Short-term-rental supply and demand have both lagged somewhat in the face of higher interest rates and a slowdown in bookings since the Covid-19 pandemic, but the industry could be poised for a rebound.
Growth in supply is slowing compared to a year ago, according to data from AirDNA LLC. The short-term-rental analytics platform reports there were about 1.56 million listings nationally in 2023, up 14.7% from 2022. This year is estimated to have about 1.65 million listings, a more modest 5.8% annual gain in supply.
Demand, meanwhile, is markedly improved from a year ago. It grew 11.4% in May versus May 2023. That compares to a year-over-year decline of 1.8% in May 2023. Year-to-date, demand is about 6.8% higher than last year, according to AirDNA.
Bram Gallagher, director of economics and forecasting at AirDNA, said fewer new listings combined with consumers feeling more certain about the economy will help prop up the short-term-rental sector the rest of this year and into 2025.
“I think 2024 is a turning point for the short-term-rental industry,” he said, adding 2023 saw occupancy drop below pre-pandemic levels and revenue per available room decline by more than 8%. “It was … not a great year for performance, and there was hesitation on the consumer side.”
It was about a year ago a tweet proclaiming an Airbnb collapse went viral, owing to significant RevPAR declines in short-term rentals.
This year, inflation feels more or less under control, Gallagher said, and economists widely expect the Federal Reserve will begin cutting rates this fall.
The short-term-rental market boomed during the pandemic, when office employees became full-time remote workers overnight and travel restrictions limited where people could vacation or spend their money. Short-term-rental demand grew most substantially in 2021 — increasing 18.5% from the prior year — and that same year, occupancy hit 62.2%, compared to 56.5% in 2019. Key financial metrics for the short-term-rental industry — average daily rate and RevPAR — also saw a big bump in 2021, growing 10.8% and 21.3%, respectively, over 2020.
Low mortgage rates during the early years of the pandemic propelled more homebuying, and that included purchases of second homes occasionally rented out on Airbnb or other rental-home platforms.
Since then, demand has waned, but many owners have held onto their rental homes, Gallagher said.
“We’ve got the golden handcuffs idea,” he said. “Maybe you do want to sell it. However, until those mortgage rates go down, you don’t think you’re going to get a great price for it.”
That means a lot of owners have kept their homes on the rental market until they can potentially sell them.
STR listings decline in cities, increase in rural areas
Some U.S. municipalities have begun to crack down on short-term rentals, fueled in large part by concern about how the sector’s growth is impacting local housing affordability.
New York is among the major cities that’ve started more seriously regulating short-term rentals because, the city has argued, the recent boom in short-term rentals has pushed up rents and exacerbated the city’s housing shortage.
Gallagher said in big cities across the country, including New York, supply has decreased dramatically compared to recent years. Listings in large urban cities collectively are expected to increase only 0.3% this year, Gallagher said, and supply is actually expected to decline in many markets.
“The number of listings in large cities or urban areas will probably continue to shrink,” he said.
Conversely, the places seeing the greatest listing growth are small cities and rural areas. Supply in those areas is expected to grow 17.7% this year, on top of 25.6% growth in 2023 and 29.3% growth in 2022.
Destinations like national parks and beaches have proven popular with consumers since the pandemic, a trend that has remained sticky even as pandemic-era restrictions around social distancing and capacity were lifted, Gallagher said.
“Because travel is such a repeat industry, if [consumers] have a good experience, they might try it again and again,” he said, adding a lot of small cities and rural areas have limited hotel inventory, making short-term rentals a popular option among travelers to those locations.
Source: “Short-term rentals reach ‘a turning point’ after 2023 slump”
