Back in August, the short term rental regulations within the city limits of Austin were significantly eased when a federal court case demanded that the city allow non-owner occupants the opportunity to apply for short term rental permits. Previously, only homeowners who had a homestead exemption on their single family residences, i.e. primary residence Austinites could legally use their homes as airbnbs. Now that the legal ability to use a property as a STR is easier in Austin, we expect various short and long term effects in the Austin short term rental market. Already, we are beginning to see trends in changing nightly rates as a result of increased supply. We foresee this may lead to short term decreases in STR revenue for Austin airbnb investors; however, we ultimately predict that a return to equilibrium within the airbnb market will occur in Austin with those STR owners that are able to withstand the turbulence ultimately seeing profitable returns from their Austin STR investments.
Over the past ten years, the City of Austin has sought to strike a balance between embracing the sharing economy and protecting the interests of long-term residents. While that sounds terrific, in practice it led to an incredibly prohibitive marketplace that left many fearful of investing in short term rentals within the city limits. With these new regulatory changes, the barriers to entry for property owners have been significantly reduced, allowing more investors to enter the Austin STR market. In turn, we anticipate a substantial increase in the quantity of available airbnb listings both from current owners considering a change of use and new investors purchasing properties to use as an airbnb in Austin.
While these regulatory changes will certainly grow the number of airbnb listings in Austin, this trend is not new. Over the past five years, the number of airbnb listings in Austin has seen a steady increase, reflecting the growing popularity of STRs and the attractiveness of the Austin real estate market for long term appreciation. In 2018, Austin had approximately 6,000 airbnb listings. By 2022, this number climbed to over 10,000, showcasing a 67% growth in just four years.
One immediate consequence of the increased supply of airbnb properties in Austin is a dip in annual revenue. As competition intensifies, property owners will be compelled to lower their prices to attract guests. According to airdna.com, median annual rental revenue for STRs in Austin is down about 12% compared to last year. However, this reduction in annual revenue is not being experienced across the board, nor is it expected to last indefinitely. The laws of supply and demand suggest that the market will eventually find its equilibrium. Property owners may find it challenging to maintain profitability with lower revenue, which may lead to a natural correction.
With an influx of competition, the need for short-term rental owners to provide a top-notch experience and a well-maintained, thoughtful home will increase. The heightened competition will push property owners to step up their game to stand out in the crowded marketplace. As the market matures and competition increases, amateur STR owners or those who don't invest the effort needed to properly furnish, market, and manage their aribnbs will likely be pushed out. The airbnb hosts who consistently provide a memorable experience, maintain their properties well, and offer exceptional customer service will rise to the top and continue to thrive in this evolving ecosystem.
The easing of short term rental regulations in Austin will certainly affect the local airbnb market. However, the fear of market saturation shouldn’t dissuade you from investing in the Austin STR market. There is currently an ample housing supply in Austin driving real estate prices down and the local tourism market is going strong. More than 30 million domestic travelers come to Austin each year, and if March’s Austin Bergstrom International Airport traffic data says anything, Austin is only becoming a more attractive destination to visit. We had 1,941,044 departing passengers in March of 2023, up 6.52% compared to March of 2022. Bottom line, if you plan to provide an exceptional experience to your guests, Austin is still an incredibly attractive market for STR investing.
