I’ve been asked by several customers and colleagues what short and long-term effects COVID-19 will have on the short-term vacation rental (STR) market. While no one can see into the future, we know that history often repeats itself. By looking at what we do know about this crisis and what happened in previous recessions, here is my educated guess as to what will happen to the short-term rental market after the current crisis and how local government can best prepare.
COVID-19 has resulted in widespread travel and nonessential business restrictions. As a result, the number of new short-term rental bookings made in March and April was down about 50% from previous months. About 85% of existing bookings for this same period were canceled. However, the number of short-term rental units available for rent in the United States and Canada hasn’t really changed since immediately before the crisis. Said simply, short-term rental hosts may be suffering now and selectively blocking off their calendars to comply with local stay-at-home orders, but they aren’t throwing in their towels and removing their listings.
There are several reasons why the number of short-term rental listings has remained stable. Most important, approximately half of the short-term rentals are not full-time rentals — and were never intended to be. For these hosts, short-term rental income is mainly supplemental. There’s no reason for them to remove their listings.
For professional short-term rental operators, the story is more complicated. The primary reason why these full-time hosts are leaving their listings up, despite a large number of spring cancellations, is that they still have bookings for the summer and fall. It’s neither practical nor feasible for them to pivot and quickly move their properties into the long-term rental market. Additionally, converting short-term rentals into traditional annual leases isn’t practical or cost-effective since it can require the owner to remove furniture to make room for a potential tenant’s personal belongings.
Lastly, in many vacation rental destinations, service industry workers (who make up a large percentage of possible long-term tenants) have lost their jobs. Meaning, there isn’t enough immediate long-term rental demand to absorb the sudden glut of available short-term rentals. That said, there are widespread reports of short-term rental hosts seeking long-term renters in hopes to make up for lost revenue caused by the temporary loss of demand for short-term stays.
STORY OF THE PHOENIX
While many consider hotels and traditional bed and breakfasts to be the closest analogies to short-term rentals, the modern short-term rental concept evolved from boarding houses. During the 19th and early 20th centuries, boarding houses (family-owned homes where lodgers could rent one or more rooms for one or more nights) were a common, budget-minded alternative to traditional inns and hotels. This type of living arrangement was so common that Indiana University History Professor Wendy Gamber estimates that “between one third and one-half of nineteenth-century urban residents either took in boarders or were boarders themselves.”.
Between the early 20th century and the Great Depression of the 1930s, boarding houses served budget-conscious travelers and provided a transitory step between family life and independence. As the economy strengthened during the 1940s and 1950s, boarding houses became less popular.
Homeowners didn’t need to supplement their mortgages by leasing rooms.Travelers and young professionals could afford cheap motels or their own apartments and houses.
During the Great Recession in 2008, the pendulum swung back in favor of shared living arrangements and creative ways to make ends meet. Airbnb officially began in 2008 after two roommates put an air mattress in their living room and turned their small apartment in San Francisco into a low cost (air)bed and breakfast. During a time when people sought cheaper lodging, Airbnb grew rapidly. As the economy strengthened during the 2010s, Airbnb was able to expand its offerings into traditional vacation rentals. The company and its competitors were so successful that they inspired hundreds of thousands of “super hosts” to buy up millions of residential properties, creating the billion-dollar short-term rental industry we know today. So now that we know how the short-term rental industry fared in prior periods of economic turmoil, let’s turn our focus to the future
An old Danish proverb says, “Prediction is hazardous, especially about the future.” Despite my Danish heritage, I will try anyway.
There is no doubt that COVID-19 has strained the economy and dealt a huge blow to short-term rental hosts across the country and the world. However, as the numbers show, we haven’t seen a significant decline in short-term rental listings. To me, this indicates that the market is much more resilient than popular opinion would suggest.
For professional hosts, a large part of the resilience is a direct cause of unprecedented levels of government stimulus, which among other things, allow for U.S. short-term rental hosts to take advantage of many relief measures, including small business grants, forgivable small business loans, and unemployment assistance.
For casual hosts, the apparent commitment to continue participating in the sharing economy is driven by pure necessity. Specifically, as casual short-term rental hosts lose their jobs or face salary cuts, they may increasingly turn to supplement or substituting their income by renting out extra space wherever it may be found.
I predict that once we can all travel again there will be an increase in STR units on the market as more and more people seek to supplement or replace their income in any way they can. I also anticipate that we will see greater demand for short-term rentals as more budget-conscious travelers seek affordable lodging options.
In short, the economic fallout from the COVID-19 crisis will likely increase the total number of short-term rentals, which is already high, in the medium to long-term.