Does the Future Point to a Reckoning in the Short-Term Rental Market?
A short-term rental is defined as a rental that is rented for 30 days or less, such as vacation or business travel using platforms like Airbnb and VRBO. This market has been booming for quite some time now. Buyers have not only started renting their vacation properties to offset their expenses, but investors have built entire income models around renting using these platforms.
Over the past several years, owners have been making anywhere between $12,000-$20,000 per month renting to travelers, vacationers or people who want a change of scenery, raking in the cash. So, what has changed? Why are social media channels such as Twitter, Instagram, and even Reddit exploding with the hashtag, #AirbnbBust?
There are a couple reasons that this slowdown in the market is affecting short-term rentals more so than long term. For starters, we have officially reached the threshold of demand not keeping up with supply. AirDNA, a short-term rental analytics firm, shed some light on what’s causing the drought. As of October 2022, the number of future nights booked—a real-time indicator of the health of the short-term rental industry—was up 15.8% year-over-year. This stat indicates that people booking short-term rentals is up, which is true. However, while the absolute number of short-term rental bookings has risen, there has also been a sharp rise in supply of available short-term rental listings in the U.S., up 23.3% in October 2022 compared with October 2021. This tells us that we have officially filled the demand that U.S. consumers have requested.
Furthermore, short-term rentals have reached a price point that no longer make hotels look so bad. The cost of an overnight stay in a short-term rental on a per night basis = is now quite comparable to the price of hotel.. But there are added benefits to staying I a hotel, as the hotel offers cleaning service, room service, pools, continental breakfasts, and concierge services. Consequently, short-term rental owners are now having to provide not only have an affordable place to stay, but an actual experience for the consumer. In a world where inflation is altering most American’s lifestyle, if people are still able to travel they must do it the most economical way possible.
Lastly, I want to address the mindset behind people who typically get involved in buying and renting short-term properties. Often, these buyers will overextend themselves to own an incredible property to use for short-term rentals. They have been told to buy the best house in the best neighborhood because that is how you can ensure people will book your property. That all sounds great in theory, but it means that when the market changes, you are now stuck with an A class property that is affected by a market change more so than a B class or C class property.
If consumers stop booking these A class short-term rentals, then owners are going to lose way more financially than they would have if they had rented to a long-term resident for a lower price, hence generated steady, reliable income. Situations like this may present great opportunities to buy some A class properties to use as a primary residence, and that's the silver lining for potential home buyers.