Short-Term Rentals Trend Upward, But At What Cost to Neighborhoods

Accessory dwelling units (ADUs) have resurfaced as a popular trend among homeowners over the past several years. While the majority of ADUs are used to home ederly parents or adult children, some are used as rentals. The addition of ADU rentals in cities and towns across the country has brought about a new challenge to home buying and selling. While short-term rentals are a positive factor in the growth and success of an area they may not be as welcomed by home buyers.

Short-term rentals have risen in popularity over the past few years due to websites like VRBO, AirBNB, and HomeAway. These platforms make it easy for renters to find and book rentals across the country while at the same time providing an efficient way for owners to bring in a profit on their property with little hassle. Across the country agents are reporting more properties being listed on rental platforms; however, the regions with the highest percentage are South Central (61%), Mountain (58%), and South Atlantic (56%) regions. Along with more access to short term rentals, there is also more opportunity for individuals to use rentals due to the increase in remote work. Remote workers can complete their work anywhere they choose, just as long as they have access to a computer and the internet. While most areas of the nation are seeing a rise in remote work from home renters, several areas seem to be gaining traction with remote workers much faster than others. “Longer” short-term rentals (i.e. months, not days or weeks) are reported at the highest rates in the Pacific (28%), Mountain (27%), and South Atlantic (25%) regions. The national percentage of agents report seeing an increase in longer short-term rentals is 23%.

Not surprisingly, the areas of the country where the highest number of agents say ADUs are legal to rent in their market are also the areas with the highest growth in long and short term ADU renters. The Pacific region leads the way with 90% of agents saying renting ADUs is legal and is followed closely by the Mountain region at 81% and the South Central region at 72%. All three of these areas offer some form of tourist attraction whether that be the beach in the Pacific and South Central regions or the ski slopes in the Mountain region. While these areas may be the most open to ADU rentals, the Mountain region is taking on the largest number of short-term renters. In the region, 48% of agents say short-term renters are likely to inhabit ADUs in their markets. This is much higher than the national average of just 32%. The Pacific region may have a large amount of rentals, however their renters tend to be longer-term, staying in a property for months or sometimes years.

With such a high rate of short-term renters, the Mountain region is also the area where agents are more likely to report growing concern from buyers over the high number of short-term rentals. One-third of agents that represent the Mountain region report the growing concern from buyers. The South Central, South Atlantic, and Pacific regions run just behind the Mountain region with 21% of agents reporting the same buyer concern over short-term rental influx. These percentages are well above the national number, of which only 19% of agents reported buyers in their market expressed concern over high numbers of short-term rentals.

So will the influx of short-term rentals wreak havoc on neighborhoods? Possibly, depending on the area they are located. Buyer and homeowner concerns over week to week renters are completely justified when property value is taken into consideration. It is true that areas with a high number of short-term rentals can decrease property value of an owner-occupied property. Nationally, agents report that owner-occupied properties surrounded by high volumes of short-term rentals are worth up to 13.8% less. The reduction in property worth increases to 15.5% in the Northeast, followed by 14.1% in the Midwest. Areas with the largest increase in short-term rentals, the Pacific and the Mountain region, estimate closer to 13.6% and 9.1%. However, short-term rentals are a necessary addition to any city or town that wishes to thrive economically. Short-term rentals provide housing for guests who dine out at local restaurants, shop at local markets, and pay to attend local activities that in the end will add to the area's financial profitability.

Collectively, it appears that the manner in which short-term rentals are maintained and monitored are the most important factors in how home buyers and sellers are affected. Homeowners who have seen short-term rentals in their area scooped up by investors who are looking to rent out as much as possible during the summer beach season or winter ski season may become frustrated by the noise and congestion that vacationers bring. This is especially true for homeowners or buyers who live near a city center, a college campus, or a body of water such as a lake, river, or ocean as these are the three types of areas that the majority of agents say increase the value of an ADU in their market. In order to combat this many towns may require a minimum rental period to deter from high rental turnovers. Even with regulations in place, homeowners and potential buyers may still be turned-off by the rentals in their area. Should this continue, buyers and current homeowners may choose to move out of the busier sections of a city or town and relocate to smaller neighborhoods without rental properties nearby.

Short-term rentals are an overall boost to local economies, however too much of anything can spoil an area. Buyers should check with the town or city to see what regulations they have in place for rental properties before they commit to purchasing a property. Likewise, anyone selling their home should consider the amount of short-term rentals in their area and factor that into their asking price. Overall short-term rentals and ADUs will most likely remain popular and will require local government and community members to decide on how best to find a happy medium for everyone.

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