Communities Nationwide Are Banning Vacation Rentals -- Should Investors Worry?

Communities Nationwide Are Banning Vacation Rentals — Should Investors Worry?

Having emerged from the dark days of the pandemic’s height, vacation rental hosts are now basking in the sunshine of dramatically renewed travel interest. People are making up for lost travel time, and the remote-work revolution is even making travel a lifestyle for an increasing number of globetrotters. If you’re a vacation rental property owner right now, it looks like nothing but blue skies ahead.

Unless your property happens to be located in one of several areas in the country that are cracking down on short-term rentals. If that’s the case, you could have a serious problem. Let’s look at a few areas where this is taking place right now and explore whether or not this is a growing trend that should concern investors. Image source: Getty images. Hosts vs. residents

Sometimes vacation rental parties get so out of hand they make the news because someone was shot or some other tragedy took place during the event. More common consequences of vacation rentals gone bad include neighbors kept awake by the festivities or waking the next morning to find random cars parked in their driveway or party-related debris strewn across their lawns. It’s easy to see how that scenario could get old fast, and an increasing number of residents in popular vacation locales are deciding they’ve had enough.

Here are a few of the many locations where vacation rental owners are facing opposition right now: Sonoma County, California, is enacting a 45-day ban on new vacation rentals while officials decide what regulations to impose going forward. Possibilities include a cap on the number of vacation rental properties allowed and creating a licensing system.

In Honolulu, Hawaii, short-term rental properties will be illegal outside designated resort areas beginning in October.

Clatsop County, Oregon, has recently voted to extend a moratorium on new vacation rental properties in its beachside communities and plans to consider further restrictions.

San Diego is about to eliminate nearly half of its current vacation rental properties via a lottery system.

Is the party over?

Just how much money are vacation rental property owners making anyway? A report from short-term data analyzer AirDNA revealed that short-term rentals reached their highest all-time average annual revenue in 2021 with $56,000. You can expect that figure to decline around 5% this year as supply increases and rates decline, but it’s projected to then stabilize and increase again next year.

So it’s not hard to see why so many investors have been drawn to vacation rentals. But could a new legislation landscape dampen those sunny projections? And if so, what should you do if you own or are planning to buy a short-term rental property?

Let’s tackle the second question first. If your property can’t be a vacation rental, long-term landlording might be an excellent option. Like vacation rental investing, it’s also incredibly lucrative right now . Vacation rental owners tend to make more, but managing them is also more work — or expense, if you’re using a property manager.

Selling is of course another option, but if you’re going that way it might be a good idea to move quickly. New mortgage applications are down 12% over just the past week, suggesting that current economic conditions may finally be about to put a dent in housing prices.

That said, the bulk of these regulations appear to be caps that will be enforced going forward rather than outright bans that will shut down existing vacation rentals. Second, it looks like most of these anti-vacation-rental laws are being enacted in locations that attract a lot of partiers or are dramatically oversaturated with vacation rentals.

Every vacation rental host may get less-than-ideal guests from time to time. But if your property is in a location that tends to attract mainly families, outdoor explorers, digital nomads, or other travelers looking for an experience that doesn’t involve raising the roof, and there isn’t an overwhelming number of vacation properties nearby, then it doesn’t look like you should have much to worry about anytime soon.

If, on the other hand, your property is in walking distance to a variety of bars and pubs or a “party beach,” or is flooded with a surplus of vacation rentals , you may want to start thinking about a new plan for your property — just in case.

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