COURT HOUSE – The short-term rental market exploded during Covid and saw continued healthy growth as the pandemic wore down. The impact in areas like Cape May County was significant. Traditional accommodations like hotels, bed-and-breakfasts and vacation homes were all touched by what may be called residential commercialization.
The strong growth in this relatively new market helped fuel rising property values, new options for tourists and new headaches for municipalities. It had an especially strong influence in years when many options for travel were limited by pandemic concerns.
In the last couple of years municipalities have played catch-up, passing ordinances to regulate and tax this emerging commercial activity.
In Cape May City, the council’s citizen-led Municipal Taxation and Revenue Advisory Committee researched the phenomenon and needed ordinance changes and taxation policies. Its analysis helped define the scale of the change.
The committee found 1,981 separate short-term accommodations in area code 08204 on just one internet marketplace site, Vrbo. These included all forms of accommodations, from entire homes to small cottages and cabins to condominiums.
As the county entered 2023, the short-term rental presence had grown significantly. Using summer 2022 data, short-term properties in the Wildwoods numbered 2,150. This was followed by Ocean City, with 1,122 in-season available properties. The Seven Mile Island communities of Avalon and Stone Harbor had 700 available properties.
The growing attractiveness of the buy-to-rent short-term market has also had an impact on real estate markets. One Harvard study found that the growth of the short-term market “incentivizes hotelization” at the expense of affordable housing stock.
In 2023 the number of units continued to rise in all the county resort communities and even in the mainland townships.
According to the Forbes Business Council, there are some signs of possible trouble.
- The last four years have seen an increase in available properties that outstrips the rise in demand. This could mean lower occupancy levels.
- In some locations, rates are showing signs of weakness, which can be a real problem for high-mortgage investors who counted on the past as a predictor of occupancy levels and ever-rising rates.
- Some investors, especially those who bought in during the boom in property values, are seeing operating costs and debt-service problems that were not in their business plan.
- Past data as a future predictor is less reliable than it was during the pandemic. Options for travelers have increased.
- Regulation and taxation are catching up with the market, adding new expense. In Cape May County some municipalities are getting on the bandwagon with occupancy taxes for transient accommodations. Zoning and safety issues have also come into play.
As property owners adapt to changing conditions, there will be winners and losers. Forbes remains optimistic but urges property owners to understand that the short-term rental market is becoming increasingly competitive. Adapting may mean continuous evaluation of new ways to attract guests.
The industry is still relatively young. Booking and marketing site Airbnb was born in 2008 with a single home in San Francisco. The new business model experienced dramatic growth, to the point where Airbnb, Vrbo and similar “middlemen” who connect travelers to properties have millions of locations nationally and internationally. That success can be both helpful and a sign of coming pressure on occupancy levels and rates.
Even climate issues play a role in short-term rental performance. AirDNA released a look at the U.S. market in October, noting that “a sweltering heat wave moderated August performance.” In August, short-term occupancy dipped below pre-Covid levels for the first time in two years. Happily it rebounded in September, but the days of putting a property on the market and watching the bookings flow in are gone.
A Wharton paper points to the impact of the short-term boom on housing prices and long-term rental prices. The analysis argues that both will see increases.
The Wharton study says short-term activity has the impact of pushing up rental rates and housing prices. The concern of some real estate experts is that any significant downturn in the short-term marketplace can also have the reverse effect of negatively impacting property values.
Most recent studies of the short-term marketplace predict continued growth in available accommodations and revenue.
Analysis by AirDNA argues that short-term rentals were responsible for no more than 4% of the increases in home prices in recent years. By that argument any “forced selling” of short-term properties due to a shakeout in the market would have a minimal effect on home prices.
Whatever ends up happening in the still volatile short-term rental market, it will impact Cape May County simply due to the volume of such accommodations.
Contact the author, Vince Conti, at vconti@cmcherald.com.
