Show notes
On today’s show we are looking at a study that was authored by three researchers at Purdue University, The College of William and Mary, and The Chinese University of Hong Kong.
The purpose of the study was to examine the impact of short term rental bans on the long term rental market.
There are many different type of ordinances affecting short term rentals. But the truth is, most municipalities do not enforce these ordinances. The end result most of the rules are ignored by landlords.
This particular study zeroed in on Irvine California which is one of a few communities that actually does enforce its ban on short term rentals in properties that have residential zoning. If you’ve spent any time in southern California, you know that the entire area is essentially one continuous city. The only way you know that you’re now in another city is because there is a sign welcoming you to the new city. Otherwise, there is no obvious boundary. If you work in Irvine, you would happily drive from Costa Mesa, or Newport Beach, or Laguna Beach, or any of a number of communities in the area if you can find a place to rent at a respectable price.
The study found that the actual contracted rental prices reflect the supply demand equilibrium whereas the asking rents are generally higher than the actual contracted rent.
The study found that in the case of Irvine, the number of Airbnb listings declined by 27% within two years of the ban.
The study also examined short term rental activities in the neighbouring cities where there was no short term rental ban in effect.
The study found that within three years of the ban, enough new supply had been brought back into the market that there was an observed decline of contracted rental pricing of 3% or the equivalent of $114 per unit across the entire market.
The academic paper is about 32 pages in length, and no doubt will be cited by numerous advocacy groups around the nation as a quality piece of research.
The authors of the paper were very focused on reduction of short term rentals as the primary source of supply entering the market. As developers, we know that construction is another source of supply entering the market.
It is possible that maybe Irvine had more rental housing constructed during that time period compared with the surrounding cities which contributed additional supply to the market. We just don’t know because the researcher failed to consider that aspect. We know that rental pricing follows the laws of supply and demand. If you’re going to look at the supply side and assess the impact of the STR ban, then you need to look at all sources of supply entering the market, not just STR to LTR conversions.
Unfortunately, the paper made no reference to new supply.
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Host: Victor Menasce
email: podcast@victorjm.com
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