Short-Term Vacation Rentals After COVID-19: What Will Change?
I’ve been asked by several customers and colleagues what short and long-term effects COVID-19 will have on the short-term vacation rental (STR) market. While no one can see into the future, we know that history often repeats itself. By looking at what we do know about this crisis and what happened in previous recessions, here is my educated guess as to what will happen to the short-term rental market after the current crisis and how local government can best prepare.
Where Are We Now? STRs During COVID-19
COVID-19 has resulted in widespread travel and nonessential business restrictions. As a result, the number of new short-term rental bookings made in March and April were down about 50% from previous months. About 85% of existing bookings for this same period were cancelled. However, the number of short-term rental units available for rent in the United States and Canada hasn’t really changed since immediately before the crisis. Said simply, short-term rental hosts may be suffering now and selectively blocking off their calendars to comply with local stay-at-home orders, but they aren’t throwing in their towels and removing their listings.
Only a 3% Percent Decline in U.S. Listings
There are several reasons why the number of short-term rental listings has remained stable. Most important, approximately half of the short-term rentals are not full-time rentals — and were never intended to be. For these hosts, short-term rental income is mainly supplemental. There’s no reason for them to remove their listings.
For professional short-term rental operators, the story is more complicated. The primary reason why these full-time hosts are leaving their listings up, despite the large number of spring cancellations, is that they still have bookings for the summer and fall. It’s neither practical nor feasible for them to pivot and quickly move their properties into the long-term rental market. Additionally, converting short-term rentals into traditional annual leases isn’t practical or cost-effective since it can require the owner to remove furniture to make room for a potential tenant’s personal belongings.
Lastly, in many vacation rental destinations, service industry workers (who make up a large percentage of possible long-term tenants) have lost their jobs. Meaning, there isn’t enough immediate long-term rental demand to absorb the sudden glut of available short-term rentals. That said, there are widespread reports of short-term rental hosts seeking long-term renters in hopes to make up for lost revenue caused by the temporary loss of demand for short-term stays.
So what does this all mean for the future of the short-term rental industry? To understand how COVID-19 might impact STRs in the future, let’s first look to the past.
The Resilient History of the STR Industry
While many consider hotels and traditional bed and breakfasts to be the closest analogies to short-term rentals, the modern short-term rental concept evolved from boarding houses. During the 19th and early 20th centuries, boarding houses (family-owned homes where lodgers could rent one or more rooms for one of more nights) were a common, budget-minded alternative to traditional inns and hotels. This type of living arrangement was so common that Indiana University History Professor Wendy Gamber estimates that “between one third and one half of nineteenth-century urban residents either took in boarders or were boarders themselves.”
Between the early 20th century and the Great Depression of the 1930s, boarding houses served budget-conscious travelers and provided a transitory step between family life and independence. As the economy strengthened during the 1940s and 1950s, boarding houses became less popular. Homeowners didn’t need to supplement their mortgages by leasing rooms. Travelers and young professionals could afford cheap motels or their own apartments and houses.
During the Great Recession in 2008, the pendulum swung back in favor of shared living arrangements and creative ways to make ends meet. Airbnb officially began in 2008 after two roommates put an air mattress in their living room and turned their small apartment in San Francisco into a low cost (air)bed and breakfast. During a time when people sought cheaper lodging, Airbnb grew rapidly. As the economy strengthened during the 2010s, Airbnb was able to expand its offerings into traditional vacation rentals. The company and its competitors were so successful that they inspired hundreds of thousands of “super hosts” to buy up millions of residential properties, creating the billion-dollar short-term rental industry we know today. So now that we know how the short-term rental industry fared in prior periods of economic turmoil, let’s turn our focus to the future.
What Happens Next? STRs After COVID-19
An old Danish proverb says, “Prediction is hazardous, especially about the future.” Despite my Danish heritage, I will try anyway.
There is no doubt that COVID-19 has strained the economy and dealt a huge blow to short-term rental hosts across the country and the world. However, as the numbers show, we haven’t seen a significant decline in short-term rental listings. To me, this indicates that the market is much more resilient than popular opinion would suggest.
For professional hosts, a large part of the resilience is a direct cause of unprecedented levels of government stimulus, which among other things, allow for U.S. short-term rental hosts to take advantage of many relief measures, including small business grants, forgivable small business loans, and unemployment assistance.
For casual hosts, the apparent commitment to continue participating in the sharing economy is driven by pure necessity. Specifically, as casual short-term rental hosts lose their jobs or face salary cuts, they may increasingly turn to supplementing or substituting their income by renting out extra space wherever it may be found.
I predict that once we can all travel again there will be an increase in STR units on the market as more and more people seek to supplement or replace their income in any way they can. I also anticipate that we will see greater demand for short-term rentals as more budget-conscious travelers seek affordable lodging options.
In short, the economic fallout from the COVID-19 crisis will likely increase the total number of short-term rentals, which is already high, in the medium to long-term.
Community Impact of STRs in a Post COVID-19 World
Most economists believe it will take a while before employment and certain sectors, such as retail and restaurants, fully recover from the current crisis. As a result, there will be higher demand for affordable long-term rental housing. Given this, I anticipate that the conflict between short-term rental hosts and affordable housing advocates will reach new heights. Concerns that short-term rentals contribute to the loss of long-term rentals for cash-strapped locals have been expressed for years now. These concerns will only heighten when those professional short-term rental hosts, who succeeded in temporarily converting their short-term rentals into long-term rentals during the crisis, put their properties back on the market to generate higher profits for themselves. Those concerned with reductions in long-term housing from short-term rentals will be able to legitimately articulate the issue and question the fairness of professional hosts who benefitted from government bailouts while many people lost jobs and homes.
The impacts of short-term rentals on neighborhood character and quality of life are also likely to exacerbate in a post COVID-19 world. Travelers are likely to minimize their individual vacation expenses by cramming more people into each short-term rental. While this may not be a problem in and of itself, when large groups of people rent small residential homes there is a higher risk of party houses, parking issues, noise complaints, and overflowing garbage cans.
Lastly, local governments will likely be more financially challenged coming out of the crisis than they were before. If history is any guide, local governments will therefore be forced to maximize tax revenues and ensure all short-term rental operators pay their fair share, obtain business licenses, and generally operate in ways that benefit the broader community. These pressures will be especially acute in communities with high housing costs, sizable service industry workforces, and economies dependent on tourism.
The Path Forward: Smart STR Regulations & Enforcement
If this pandemic has taught us anything, it’s to prepare for the unexpected — whether that is a global health crisis or what comes after. Having smart regulations and the right technology can help you care for your community and ensure that short-term rental controversies don’t surface (or resurface) and derail other important initiatives that are critical to your community’s recovery.
Short-term rentals can be an unexpected source of revenue. If you are not collecting taxes owed from STRs now, this may be the perfect time to get a modern tech-enabled short-term rental compliance program in place. That way, new and existing hosts can apply for a permit and pay taxes online —an added perk during social-distancing.
While the world feels different right now, we can look at home-sharing trends throughout the last century to see what is likely to happen post crisis. While few may be renting during the pandemic, the negative effects on the economy lead me to believe the number of STRs will grow as many seek supplemental income or require cheaper lodging. As COVID-19 restrictions are lifted during the upcoming summer months, cities and counties should expect to face a barrage of challenges related to short-term rentals if they don’t adopt and enforce thoughtful regulations that ensure that their short-term rentals work for everyone in their community.
Want to Make Sure You’re Prepared?
As always we are here to help whether you need to keep your residents safe from community spread of coronavirus, want to protect housing affordability and community character, or need to recover revenue to continue to fund the great programs and services your residents are accustomed to. Get a Complimentary Assessment >>