Short-Term Rental Headwinds: U.S. Supply Growth Is Slowing

The growth of the U.S. vacation rental and short-term rental supply has been decelerating, and the trend will likely continue next year as some properties convert to long-term rentals because of an ongoing housing shortage.

Key Data reported that supply growth in the U.S. remains strong at approximately 10% this year. But that’s a significant slowdown from about 20% growth two years ago. (The analytics firm collects data from 150,000 properties.)

“U.S. vacation rental and short-term rental supply growth may continue to slow in 2025 and 2026, as some units are converted to long-term rentals and migrant-focused corporate housing,” wrote analysts at Truist Securities in a report Monday.

What’s Driving the Deceleration?

• Housing crunch. The supply deceleration is driven by an “incredible shortage of housing,” according to Steve Milo, founder and CEO of VTrips.

• Migrant crisis. Several cities face a disproportionate demand for long-term housing because of a migrant crisis. For example, Texas alone has transported 100,000 migrants to other cities since 2022.

• Unimpressive occupancy. In the third quarter, occupancy was down 6% year-over-year. That trend may continue in the remaining months of 2024 when Key Data forecasts occupancy will be down 3% year-over-year.

• Demand weakness. According to Key Data, the trends in supply and demand are leading to a mere 2% year-over-year gain in the average daily rate. Compare that to the blockbuster rate gains that came post-pandemic, when rates in the summer of 2022 were nearly 30% higher than the summer of pre-pandemic 2019.

• Inflation. An escalation in labor costs for housekeeping and other functions has pinched profits for owners and property management companies.

• Cities saw relatively more tightening in supply. Data from Inside Airbnb, cited in a Goldman Sachs report, estimates that urban short-term rental growth will be only 0.8% this year, compared to 2.8% last year and 3.4% in 2019.

• Competition. Coastal resorts aren’t affected by the housing supply crunch as much as city apartments. However, coastal resorts have faced a relative weakening in demand as many Americans this year opted to go abroad, given the strength of the U.S. dollar, or to take cruises.

• Discounting. A segment of consumers booking rentals at resort destinations has become more price-conscious, according to Vtrips, a manager of about 5,000 units. Vtrips has recently seen an “abnormal” trend of guests waiting until the last minute to secure better rates in the sector. Many property managers are “slashing rates the closer in” to the arrival date to woo guests.

Winners and Losers

• Booking.com and Expedia’s Vrbo may fare better than Airbnb. The deceleration is likely to impact urban markets more significantly. Truist analysts suggest that the worsening trend in urban areas may disproportionately affect Airbnb, which has a heavier mix of city rentals than its online travel rivals.

• Hotels seem to be capturing a greater share of excess demand. For the first nine months of the year, average revenue per available unit for alternative accommodations was down at least 4% year-over-year. In contrast, the hotel sector was projected to see an increase of 2% year-over-year in revenue per available room this year, according to CoStar’s STR.

• Hotels have had anemic supply growth. That reality has helped to support hotel daily rates. Last month, Goldman Sachs issued a report citing industry data suggesting that U.S. hotel supply grew merely 0.7% a year on average between 2019 and 2024. That figure was significantly below historical averages, said CBRE.

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