Tamara Wilhite is a technical writer, industrial engineer, mother of two, and published sci-fi and horror author.
AirDNA and the Vacation Rental Management Association track trends in the short term rental industry. Their surveys show that 29% of short term rentals or STRs are the owner’s primary residence. Roughly 90% of short term rental owners own five or fewer rentals. Of these many are second homes and vacation properties that the owners regularly use but periodically rent out. However, the number of short-term rentals has been growing rapidly for several years. Before the coronavirus related restrictions, the growth of the short-term rental industry was expected to “slow down” to 19%. This has led to groups organizing against short-term rentals or STRs as well as a number of lawsuits.
What is the state of the short-term rental industry? And what are the arguments for and against STRs?
The Current State of the Short-Term Rental Industry
The government-mandated shutdowns in response to the coronavirus have decimated the travel industry. CNBC reported in May, 2020 that air travel had been cut in half. It had an even greater impact on the fragmented STR industry. Statista reported that by the fourteenth week of the pandemic, AirBnB rentals were 5% of 2019 booking rates. Yes, they were down roughly 95%.
Short-term rental owners were coping in a variety of ways. For those who had rented out the property their property through master-lease companies, there wasn’t much to do. They were paid according to their lease whether or not the master-lease firm found renters. For people who rented out spare bedrooms, it meant a reduction in their cash-flow. For mid-sized rental companies, a majority reported in industry surveys that they had laid-off staff, lost money, or suffered in other ways.
Some chose to offer properties to medical personnel or started offering longer leases such as one to three month leases rather than weekend rentals. Those who hope to ban short-term rentals think a ban will result in all STRs hitting the market. One article hoped that this would result in a resolution to the housing affordability crisis, though that is unlikely. As of this writing, only 1% of those surveyed had converted short-term rental properties into long-term rentals. Possibly more units were sold by current owners to larger property management firms.
According to the CNBC article “Short-term rental market faces consolidation as start-ups and small landlords offload properties”, many STR owners are simply selling to investors who plan to continue doing the same once the market picks back up. This is leading to greater concentration in the industry, not a return of STR units to the broader rental market. This means the ugly debate over STRs is far from over.
Let’s look at some of the arguments for and against short-term rentals. We’ll also put some of these concerns in context while reviewing some of the hard data regarding the rental real estate market.
The Arguments for Short Term Rentals - Key Takeaways
There are several key arguments in favor of allowing short term rentals.
- Basic property rights require you to let them do what they want with the property.
- It allows many property owners to pay their bills.
- It helps consumers by giving them more options.
It Can Help Property Owners Pay Their Bills
The ability to rent out property on a short-term basis allows people who don’t live in a property full-time to earn more money from it. This is so common that the IRS allows you to rent out a vacation home 14 days a year before you have to report it. In these cases, the rentals are typically to friends and family. However, most short-term rentals are to tourists and visitors, not family and friends of the owners.
Property Rights / I Get to Do What I Want with My Property
There are a number of arguments in favor of unlimited short term rentals. A big one is basic property rights.
The argument is that it is your home, so you should have an unrestricted right to rent out a back bedroom or rent out the property when you’re gone. Landlords say that renting out they should have equal rights to rent out the property to short-term tenants or long-term tenants. And the ability to rent out the property on a short-term basis until they find long-term tenants allows them to pay their bills rather than going into default. It is debatable whether a stream of weekend visitors is better or worse than leaving the property vacant.
What is up for debate is where your rights end and another's begins with regard to home ownership and how the property is used. HOAs and condo associations can limit what you do with the property, but you also get a vote in those organizations. The rest of the time, you’re only limited by local regulations. Then what? How much of a right do others have in telling you how you can use your home? And where are the limits of these demands?
While we can argue over how much control you have over what is done with your property, the uniform acceptance of zoning laws means there are already such limits in place in the name of the public good. And if we limit hotels to a given area for a variety of reasons, then one could arguably limit STRs for the same reasons though renting out the property to a long-term resident wouldn’t be prohibited.
Consumer Rights / It Gives Consumers More Options
Short term rentals give consumers have more options than the few hotels and motels in the area. It is easier to find private homes that are handicap accessible or are child-friendly than a budget hotel with the same designations. And you could stay in a private home by the lake rather than the only motel by the water.
The increase in supply for travelers led to a moderate lowering of accommodation costs for travelers. However, the cost of accommodations is secondary to the price one pays to simply travel.
The Arguments against Short Term Rentals
The arguments against short term rentals fall into several categories.
- It raises rental rates for long-term residents.
- They aren’t paying their taxes.
- Visitors aren’t screened.
- It impacts quality of life for those in the area.
Let’s address each of these concerns in detail.
Short Term Rentals Aren’t Paying Their Fair Share in Taxes
One argument against short-term rentals is that they are not paying their fair share of taxes. This was partially alleviated with tax agreements by AirBnB in 2018. On the other hand, it may be undermined by short-term rental owners going to sites like Craigslist and Facebook Marketplace to fill empty units after AirBnB said they’d give preference to small players instead of companies and investors who own and rent out 20 properties. This is because AirBnB was the first major rental platform that collects lodging taxes on behalf of “hosts”, soon followed by HomeAway.
People moving to other booking sites may end up getting out of paying sales and hotel taxes. The only exception would be properties that are registered with local authorities, since these are more easily monitored. De facto AirBnB policing occurs, but it has a hard time keeping up the sheer number of STRs.
It Increases Rental Rates
There are studies suggesting that short-term rentals raise rents in an area by removing properties from the general rental market. A 2020 Forbes article stated, “A Harvard Business Review study found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and 0.026% increase in house prices.”
This is negligible unless you’re in an area where investors are buying up housing stock to rent out to tourists. Then the results are similar to gentrification, raising property prices and rents. In some tourism-heavy Spanish neighborhoods, it resulted in rental rates increasing as much as 50%. For a worst case scenario, see Venetians unable to find homes in Venice because of all the tourists and elites owning homes they rarely visit.
What about AirBnB’s impact on a given real estate market? STRs through sites like AirBnb will raise rental rates in touristy areas. Unfortunately, the degree to which this happens is hard to determine because it often correlates with gentrification. Note that gentrification also raises rental rates, and you can find arguments for and against gentrification, too. But does banning short-term rentals lower rental rates?
According to the article “Airbnbs are reverting to long-term housing, but that doesn’t mean rents will fall”, the modest declines in rental rates that come with a fall in the number of STRs could be limited to the upper end of the market. This is because the properties most likely to be turned into short-term rentals are among the best in a given rental market. If this is true, then banning STRs wouldn’t solve the affordable housing crisis. Then the only real solution is address the supply relative to demand – either by building more housing or discouraging people from moving to an area.
Short Term Rentals Have Unscreened Occupants
Short-term rentals really don’t screen occupants coming to the property, but neither do hotels. One point in favor of hotels is that they are concentrated in commercial and “tourism” districts where police tend to focus their efforts because of the heavy concentration of people. This may or may not result in heavily booked STRs increasing crime in a given area.
The concerns about STRs being used for prostitution and sex trafficking is a valid one, but these things are occurring in hotels and prostitution rings run under the cover of legitimate businesses. (Massage parlors are a common cover for sex work.) It is just harder to police when it happens in a private home than in a hotel. That said, hotel staffers are probably more aware of the flow of under-aged girls or professional call girls through the building than an STR owner who only visits if called.
One argument against short-term rentals is the disease risk posed by a steady stream of visitors. Yet there is little to no information linking STRs to public health concerns any more than general tourism and immigration do. Conversely, we know that travel of all kinds can be a public health risk - see the debate on whether you'll need a COVID vaccination each and every time you travel abroad.
Short Term Rentals Hurt the Quality of Life of Those Living in the Area
Quality of life concerns are paramount among groups seeking to ban short-term rentals. For example, they’re concerned about bringing tourists into residential areas. This certainly increases traffic and may increase crime. Unfortunately, it is harder to find data on this relative to the abundant information on rental rates. Public perception is shaped by the mega-parties raided by police, though such cases are rare in STRs. Furthermore, massive parties occur in private homes, as well, and this can happen without the consent of the owners.
The idea that STRs automatically increase crimes rates is because rentals are associated with crime, though this in turn is because high rates of tenancy can often be found in neighborhoods with higher crime levels. Source: Rental Housing and Crime: The Role of Property Ownership and Management.
This belief is so prevalent that it led to public housing policies that prioritized single family home ownership. But it isn’t renting out a unit that correlates to an increased crime rate. It is a lack of accountability for the property. A lack of accountability is associated with absentee owners and slumlords. Conversely, it is seen when kids have a party in their parents’ house because the parents are out of town or homeowners who don’t care what others think.
It is possible that AirBnB’s renewed emphasis on home owners renting out a spare bedroom will resolve this problem over time, since it reduces the number of absentee owners renting out properties or even companies buying rental rights and leasing properties they’ve never seen. However, that remains to be seen.
Both sides in the STR debate have legitimate concerns, though generic stereotypes are used by both sides to argue for their preferred political outcome. Short-term rentals may drive up rental rates in touristy areas, but it often allows people to pay the expenses on vacation homes that are otherwise empty the rest of the year. Short-term rentals may attract criminals, but crime is associated with transient populations in general, not just STRs. It is debatable whether STRs move these crimes from the tourist district to the suburbs.
STRs may increase traffic and bother neighbors, but badly managed rentals face the same issues. Short term rentals have failed to pay their fair share of taxes, though that is being addressed by some STR platforms. That will probably decline as the STR market concentrates in the hands of a few large corporations, though that creates new problems. But when each side argues their position based on emotion-laden stereotypes while denying the nuance and complexity, you get the ugly debate that rages today.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Tamara Wilhite