Milken Institute study on STR and Housing Affordability
Short-term rentals have recently made headlines for allegedly contributing to housing shortages and increasing costs in communities across California. In response, many local jurisdictions, including vacation rental communities, have adopted or proposed strict regulations on STRs. Some have even banned them altogether or are in the process of phasing them out.
But the notion that decreasing STR supply will mitigate California’s extreme housing shortage is not supported by the evidence. The only solution to California’s housing crisis is to provide more housing: specifically denser, more affordable multifamily housing units. Short-term rentals make up a small share of housing units, particularly when the broader context of regional markets is considered. As shown in Figure 5, about 1 percent of housing units in California are STRs, but not all STRs are transferable to long-term housing. The share of STRs reported here only includes properties listed as entire homes; it excludes shared- or private-room listings to control for primary residences that would not translate to additional long-term housing because tenants already live there. Additionally, in California, the share of total housing stock comprising STRs is likely to be overestimated, as a portion of entire-home STR listings is, in fact, primary residences.
In Los Angeles and San Francisco, for instance, local laws only allow primary residences to be listed as STRs, yet they are included in the 1 percent figure.
The market share of STRs tends to be higher in vacation destinations; however, these communities need to be evaluated in a different context because they are generally places where a large percentage of properties have always been available to visitors as vacation properties. As shown in Figure 6, vacation homes have historically accounted for a larger share of housing in vacation rental communities compared to the state as a whole, especially in Big Bear, Lake Tahoe, and the Palm Springs Desert.
Many STRs are second homes, and without the opportunity to capture extra value from short-term renting, many would simply remain vacant rather than be converted to permanent housing. Such is the case in Lake Tahoe, where the majority of homes sit empty for most of the year. STRs provide opportunities to generate more economic activity for cities and property owners through properties that would otherwise be vacant.
Vacation rental communities with higher shares of STRs also have more housing units per capita, as shown in Figure 7. The two regions with the highest shares of STRs (Big Bear and Lake Tahoe) are also the two regions with the most housing units per 1,000 people. In Big Bear, the number of housing units exceeds its population; for every 1,000 people, there are 1,225 housing units.
But California faces a critical housing shortage; the state is short by an estimated 2 million units, ranking above only Utah for lowest housing units per capita, and conditions are not improving. In 2019, California had only 347 housing units per 1,000 people—down from 354 in 2011. In Sonoma County, there were 395 housing units per 1,000 people in 2019, compared to 402 in 2011. The High Desert had 472 housing units per 1,000 people in 2019 and 477 in 2011. These data clearly show that the state’s housing supply does not meet the growing demand.
STRs have a very small impact on the state’s housing inventory and cannot be considered a meaningful driver of California’s housing shortage. Short-term rentals are particularly valuable to tourism-dependent communities like those analyzed in this report. Reducing STR supply as a way to address California’s housing shortage does not solve the issue and, moreover, deprives regions of needed tax revenue to support local governments.
