The U.S. remains the world leader in vacation rental expenditures (and thus income), with 85% of total revenues generated via online sales.
The popularity of short-term rentals, however, does not extend to many local governments - Cities worldwide are enacting strict regulations that are reducing the supply of rentals in local markets at a time when demand is on the rise. Vacationers are frequently blamed for exacerbating housing shortages, inflating rents, and threatening hotel and motel jobs.
Barcelona, Spain, for example, decided its ban on rental of private rooms within homes was inadequate and last June stopped issuing new licenses and renewals for short-term rentals. By 2029, the supply of rentals for tourists will drop from the current 10,000 to zero, forcing all visitors to the city to stay in hotels.
In cities from New York to Tokyo, hosts must live in apartments they rent, while other cities limit the number of properties a single host can list. Dallas banned short-term rentals in selected neighborhoods, while several European capitals have limited the number of nights a year an apartment can be rented to vacationers.
Short-term renters typically pay more per night than those with year-long leases, and this has led some real estate firms and wealthy investors to buy up multiple properties to cater to vacationers. This sparks claims that short-term rentals squeeze out affordable housing, even though these entrepreneurs are competing mostly against giant hotel chains for customers.
The more likely reason, however, for the disappearance of “affordable housing” is heavily regulated land-use zoning that discourages new construction or even renovation of existing homes. In many cities, builders have to gain approval from multiple entities to obtain permits, a process that on average is taking 111 days – but 252 days in highly regulated cities.
Researchers at Harvard and Penn found, in a working paper distributed by the National Bureau for Economic Research, that, “There is no place (on average) where residential development is simple and quick…. The local residential regulatory environment now is a complex one, even among the communities that are not relatively highly regulated.”
As regulations are increasingly interfering with the supply of housing, in particular for vacationers, entrepreneurs catering to the increased demand for short-term rentals are turning to innovative solutions.
In the Lake Tahoe area, which spans two counties in California and two in Nevada, increasing restrictions on short-term rentals of single-family homes has led one local entrepreneur to turn to the commercial building market to meet increasing demand.
Local governments in the tourist mecca, where home values have over doubled in the last decade, have enacted occupancy limits and rental caps in their purported fight to preserve affordable housing for year-round residents. Washoe and Douglas Counties on the Nevada side both recently tightened up regulations on short-term rentals in an effort to “balance neighborhood impacts.”
In California, the Town of Truckee and Placer County recently implemented short-term rental ordinances that cap short-term vacation rentals at 3,900 in Placer County and just 1,255 in Truckee. Truckee has also imposed deed restrictions on residential housing.
These restrictions, however, do not affect commercial lodging.
While these restrictions have limited the supply of short-term rentals, they have not slowed the growing demand. With commercial properties the only real avenue for meeting that demand, local investor Ken Burrows, whose company 'Real Estate for America' has been in the vacation rental business for the past decade, is in the process of turning commercial properties into multi-room family vacation destinations.
Existing hotels and motels, for example, may already have pool tables, hot tubs, and other common amenities, and can be renovated to meet the needs of vacationing families and groups seeking a shared experience. So can other commercial buildings. Campgrounds can be turned into hobbit or Ewok villages that provide specialized experiences for travelers.
Burrows is currently finalizing the details for KINLUX, a new venture that will specialize in innovative properties that cater to travelers. Properties will be bought with cash, at least in part supplied by cryptocurrencies. Investors can share in the development and profits and avoid mortgage interest rates that can be as high as 12% for commercial properties.
The cryptoverse, Burrows believes, is moving toward currencies backed by real-world assets – like the short-term rental properties KINLUX is developing. Registering these properties as hotels opens up marketing beyond Airbnb to Hotels.com to increase visibility to vacation planners and travelers.
Accessing the commercial marketplace to create family and group friendly vacation spots need not be restricted to the Lake Tahoe area, Burrows says. This innovative approach has the potential to transform a major portion of the hospitality business toward more personalized experiences for the traveling public.
