The Future of Short-Term Rentals: An Inevitable Ban.

The idea of Airbnb, VRBO, or any short-term rental sounds great.

If done properly, it generates an extraordinary amount of cash flow. However, the future of short-term rentals is increasingly under scrutiny in the United States, with several cities implementing strict regulations or outright bans to curb their impact on housing markets and local communities.

An Argument for Banning Short-Term Rentals to Combat Housing Inflation

As housing affordability continues to be a critical issue in many urban areas, local governments are exploring various measures to increase the availability of long-term housing. One effective strategy is to regulate or ban short-term rentals, thereby returning these units to the long-term housing market. It’s already happening, and just because legislation has not been more aggressive, it doesn’t mean it won't continue. The writing is on the wall, and whether it comes true or not, you should still take a look at places that are already limiting short-term housing:

California

1. Santa Ana

Santa Ana City Ordinance prohibits the rental of properties for less than 30 days to preserve neighborhood character and address housing shortages. Violations include penalties and potential misdemeanor charges.

2. Los Angeles

Los Angeles Home-Sharing Ordinance restricts short-term rentals to primary residences and limits the number of nights a property can be rented out annually. Hosts must register and meet specific safety requirements.

3. San Francisco

San Francisco Administrative Code Chapter 41A requires that short-term rentals be the host’s primary residence, and hosts must register with the city. The ordinance includes limits on the number of rental nights and requires liability insurance.

4. Napa

Napa has stringent controls on short-term rentals, permitting only 41 non-hosted (whole-house) and 60 hosted accommodation permits. New applications are currently not being accepted due to a waitlist for permits.

5. Palm Springs

Palm Springs has enacted regulations that cap the number of short-term rental permits and impose strict noise and occupancy limits. The city also mandates that rental properties be registered and meet specific safety standards.

https://ktla.com/news/california/palm-springs-home-values-in-free-fall-after-city-cracks-down-on-airbnb/

I put an emphasis on this city, because go to Zillow right this minute. You will see how plenty of homes dropped 300k+ in a matter of months. This can occur quickly and leave those who are inexperienced with a hefty financial loss.

Texas

6. Plano

Plano City Regulations restrict new short-term rentals in most residential neighborhoods. This measure aims to mitigate noise, parking issues, and the overall disruption caused by these rentals.

7. Fredericksburg

Proposed Amendments to the Fredericksburg Short-Term Rental Ordinance include requiring new short-term rental owners in R-1 zoning to live on-site and provide adequate parking. This regulation is part of efforts to preserve community integrity and address housing shortages.

Hawaii

8. Maui

Hawaii State Bill SB2919 allows counties to regulate the number of short-term rentals and convert existing ones into long-term housing. This legislation responds to the housing crisis worsened by a high number of vacation rentals.

9. Honolulu

Honolulu Ordinance 19-18 limits the number of short-term rentals and enforces strict zoning regulations. Hosts must register their properties and comply with specific use and occupancy standards to operate legally.

Massachusetts

10. Boston

Boston Short-Term Rental Ordinance mandates that operators must register and obtain permits. The regulations limit short-term rentals to primary residences and impose fines for non-compliance.

Florida

11. Miami Beach

Miami Beach Ordinance imposes strict regulations on short-term rentals, including significant fines for illegal operations. The city has rigorous inspection and compliance processes to manage these rentals.

New York

12. New York City

Local Law 18, also known as the Short-Term Rental Registration Law, requires hosts to register with the Mayor’s Office of Special Enforcement. Rentals are only allowed if the host lives on the property and is present during the stay. The number of guests is limited to two, and the maximum rental duration is 30 days. Violations can result in fines ranging from $1,000 to $7,500.

There’s no way of knowing what will really happen. But here’s what we do know. Research indicates that the proliferation of short-term rentals contributes to higher housing costs and reduced availability of long-term rental properties. For example, a study found that the presence of Airbnb in a neighborhood can lead to higher rental rates and housing prices, especially in areas with a lower share of owner-occupancy. This shift in housing stock towards short-term rentals exacerbates the housing crisis by limiting the supply of affordable long-term housing.

Additionally, when cities like Irvine, California, enforced strict bans on short-term rentals, they observed a decrease in long-term rental prices and an increase in housing affordability. This reduction was significant, with average savings on rent for residents amounting to $1,212 per year.

By restricting short-term rentals, local governments can increase the supply of long-term rental units, thereby helping to stabilize or reduce rental prices. This approach not only addresses the immediate need for affordable housing but also supports the broader goal of creating sustainable and balanced housing markets.

As more regions adopt similar measures, the landscape for short-term rentals is likely to become increasingly challenging for platforms like Airbnb and VRBO. Short-term rentals won’t ever be fully blocked because there’s no real enforcement mechanism. But the most important thing to do is make sure you have a Plan B. Do not depend on the fairy tale of becoming a multi-unit landlord with easy tenants.

I didn’t even write about a potential change in the way investment properties get taxed; an extra tax could come and erase the cash flow.

The point is that investing in real estate can be a risk worth taking. But make sure you are overly prepared for changes in legislation. Do not be fooled by the idea of “easy money”.