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Why Stealth Dorms Threaten All Neighborhoods

Many in College Station do not feel threatened by Stealth Dorms, and the purpose of this email is to provide you with information to help explain why they should. Joe Guerra and Dennis Maloney have taken the position that Stealth Dorms do not belong in residential neighborhoods and this is yet another reason why it is essential we work to get them elected.

The high cash flow from the Stealth Dorms makes them an attractive business investment in any neighborhood, and not just those near the campus. In the past, homes were rented at rates that a family was willing to pay, which is to say at “residential market” rates. The new concept is to rent homes by-the-room, which has elevated the cash flow to the point that investors can pay very high prices for land, far beyond the residential value. Rent-by-the-room business model is the issue, and not students. This works for investors and the extraordinary cash flow makes them unstoppable in any neighborhood.

The effect of the high cash flow is that investors can pay $250,000 - $300,000 for a property, build a new 5-6 bedroom house with a front yard full of cement, and achieve a steady 20% rate of return(1). State law then requires the county to tax all properties in the neighborhood at that value.  When there were only 3-4 Stealth Dorms in College Park, every one of the 124 other property owners had experienced a 200-300% increase in land valuations and taxes ($2000 -$8000/yr depending on lot size). All lots are taxed at whatever an investor is willing to pay for the next lot that sells. Property values for the entire neighborhood rose to commercial rates, which is not surprising as these are commercial businesses. In fact, every resident in College Park is now paying higher taxes/acre than any business out on George Bush.

The attached plot below, which is a year old, shows the percentage increase in land tax in neighborhoods across College Station.  Land valuations are increasing everywhere, but the neighborhoods that have been targeted by rent-by-the-room investors have seen a stunning increase in taxes.

Some of the impact of Stealth Dorms is obvious, such as noise, congestion, traffic, reduced safety for children and increased code violations. These occur when there is a higher density of Stealth Dorms. But the taxes on every resident in the entire neighborhood increases when there is only one and an investor is willing to pay for the next lot that comes available. That happens immediately.   Those who want to continue to allow the spread of Stealth Dorms to new neighborhoods make an absurd claim of personal property rights.   What right does someone have to increase the annual taxes of their neighbors by thousands of dollars per year? The fundamental promise the city makes when we buy in a General Suburban zoning is to protect us from “incompatible uses”. What could be more incompatible than a use that increases our taxes by thousands of dollars per year and makes the neighborhood unsafe for our children?   

Joe Guerra and Dennis Maloney have committed to stopping the spread of Stealth Dorms.  We all need to work to make sure they get a chance to vote that way on City Council.

(1) Wording is corrected from an earlier version. Investors who got in before the boom paid $80-90k per lot rather than $250-300k, which enabled payout in as little as 7 years.  With current lot prices in the Ag Shack areas, the payout is longer but the annual return is still high enough to sustain the $250-300k land prices and corresponding taxes on residents.