Over 5 Million Semi-Vacant Single Family Homes In America Being Used Exclusively For Short-Term Rentals or Vacation Homes
A recent study by Lending Tree found that America’s largest metropolitan areas have a combined 5.5 million vacant houses. Many of these homes are being held as dual-use properties by investors, who are renting them out as short-term rentals for part of the year and using them as vacation homes for the rest of the year. If you’ve got the capital and the credit, that’s great news for you.
However, it’s putting a major squeeze on what is already a tight market for people looking to rent or purchase single-family homes. The 5.5 million number doesn’t account for the many single-family homes being scooped up by investment outfits for use as short-term or vacation rentals. Add them together, and it’s not hard to see how and why everyday working people are getting shut out of the housing market.
The U.S. Federal Reserve in St. Louis reports that the average home in America is $435,000, while metro areas like San Diego and Los Angeles have average prices closer to $1 million. When tens of thousands of homes in major markets are pulled out of circulation and left vacant, it shrinks the available inventory and puts more upward pressure on prices.
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The Sunbelt Is Feeling The Heat
Prior to the COVID-19 pandemic, sunbelt real estate markets like Tampa or Miami, Florida were known for an abundance of affordable housing. The combination of low prices and all-year-round warm weather kept these real estate markets strong but steady. Then COVID-19 hit, which necessitated the remote work revolution while much of the country was locked down. Prior to that, the higher wages of big cities like Los Angeles or New York kept many would-be homebuyers out of the sunbelt.
Suddenly, many high wage earners were no longer chained to their respective big city metro areas, and they hit the sunbelt with unprecedented buying power. People who struggled to buy even one place were now able to afford multiple homes in the sunbelt.
Even before they were called back into the office, buyers recognized the potential windfalls they could reap by renting their second homes or buying second homes with the express purpose of turning them into short-term rental properties.
Vacancy — With Quote Marks Around It
When most people think of a “vacant” property, they think of a place where no one lives. However, the real estate market’s definition of vacancy includes any of the following properties:
It doesn’t take a genius to see that all vacancies are not created equal. Theoretically, the 600,000 vacant homes in Miami, Tampa and New Orleans should be available for rent or purchase. However, they are not because so many are being used as short-term rentals, vacation homes and investment properties the owner is looking to flip.
There is nowhere for rent rates and sale prices to go but up when large swaths of the most desirable vacant housing in any city is held as an investment, short-term rental or a second home. So, if you’re feeling like there is water everywhere, but not a drop to drink while searching for quality single-family homes in America’s biggest cities, you aren’t imagining things.
A New Landscape for Buyers and Renters
The well-to-do have always had second homes in other places, and they probably always will. However, the 1% is few and far enough in between when compared to the general population that the existence of second homes didn’t exert extra pressure on the housing market. The opportunity provided by platforms like Airbnb and Vrbo to make tremendous gains on short-term rentals has transformed vacation homes from expensive luxury to potential passive income opportunities.
This unprecedented phenomenon has made its effects felt throughout the housing market. Even as cities begin restricting short-term rentals, it appears as if this trend is here to stay. Your opinion on it likely has a lot to do with where you are in the housing market. If you’re in a place where you can afford a vacation home, you can make money on it while you aren’t living there, which is a good thing. You can invest in fractional real estate ownership or real estate crowdfunding opportunities that allow you to generate passive income for yourself and your family.
If you are looking for affordable rental housing in America’s biggest cities, this is yet another strong headwind that you will be forced to navigate. It’s a new landscape, but it looks as if this trend is something that everyone will have to get used to.
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