October 9, 2024
Short-term rentals (STRs) have become so popular that they have been operated throughout the world in the hospitality industry. For those who don’t know, these are the furnished housing units that the owners put on rent for temporary (short-duration) stays for tourists or travelers.
These are quite popular among people who go on vacations or business trips. This is one of the most convenient modes of accommodation, which is why it has witnessed rapid growth and adoption by tourists and residents in many communities.
STRs have numerous benefits for neighborhoods, but their unregulated growth can disrupt the character and stability of residential neighborhoods. Unregulated STRs can make the neighborhood a chaotic tourist zone and disrupt the quality of life for long-term residents. That’s why many cities have licensing programs to manage the number of STRs within their boundaries. These licensing programs often set a cap on the total number of licenses issued, similar to the examples of Ouray's 120-license cap and Carpinteria's 218 VR licenses in their designated district.
Do you know that turning long-term rentals into short-term rentals has changed the concept of housing affordability? Property owners are now more focused on creating money through short-term rentals. According to a study, 50% of the participants said that the income they earn from short-term rentals is more lucrative than long-term rentals.
House leasing, which was previously considered affordable, has now become expensive for many as property owners are drawn towards income generation from short-term rentals. However, research suggests that regulations may have unintended consequences. Implementing STR licensing can decrease the available rentals, potentially impacting affordability. A study even found a 50% decline in Airbnb listings and a 2% decrease in house prices and rents after regulations were introduced. This highlights the need for an approach to STR regulation that balances the benefits for both residents and the tourism industry.
The short-term rental industry is experiencing a period of remarkable growth. According to a recent update (as of March 9, 2024) on the STR industry's global "bubble chart," a huge portion (77%) of markets worldwide have witnessed a year-over-year increase in Revenue per Available Room (RevPAR). This metric, which combines occupancy rates and average daily rates, paints a clear picture of the industry's financial health.
Looking ahead, the outlook for the STR industry remains positive. Occupancy rates are projected to reach 64.7% in 2024, surpassing pre-pandemic levels established by STR. This robust occupancy suggests a high demand for short-term rentals. Additionally, Average Daily Rates (ADR) are anticipated to grow by 5.1% this year, indicating a thriving market with the ability to command premium prices. These combined factors – rising occupancy and increasing daily rates – contribute to the overall health and growth trajectory of the short-term rental industry.
Studies like Airbnb suggest that STRs can generate huge economic benefits. Their research, based on internal data and surveys, estimates that hosts and guests on their platform contributed over $100 billion in direct economic impact across 30 countries in just one year (2018). This means an increased revenue for local residents who choose to list their properties as short-term rentals.
The influx of tourists drawn to STRs can provide a jump to local businesses because increased tourism often leads to higher spending in restaurants, shops, and entertainment venues, benefiting the overall economic health of the community.
The unchecked growth of STRs can lead to the displacement of long-term residents. This phenomenon has been observed in cities worldwide. The Barcelona study shows that the unregulated introduction of STRs in the city's historic center resulted in a 9% increase in rent prices compared to the city average, despite previously being lower. This price hike, coupled with reduced availability of long-term rentals, likely forced some residents out of their neighborhoods.
Similarly, the European Parliament report raises concerns about the potential displacement of residents in Paris and Prague as thousands of housing units transitioned to the short-term rental market.
That’s why well-designed regulations will strike a balance between the growth of the STR industry and protecting the interests of local residents.
In late 2018, Washington D.C. implemented a licensing program for short-term rentals. This program requires hosts to obtain permits and restricts the annual rental duration for their properties. While it took some time for enforcement to begin, such regulations provide a framework for managing the industry and potentially mitigating some negative impacts.
Following years of debate, San Diego finally enacted an ordinance in March 2023 that capped the number of short-term rental permits at roughly 5,400 citywide. This represents a significant reduction from the existing number of operating STRs, suggesting an effort to control their proliferation.
Atlanta passed a short-term rental regulation in 2021, but enforcement was delayed until March 2022. These regulations aim to establish some control over the industry's growth.
A new law in New York City requires short-term rental owners to list with the city and obtain a registration number. This initiative aims to crack down on illegal vacation rentals, potentially improving accountability within the industry.
Although Austin boasts an estimated 9,000-11,000 STR listings, only around 2,000 are licensed. This significant disparity highlights the challenge of regulating the industry and the prevalence of unlicensed operations.
Data suggests that over 45% of Los Angeles' STR listings are either unlicensed or licensed but operating illegally. This points to a need for stricter enforcement mechanisms to ensure compliance with regulations.
One positive aspect of some licensing programs is the requirement to notify neighbors when a new short-term rental license is issued. This notification process fosters transparency and allows residents to voice concerns or participate in discussions about the impact of STRs on their neighborhoods.
The short-term rental (STR) industry is experiencing a remarkable surge in economic impact. In 2023, the global market size surpassed a staggering $112.31 billion, and analysts predict this figure to nearly triple by 2033, reaching an estimated $315.18 billion. This impressive growth trajectory, fueled by a Compound Annual Growth Rate (CAGR) of 10.87% from 2024 to 2033, underscores the industry's significant contribution to the global economy.
STRs, often embedded within neighborhoods, provide guests with a chance to immerse themselves in the local context. This can translate into a deeper understanding and appreciation for the city's culture and way of life. Data supports this trend: 86% of Airbnb users report finding the location of their STR convenient, while a significant 77% specifically choose short-term rentals because they offer the opportunity to "live like a local.”
The short term rentals offer numerous benefits for the tourism sector and help residents generate income. However, the unregulated growth of STRs can disrupt neighborhoods, displace residents, and contribute to rising housing costs. That’s why proper regulations can help control the number of STRs, ensure accountability within the industry, and protect the interests of long-term residents.
