” in 2012 as a way for students to sublet their apartments. The business model then transitioned to “what if we had a space to stay in neighborhoods we wanted to live in all around the world? What if those spaces included a dining room, a living space, perhaps an extra bedroom?”
A guest staying at Sonder the Elliston, for instance, might pick up hot chicken or get takeout from Redlands or Ted’s Montana Grill. Then catch a show on Elliston Place, stroll Centennial Park, stop at Springwater or window-shop Cumberland Transit.
The experience is aimed directly at travelers who prefer larger, more “houselike” accommodations than hotel rooms in settled neighborhoods outside the “tourist” district’s noise and distractions.
Not so different from a carefully chosen Airbnb/HomeAway/VRBO. But the thin layer of secret sauce seems to be that a bigger company can buy up desirable properties then rent and maintain them with more consistent, polished and reliable experiences over renting from an amateur or individual.
Once the company started moving, the acceleration in growth was stunning. It was just 2018 when Davidson posted a “hello world” on Medium headlined “Sonder is building the future of hospitality with $135 million funding.” The piece received 513 applauds. By mid-pandemic, the company was valued at $2.2 billion on the strength of 9,000 spaces in 40 cities. And while it was positioned as an alternative to Airbnb, it actually became the largest host on Airbnb.
Nashville’s presence on Sonder isn’t inconsiderable: the site lists 17 Music City properties with booking availability. Only New Orleans (25) and London (18) have more listings. New York City has just 13.
Authenticity as commodity
Sonder’s formula of homelike lodgings in neighborhoods with local flavor has been cited in the media as the answer to the dearth of high-quality professional hosts (by Forbes), as the top alternative to vacation rentals (by Curbed) and as a threat to the hospitality industry (by Fast Company).
The company entered the short-term rental market when many other entities also began buying property. It was the move of the moment just before and especially during the pandemic.
Tennessee’s low tax rates have attracted a steady stream of refugees from higher-tax states for years. First came the Californians. More recently, tax changes that reduced the mortgage deduction drove a wave of transplants from tax-heavy New England, says Richard Courtney, Nashville real estate agent and Ledger columnist.
New arrivals to Nashville complain that housing is expensive, that nothing is affordable, which is a new problem here. The city has traditionally been affordable for both renting and buying real estate. That affordability has been part of Nashville’s secret sauce, allowing a robust mix of housing types across many different types of neighborhoods. A struggling musician or artist could still pay rent, while a more successful could buy.
All of the moving to Nashville – more than 13,000 people in 2020-2021, then almost 100 people a day in 2022 – caused prices to rise as supply tightened.
“Supply was maybe 8,000 units/month, and demand was 4,000 or 5,000 a month, so it’s less than a two-month supply,” Courtney explains. “The sweet spot in the balance between buyer advantage and seller advantage is a six-month supply.”
Sonder’s Euclid Court near West End
As a result of tight supply, home prices nationwide during the “pandemic thaw” rose by 31.22%, with cash offers jumping from about 25% of purchases to about 33%, a 2021 NBC News investigation revealed. (An all-cash offer often signals a corporate buyer.)
Rental prices were already on the rise in Davidson County, with rents increasing 135% and incomes went up just 77% between 1999 and 2022. Post-pandemic, about March 2021-March 2022, rental prices nationwide rose 17%.
An April 2022 New York Times story points to cash-heavy companies buying up housing stock as one cause of the surge in housing prices relative to incomes. The story notes that ballooning prices shut out first-time buyers “particularly in booming Sun Belt markets” and also reflect “the increasing influence of real estate investors buying up houses, especially at the lower end of the market, and turning them into rental properties.” An economist told the Times that around 2.5 million households shopping for a first home would be shut out of the market in 2022.
Non-owner-occupied housing is now so profitable that trusts are buying them sight unseen.
Resetting prices, worrying neighbors
For Metro’s fiscal year 2023 (July 2022-June 2023), short-term rentals in Davidson County brought in about $26.9 million in occupancy taxes, an increase of 17% over the previous fiscal year. The benefit to Metro, however, should be weighed against the price shock when a property leaves the owner market for the pricier rental market.
NBC News reported in 2021 on the increasing percentage of corporate ownership of real estate since 2008. First-time homebuyers interviewed for the story described being institutional investors, particularly in places where cash-heavy tech companies have recently expanded.
Also in 2021, the National Association of Realtors conference materials noted that “Industry analysts predict that Airbnb will increase their inventory by 25% in 2022. […] Converting more inventory to short-term rentals will likely have a net-negative impact on housing availability and affordability.”
For owners, a rental property is income and asset. Among Nashville’s more than 7,000 short-term rental permits, some are in pricy neighborhoods such as Green Hills, where there are rentals on Castleman Drive, Cherokee Road, Valley Brook, around David Lipscomb and near the city of Belle Meade border.
For Davidson County finances, the STR business has been profitable: almost $25 million in occupancy taxes were collected in 2023.
The Retreat in Wedgewood-Houston
Russ Bradford, Metro Nashville council representative for District 13, says his experience of STRs in the district is that they don’t really add value for locals.
“I don’t believe they provide much benefit to the local economy … All they really do is remove housing for those wishing to have long-term housing, which also leads to the inflation of housing costs,” he says. “There are appropriate places for STRs. The suburbs are not one of them”
Besides evidence that STRs reset home prices in an area or a whole city, a rental unit in a settled neighborhood can change the area’s character – the turnover, the parties, the trash, the increased car trips and multiple tenant cars taking up street parking or parked on lawns.
It’s no wonder more municipalities are regulating or banning short-term rentals. The Italian city of Florence banned them outright in 2023.
The Dallas city council voted 12-3 in June to ban STRs after a raucous house party in a residential area turned violent, leaving damaged cars and bullet holes in walls. (There is a temporary injunction on the ban at this writing.)
Tempe, Arizona, also cited a shooting in banning STRs in March 2023, and several other Arizona cities are implementing new regulations for the units.
Nantucket, Massachusetts, held two public votes to limit short-term rentals following a case that made its way up to the state’s Supreme Court. (The measures did not pass either public vote.)
Other regional beauty spots and weekend getaways considering short-term rental regulations include Lake Geneva, New York, and Lufkin, Texas, a town situated between two national forests.
One California town has taken STR compliance a step further: Hermosa Beach uses software to detect illegal short-term rentals. Hermosa Beach has just 14 legally permitted STRs; Granicus Host Compliance software found 247 properties within a few blocks of the beach offered online as rental properties in July 2023.
There’s a really terrible old joke about things that are good to do but not good to have done. It’s great to eat an entire half-gallon of ice cream, but not a great thing to have done.
As short-term rentals appear in established neighborhoods across the country, more towns seem to be discovering that while STR landlords love the income (and cities appreciate the tax revenue), nearby residents might have a very different opinion of the setup.