Apartment Rents Surge as Vacation Rentals Reduce Supply for Tenants

Richard Lawson

Record growth in apartment rents in some of the biggest U.S. metropolitan areas coincided with more short-term rental listings, renewing concerns about housing affordability as more property owners cater to travelers rather than long-term tenants.

Before the pandemic, cities around the country had put tougher regulations in place to control where short-term rentals could exist to limit disruptions from vacationing tenants. Those regulatory efforts have been gaining new life in the past two years to address not only noisy vacationers, but the prospect that owners may be driving up home and rent prices for permanent residents.

Cities as big as Atlanta and as small as Steamboat Springs, Colorado, have passed regulations in the past two years to gain some control over where short-term rentals can be operated while wrestling with housing affordability concerns. Cities view the growing supply of short-term rentals as cutting into needed supply of long-term rentals, pushing up rent prices of what’s left for traditional leases.

Before the pandemic, listings on AirBnB and VRBO, the two largest short-term rental platforms, had grown to more than 663,000 across the 50 largest markets in terms of demand, according to short-term rental tracking firm AirDNA.

The pandemic pushed the number to a low of 418,057 listings by February 2021. Such a drop means that landlords either changed the property to long-term rental, sold their properties or didn’t list them.

During the pandemic’s first year, some owners shifted to medium-term rentals, defined as 30 days or more, to target traveling nurses, said Grant Hammond, a real estate broker in Nashville, Tennessee, who specializes in selling newly built short-term rentals to investors.

Those nurses, who filled staff positions at overwhelmed hospitals early in the pandemic, “filled up our stock at the time,” Hammond said.

Rental listings began to grow nationally as the country opened up, and there are a little more than 600,000 listings now, according to AirDNA.

Rising Rents

Apartment rents also began to rise, hitting a record annual growth rate of 11% by the end of last March. Rent growth in Sun Belt markets soared well above that national average.

Of course there are other factors that contribute to surging rents, such as a shortage of building, particularly construction of affordable housing.

Even so, Ken H. Johnson, a real estate economist with Florida Atlantic University, told CoStar News that the rise in short-term rental properties is a clear contributor to soaring rent growth. “From a statistical standpoint, I feel certain that an increase in the number of short-term rentals is causal to a rise in rents,” Johnson said.

Short-term rentals take supply out of the market that might otherwise be used for traditional long-term renters, Johnson said, adding that it exacerbates other factors such as a rental shortage 15 years in the making and migration to Sun Belt cities during the pandemic.

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