The Impact of Mandatory Regulations on Short-Term Rental Markets

Perhaps the hottest topic in the vacation rental market is the continued struggle between various local municipalities and booking platforms like Airbnb. As vacation rental sites grow and flourish, there are many concerns within communities that the increase in guests, hosts, and properties is going to have massive impacts on housing affordability and general town culture. To put a harness on these platforms’ booming success, cities, municipalities, and states are continually implementing mandatory regulations to combat these perceived effects.

While there are more unique regulations that will affect the number of occupants, require the presence of a host, or even necessitate on-premise parking, the most common form of short-term rental laws revolve around registration licensing. With these registrations, governments (either local or state) will have hosts register with them, pay a fee, then usually, have them apply for a business license as well. To keep track of their market, governments enforce these yearly. 

As with all laws, the assumption is that these regulations will have the desired effect. After implementation the belief is that the local vacation rental market will plateau; registration fees will either keep away new hosts or drive existing ones out, and by factoring in new taxes Average Daily Rates will rise and stunt the demand. 

However, when it comes to mandatory regulations on short-term rentals markets there seems to be an oversight when it comes to the follow-through. Governments implement the new rules and assume the job is done without looking into the impacts. So the question is, what are these regulations actually doing to the market? And more surprisingly, could these regulations actually be beneficial to hosts in certain situations?

AllTheRooms Analytics has used our data insights to analyze 3 big markets that have introduced various forms of registration requirements.

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Case 1: San Francisco

The first is San Francisco, the home of Airbnb has, for years, been entrenched in a battle with platforms to help their already massive housing affordability crisis. And because of this city-wide sensitivity to changes in the housing market, San Francisco has been one of the strictest when it comes to registration fees.

Case 2: Vancouver

The second is Vancouver. Vancouver has been one of the highest performing Canadian markets thanks to its waterfront downtown and proximity to Whistler. While they do have housing concerns in their own right, Vancouver’s regulations have not been as harsh, perhaps to continue to encourage this influx of tourism.

With this being said earlier in the year, Vancouver’s full gambit of vacation rental regulations went into effect. And while those in favor of reducing Airbnb’s impact celebrated taking down 2,500 properties, the data shows that Vancouver’s market is hitting all time highs, especially gross revenues, despite the new laws.

Case 3: Seattle

Finally, we looked at Seattle. Seattle has a number of licenses and registrations required for hosts, as well as restrictions on the number of properties a host can operate. Seattle’s regulations are new as they were implemented at the beginning of 2019. So what we are seeing in the graphs below may not be the full story, but it does show a slight downturn for their peak season in 2019. However, when taking into account their exponential growth from the year before, this minimal decrease in statistics seems like it will be reversed come next year. 

The Impact of Mandatory Short-Term Rental Registration

There are times, as seen in the graphs, where the supply of vacation rental units can outweigh the demand in cities. When this happens it makes the vacation rental market extremely guest friendly, meaning average daily rates (ADR) will be lower to encourage business. This of course then leads to smaller gross revenues.

When regulations, like mandatory registration, go into effect it is possible that registration fees will drive some hosts out of the market. We see this as potentially beneficial. Supply and demand will even out, ADRs will increase, occupancies will likely rapidly rise upwards, and overall gross revenues will increase. Also, as seen in Vancouver, likely in Seattle, and to a somewhat lesser extent San Francisco, healthy markets seem to recover quickly. 

San Francisco meanwhile is an interesting case. Their most noteworthy regulation came in effect in 2017. When this happened, Airbnb reported that implementation of new licensing rules saw their number of active properties go from 10,000 to about 5,000 properties overnight. If you look at our provided graphs though, while there was a significant dip, it is less dramatic (decrease of about 2,000 properties). So why the discrepancy? This is because our supply numbers do not account for inactive properties (ones that have had blocked calendars for an amount of time) and dormant properties (accounts with no activity for the last 365 days). Meanwhile, Airbnb is including those. This helps their cause, making regulations seem as impactful as possible, to increase resistance to any sort of regulation. But while the SF market is somewhat stagnant it also is not plummeting as some may expect based on the number of regulations that have come and gone there. 

So there is a compelling case to be made that regulations may not have as lasting of an impact as many believe them to. Sure there will be short term ripples, but in many places, a lower supply could help their market. Additionally, one could even say further regulations may actually be beneficial, especially some kind of tax. In our research, we have found even small towns, like South Lake Tahoe (big tourism market, however not big supply numbers), bring in 3-4 million dollars per year in vacation rental taxes alone. If it brings the city money and there is not a long term negative effect, there is definitely a pro-regulation devil’s advocate angle, for hosts, that has not been addressed.

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