The bubble has burst. Palm Springs home values are experiencing a sudden collapse as cities tighten short-term rental permits. Cities like Palm Springs passed special regulations in 2022, mandating that no more than 20% of the properties in a neighborhood be short-term. Some had these rentals closer to 40%, with 10 over the 20% benchmark.
Only recently, however, the city began cracking down with stricter licensing requirements, and profit-driven companies have left the city in shambles. And yet, renters and new homeowners should be hopeful in these downturns as money finally leaves the hands of companies and property investors through cheaper rents.
The city is now in a complete meltdown. Some houses in the neighborhoods above the threshold have reportedly dropped in value by over 30%. Districts like Desert Park Estates saw the median price of sales drop by 9% from $908,500 to $832,500, a striking blow to investments during the pandemic.
Furthermore, the sales volume dropped by almost half, from 42 sales to 22 in that same timeframe. In short, no one is buying these homes, and the fall of short-term rentals has slashed local home values. Although these companies will cause short-term crashes, it is necessary to solve the housing affordability crisis.
The housing market as a whole has been fragile for some time. Short-term rentals and government intervention had injected vast amounts of capital into the market, creating much-unneeded risk in the economy. These entities have been getting away with these unhealthy practices on the backs of bailouts and other safety nets.
However, just recently, their charade has finally unraveled. Since the 2020 and 2021 surge in housing demand, there has been a noticeable reversal. Stemming from the high 30-year mortgage rate of 7%, families have been more hesitant to purchase property. For the first time since 2012, the Zillow Home Value Index dropped, marking the first time in over a decade that net housing values have decreased in select neighborhoods, and searches for “sell my house” are trending at their highest level. Home sales dropped from $1.5 million in 2016 to just around $650k in 2023, making small fluxes in the market that more impactful. With demand dropping rapidly, priced-out individuals may finally and rightfully have a chance in the market. Still, companies and investors are clinging to artificially inflated demands to bloat home valuations at the expense of renters and new homeowners.
After massive capital injections during the pandemic, investors used Airbnb’s service to purchase rental properties with even higher profit margins. As a result, many neighborhoods saw a shoot-up in housing costs. A study from Vrije Universiteit Amsterdam found that between 2014 and 2018, Airbnb was responsible for a 30% increase in housing prices in Venice and a massive increase in other districts of Los Angeles as well. Additionally, the National Bureau of Economic Research found that between 2012 and 2016, profit-driven Airbnb was the cause of nearly a fifth of all rent increases in the U.S.
Consequently, these higher prices have effectively priced out low-income individuals, with some estimates finding that short-term rentals in Los Angeles may have caused close to 5,000 more Angelenos to face homelessness. Due to all these factors, a sudden sale of Airbnb properties would be devastating in the local real estate market but a lifeline for low-income families. While a crash would hurt net investments more for greedy investors, less fortunate individuals don’t even have the luxury of considering their house an “investment.” Cheaper housing would mean wonders for new homebuyers and renters and should be prioritized over the cushions in the landlord’s pockets.
Besides increasing the general affordability of housing, an Airbnb-induced market crash may lead to cheaper rent for low-income individuals. Post-crash, house shoppers would be more inclined to buy a house, easing up the demand for renting and thus driving the average renter’s price down, a net benefit to all of those who see homes as actual living quarters.