As a real estate investor, it’s crucial to stay informed about the latest trends and shifts in the market, not just here in America, but also around the world. I was reading the news, and one article from Global News caught my eye. Now, how Airbnbs Driving Up Housing Costs?
Talking about the impact of short-term rentals on housing affordability. Granted, it highlighted the issue in Canada, but the implications could affect your investment strategy here in the United States.
According to the article, the return of summer travel is creating an uptick in demand for short-term rentals (like Airbnb). This surge of demand is putting pressure on housing affordability and there is a clear correlation between the presence of short-term rentals in a city and the affordability of rents and home prices.
Now, you might be wondering “That’s great, but what does this have to do with me as a real estate investor in the United States?”
Glad you asked. You see, the rise of short-term rentals and their impact on housing prices is not a phenomenon confined to only Canada.
Both countries have seen a rise in the number of short-term rentals in recent years, and that this has led to concerns about the impact on housing affordability.
Already in the States, places like New York City and Dallas are imposing stricter regulations and rules on people who own short-term rentals.
So, what does this mean for you as a passive real estate investor?
Airbnbs Driving Up Housing Costs: Regulatory Changes
The rise of short-term rentals is leading to regulatory changes.
In Quebec, new regulations require hosts to register their property and obtain a license. They also restrict short-term rentals to primary residences only.
And New York City just put off a law for the summer that would greatly restrict the amount of people that can host rentals in the city.
Other regulations might include: requirements for permits, restrictions on the number of days a property can be rented out, and rules about who can rent out properties.
This could cause additional risks and costs for investors.
For example, let’s say you purchase a property with the intention of using it as a short-term rental. You heard Airbnbs are a good way to supplement your income.
But then the city implements new regulations that make this unfeasible. And now you might be left with a property that you can only rent out 2 nights out of the week. Or maybe you can’t rent it out at all.
That’s not the case yet, but it’s something to keep in mind.
Airbnbs Driving Up Housing Costs: Increased Property Values
The rise of short-term rentals has contributed to an increase in property values in some areas. In Vancouver and Toronto, owners of long-term rentals evict their tenants, and then turn around and make double or triple their money by renting them out for shorter periods.
Owners of short-term rentals can make more money than owners of long-term rentals, and that this is a way for them to capitalize on the rising demand for short-term rentals.
Properties that can be used for short-term rentals can generate more income than traditional long-term rentals, making them more valuable.
They can be rented out at a higher daily rate and for most of the year in many locations. This can provide a significant boost to an investor’s rental income, particularly if they own multiple properties.
For the investor already in the game, this can be good. But for others looking to try their hand in that market, the entry price might be too high.
Additionally, the high rents these places offer are also driving up the prices of surrounding housing. As owners take long-term rentals off the market but demand doesn’t change, prices for
homes will increase.
Impact on Long-Term Rental Market
As I mentioned above, the rise of short-term rentals as more and more people turn to it can reduce the supply of properties for people who want to spend more than a few nights in an area.
This will drive up rents in the long-term rental market, which could benefit investors who own multifamily apartments.
The rise of places like Airbnb in Canada isn’t something you should ignore. It’s driving up costs and greatly reducing housing affordability, which could force tenants to find cheaper alternatives …
The problems around so many short-term rentals have already made their way into the States in places like Texas, where 74% of citizens say they would be very uncomfortable if there was an Airbnb on their block.
It’s something to keep your eye on. If you want to know more about how short term rentals could affect your investments, don’t hesitate to ask us at Nighthawk Equity.
Thanks for stopping by.