Short-term rentals are simultaneously a scourge on the housing inventory, and a way for homeowners to build on their investment and make some extra money to cover high housing costs. But, either way you look at short-term rentals, they are experiencing a sea change in 2021.

Nationally, from May 2020 to May 2021, the number of Airbnb listings decreased in 95% of the metros examined in a recent LendingTree study.

Here in California, from May 2020 to May 2021, the number of short-term rental listings declined by:

  • 40% in Oakland;
  • 25% in San Diego;
  • 21% in Los Angeles;
  • 21% in Santa Cruz; and
  • 17% in San Francisco.

However, of those short-term rentals still active, the average duration of stay increased significantly. For example, in Los Angeles during May 2020 the average length of stay was just 11 days, compared to 17 days a year later in May 2021.

The reason? As travel has changed during the ongoing pandemic, the typical short-term renter has shifted. Instead of a family on vacation, today’s short-term rental is more likely to be occupied by a family in between moves or a person on a longer trip requiring some amount of quarantining.

Further, some owners of short-term rentals have increased their minimum length-of-stay requirements in an effort to recoup costs lost during the lean months of 2020.

As the short-term rental market continues to shift, how will fewer short-term rentals influence the broader housing market?

The problem with short-term rentals

Unlike hotels, which are designed for the purpose of short-term guests, short-term rentals take homes that would otherwise be occupied by a long-term tenant or homeowner and effectively remove them from the housing inventory. In a state already experiencing a severe housing shortage, short-term rentals further deplete what little housing is already in place.

Neighborhoods with a high density of short-term rentals experience:

  • reduced supply;
  • higher rents; and
  • gentrification, or the forcing out of long-term, lower-income residents, according to the Urban Institute.

In an effort to combat the negative impacts of short-term rentals, most local governments in California have enacted strict regulations. For example, Los Angeles requires owners of short-term rentals to obtain a permit and include the registration number on all advertising. Most of these permits allow homeowners to offer their short-term rental for no more than 120 days a year, eliminating full-time Airbnbs. Further, LA residential neighborhoods under the strictest zoning regulations do not allow short-term rentals at all.

With short-term rental rules tightening across the state, the pandemic was the last straw for many homeowners. On top of reduced profits and more regulations to contend with, some short-term rental owners have taken advantage of historic home price increases over the past year, choosing simply to sell.

Related article:

California’s short-term rental bans, examined

Short-term rentals have had their moment

While the short-term rental game has been a creative way for some homebuyers to purchase second homes and invest in the housing market, the decline in short-term rental listings is a good thing for California real estate.

For every short-term rental listing eliminated in the past year, a greatly needed new unit has become available for a long-term tenant or owner-occupant.

True, some homeowners may regret missing out on the opportunity to make money with a short-term rental. But the fact is, homeowners seeking to invest and earn some money by renting out their home can do the same with a long-term tenant. Even as short-term rental regulations tighten, regulations for building accessory dwelling units (ADUs) are loosening. These small granny units or casitas are perfect for homeowners who want to make some extra money by renting out a portion of their property (to long-term tenants).

Real estate professionals can get involved by letting homebuyers know their limits on short-term rentals, and suggesting different opportunities when appropriate. Become familiar with your local short-term rental laws and trends, as well as other ways homeowners can invest in their property.