SAN DIEGO COUNTY, California — With the San Diego City Counsel’s new short term rental permitting ordinance looming overhead, many single and multi-unit operators are sweating the future of their Airbnb business. This change will affect the landscape of vacation rentals in so many ways, that it is hard to wrap your head around how it will make an impact. Here are 7 ways in which vacation rentals will be changing in San Diego by summer 2022.
Summer 2022 will book sooner and prices to rise
If one thing is for sure, it is that incoming travelers will only continue to increase next summer when domestic and international travel is back into full swing. No one has told them that the San Diego vacation rental supply will be completely capped. There will be some smart travelers booking way ahead of time. Once the average traveler starts looking three months out, this kind of imbalance is sure to create a sort of frenzy with a”better book now” mentality. When the last minute travelers decide to book, prices will not have as steep of a last minute discount as in the past and may even increase similar to airline seats.
Multi-unit investors will cease to exist in SD
Under the new ordinance, permits will only be given for one rental unit per person. Investors who own multi-unit complexes will be out of luck when trying to permit their operation. The ordinance does mention on-site owners will be granted permits without participating in the lottery, but I’d suspect this will be for one unit only. Otherwise, this seems like a loophole to exploit by having an owner “live” on site while renting a 20-unit complex. Speaking of renting, this rule also directly applies to all the highly funded rental arbitrage companies who master lease entire apartment floors or even buildings, with the right to sublease. Does this mean the end of rental arbitrage companies like Sonder and Wanderjaunt in San Diego?
Prices will rise significantly for studios, 1br and 2br units
A greater percentage of STRs will be 3 bedroom and above homes rather than 2 bedroom or below units. Small units tend to be multi-family which we now know will be a challenge to rent on Airbnb, and the annual permit fee per unit will be more palatable for homes earning higher cash flow. So once studio and 1br studio and 2br units will be in lower supply, they will also be much higher priced.
For unpermitted operators, length of stay will shift to 1-3mo or yearly
What happens when you have a furnished unit that you can’t rent short term any longer? Most will switch to mid-term bookings (bookings between 1-3mo). These bookings cater to work from home travelers or travel nurses and still carry a higher price tag. Now that these customers are growing, it is the perfect time to make the switch. This model is certainly a different kind of hassle. Many lookers will ask to see the property before booking, there are contracts that must go in place, and tenant rights laws go into effect after 30 days. Companies like Nestpick make it easy to rent your unit to monthly travelers.
Weekend travelers will compete with long WFH stays
There has been a massive shift in bookings from weekend vacationers to monthly work from home (WFH) bookings. These non-vacationers are taking up precious weekend supply. Not that hosts will mind, because month long bookings are great! Short term travelers should expect higher priced weekends when everyone starts competing for those rare openings next summer.
Multi-unit owners will be selling their properties
The San Diego housing market is on fire right now. Many single family residential homes are selling for $80k or more above listing price and you need to get in line with 30 other offers to compete. This will not be the same for multi-unit complexes. Multi-unit Airbnb owners who have underwritten their investment based on short term rental revenue will no longer be able to afford their highly leveraged mortgages. Beginning right after this summer season, you will see an influx of new inventory for sale without the hopes of high Airbnb rents. Now might be the right time to save for a long term multi-unit property.
Hosts will circumvent the system
All these predictions have an X factor: the Airbnb host. Hosts are a tough breed. They are hustlers, they are investment risk takers, and they band together when things don’t go their way. These new laws will be costly for the city to actively enforce. Taking a $4-7 million tax hit on the reduced number of rentals and then having to spend money for enforcement on top of that? I do not expect to see much active seeking out of unpermitted units. Perhaps Airbnb and Vrbo will offer up their sheep to the slaughter, but it is unlikely unless the city wants to give them an ultimatum to hand over their customers or get out of town.
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