{"id":4887,"date":"2024-03-18T16:21:56","date_gmt":"2024-03-18T16:21:56","guid":{"rendered":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/2024\/03\/18\/is-the-palm-springs-real-estate-party-over-cap-on-short-term-rentals-could-return-region-to-its-hideaway-roots\/"},"modified":"2024-03-18T16:21:56","modified_gmt":"2024-03-18T16:21:56","slug":"is-the-palm-springs-real-estate-party-over-cap-on-short-term-rentals-could-return-region-to-its-hideaway-roots","status":"publish","type":"post","link":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/2024\/03\/18\/is-the-palm-springs-real-estate-party-over-cap-on-short-term-rentals-could-return-region-to-its-hideaway-roots\/","title":{"rendered":"Is the Palm Springs Real Estate Party Over? Cap on Short-Term Rentals Could Return Region to Its Hideaway Roots"},"content":{"rendered":"

<\/a><\/p>\n

Realtor.com \/ Getty Images<\/p>\n

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Palm Springs<\/a>, the posh desert getaway nestled into Southern California\u2019s Coachella Valley, has become a case study of what can happen when a community cracks down on short-term rentals<\/a>\u2014like the ones listed on platforms such as Airbnb, VRBO, and Vacasa.<\/p>\n

In December 2022, the Palm Springs City Council enacted a new law that caps the number of homes that can be used as short-term rental (STR) properties in a neighborhood. It also restricts how many times a homeowner can rent out a property this way each year.<\/p>\n

The tighter regulations were designed to help alleviate years of public turmoil over the city\u2019s ballooning short-term rental market and its byproducts\u2014namely, concerns about late-night parties and inconsiderate vacationers disrupting the peace in residential neighborhoods.<\/p>\n

And while the crackdown might deter hordes of rowdy vacationers from gathering en masse in the desert\u2014once famed as a hideaway for Hollywood\u2019s elite\u2014it could also have an upside. If the market is no longer as in demand and expensive as it once was, homebuyers might find it a bit more affordable.<\/p>\n

\u201cI think at one point, we were the No. 1 vacation rental market in the world,\u201d says Troy Kudlac<\/strong>, founder and president of KUD Properties in neighboring Palm Desert, CA. However, now, \u201cI think it will probably just taper back to a more relatively normal vacation rental market.\u201d<\/p>\n

But the concerns about short-term rentals<\/a> are not isolated to Palm Springs. The disruption to the tourism and housing markets has sent ripples through homeowners\u2019 perception of what homeownership is. For some, short-term rentals<\/a> might be a nuisance. For others, these properties have created an avenue to entrepreneurship\u2014or boosted home values because of revenue opportunities or the limiting effect on housing stock.<\/p>\n

The idea that policies could secure a balance between interests in this new housing marketplace is nothing novel, but rarely is there a situation that lends itself to examination.<\/p>\n

So did these new regulations cleave some value off of the Palm Springs housing market? And if so, what does this mean for the larger debate about short-term rentals<\/a>? There are key metrics that should provide some indication.<\/p>\n

What Palm Springs\u2019 problem means for the rest of us<\/h2>\n

Short-term rental entrepreneurs (or \u201cSTR-preneurs,\u201d as they\u2019re known) might be rethinking the value proposition of owning a short-term rental in Palm Springs.<\/p>\n

Getty Images<\/p>\n

Before the new restrictions were in place, Palm Springs was known as a place where homebuyers could count on easily renting out their homes to offset a pricey mortgage payment\u2014and where investors could tap into year-round revenue with short-term rentals<\/a>.<\/p>\n

This situation came with both opportunities and challenges, depending on who you ask. On the plus side, the influx of tourists has been great for the economy and home values. Patrick Jordan<\/strong>, a broker at Bennion Deville Homes in Palm Springs, has seen the STR boom bring restoration to neighborhoods. Plus, it has raised the bar for local hotels competing for the same clientele.<\/p>\n

\u201cThose people fix their homes up,\u201d Jordan says of owners who use short-term rental platforms. \u201cI\u2019ve seen neighborhoods completely change, because there\u2019s all the homes that people weren\u2019t really using or hadn\u2019t been to in a long time.\u201d<\/p>\n

But since these new short-term rental regulations have been in place, some real estate agents have noticed a change.<\/p>\n

Kudlac, who believes the regulations could cause the vacation rental market taper back, says that demand has \u201ckind of moved to other cities,\u201d including nearby Cathedral City<\/a>, Palm Desert<\/a>, and Rancho Mirage<\/a>.<\/p>\n

Yet, he points out that these are areas where \u201cyou can\u2019t even do short-term vacation rentals<\/a>.\u201d<\/p>\n

Instead, homeowners can only rent out their properties for more than a month at a time to avoid the STR regulatory framework altogether, Kudlac says.<\/p>\n

This could mean that \u201cSTR-preneurs,\u201d as they\u2019ve been dubbed, might be rethinking the value of owning a short-term rental in Palm Springs. The premium they once paid for an address here\u2014and the city\u2019s previously less regulated environment\u2014may no longer be what it once was.<\/p>\n

What really happened in Palm Springs: What the data says<\/h2>\n

Palm Springs prices took a hit in the wake of new STR regulations.<\/p>\n

Getty Images<\/p>\n

While local real estate agents contend Palm Springs\u2019 new short-term rental policies have shaken its real estate market, what do the numbers say?<\/p>\n

Realtor.com scrutinized monthly listing data on prices per square foot; the portion of listings with a price reduction; inventory counts; and time spent on market, averaged annually, from 2019-2023. Because our data set includes a full year after the new short-term rental policies were put in place, seasonal ups and downs can be accounted for. We also compared this data from Palm Springs to neighboring Coachella Valley cities, as well as to the entire Riverside County and California as a whole.<\/p>\n

Palm Springs is especially well suited for this question, due in part to the sheer volume of short-term rentals<\/a> here. This means any effect should be easier to observe in Palm Springs than in a destination with a much smaller number of STR listings. It\u2019s also one city among nine main cities in the Coachella Valley, so we have nearby points of comparison. Each of these cities is unique; but to some extent, we expect the Coachella Valley as a whole to see market dynamics at least moving in the same direction.<\/p>\n

So if Palm Springs\u2019 new short-term rental policies did<\/em> have an impact, one might expect to see key market indicators diverge from its neighbors.<\/p>\n

Here\u2019s what emerges in this data so far.<\/p>\n

Home prices<\/h3>\n

Perhaps the most natural place to first look for the impact of the STR limits is home prices.<\/p>\n

In 2021 and 2022, the entire Coachella Valley saw the average price per square foot rise at breakneck pace\u2014topping 20% growth annually for two years in a row\u2014before leveling off in 2023.<\/p>\n

In Palm Springs, however, both the highs and lows were much more pronounced, with the average price per square foot skyrocketing by almost 80% between 2020 and 2022.<\/p>\n

Then in 2023, after Palm Springs\u2019 new short-term rental regulations were in place, listing prices per square foot here didn\u2019t just level off as they did throughout the Coachella Valley\u2014and even the rest of California. Instead, they actually dropped<\/em> by 4.5%.<\/p>\n

Bottom line? Palm Springs prices did indeed take a hit in the wake of the new STR regulations, in a way that seems out of whack with the surrounding cities.<\/p>\n\n

Listings with reduced asking prices<\/h3>\n

In 2023, some areas in the Coachella Valley saw more price reductions compared to a year earlier, while others saw fewer.<\/p>\n

Palm Springs, however, led the Valley in price cuts by several percentage points, with 22% of home sellers slashing their prices in 2023\u2014more than at any time since 2019.<\/p>\n

An increase or decrease in the portion of homes with a price reduction is another way to gauge demand. An increase in price reductions means sellers are having to meet buyers at a lower agreed-upon value.<\/p>\n

Like home listing prices, the portion of homes for sale in Palm Springs that had the price reduced indicates a more dramatic drop in demand\u2014compared to surrounding areas, after the new STR regulations kicked in.<\/p>\n\n

Sale-to-list price ratio<\/h3>\n

The “sale-to-list” ratio might be a more esoteric metric, but it’s another place where we might expect to find a change that indicates weakening demand.<\/p>\n

Put simply, this metric compares a home’s sale price to its listing price. It can be calculated using the initial listing price or the final listing price, which is relevant if the price was reduced during its listing period. We used the initial listing price for this analysis. A ratio of 1.0 means a home sold for the exact listing price. A ratio of .95 means a home sold for 5% less than the listing price or 95% of the listing price. A ratio of 1.1 means a home sold for 1.1 times the listing price or 10% above the listing price.<\/p>\n

<\/div>\n

And sure enough, we see the same pattern repeating again. In Palm Springs, the sale-to-list price ratio declined in 2023. That’s a trend we see in other Coachella Valley cities, Riverside County, and California more broadly. But even while this metric suggests demand dropped across the board, the decline was most significant in Palm Springs.<\/p>\n

Again, if we were looking for evidence of Palm Springs real estate values correcting downward in 2023, in the wake of a policy change, this is what we would expect to see.<\/p>\n\n

Inventory<\/h3>\n

Throughout the Coachella Valley, the number of homes actively for sale shrank from 2019 to 2021, then rebounded in 2022, reflecting inventory trends in the broader home market.<\/p>\n

But this inventory boomerang is particularly dramatic in Palm Springs in the wake of its new STR regulations: In 2022, when mortgage interest rates were steadily increasing, chilling buyers’ affordability, Palm Springs had a larger inventory rise than the surrounding areas and California.<\/p>\n

And in 2023, when Riverside County and California saw inventory go back to nearly flat year over year, Palm Springs saw a more-than 80% jump in the number of homes for sale, compared to just a year earlier\u2014another potential sign that demand diminished.<\/p>\n

“It’s kind of like the tech world,” Kudlac says. “If you get in early, you get all the gains as it expands and grows. It’s the same with STRs. People who were in early on did really well. It got saturated; and the people who were in early, a lot of them already left.”<\/p>\n\n

Time on market<\/h3>\n

In 2021 and 2022, the average length of time homes spent on the market shrank to just about five weeks in Palm Springs. These quicker sales were a telltale sign of heated demand; and while this trend was widespread throughout the Coachella Valley, the pace of sales in Palm Springs remained about 15% faster than surrounding cities.<\/p>\n

But after Palm Springs’ new short-term rental regulations were enacted in 2023, the time spent on the market for their properties slowed to match the rest of the Coachella Valley.<\/p>\n\n

Adding it all up<\/h3>\n

It’s important to note that while we can scrutinize the data to identify correlations and consider what the implications might be, drawing cause-and-effect relationships is a stretch. In other words: We can’t say with confidence that Palm Springs’ new short-term rental policies are the culprit of the recent market changes.<\/p>\n

Nonetheless, Kudlac believes several driving factors converged in Palm Springs over the past year.<\/p>\n

“We\u2019ve had kind of a perfect storm, starting with the fall-off from the COVID-exuberance market, then with interest rates getting cranked up,” he says. “And then, at the same time, the city council cuts down the allowable rental time.”<\/p>\n

Coachella Valley short-term rental regulations (listed from the most to least populous):<\/h4>\n

Indio, CA<\/h2>\n

<\/a>A single-family home listed for $459,000 in Indio, CA.<\/p>\n

Realtor.com<\/p>\n

Population: 89,616<\/strong>
\nMedian listing price: $599,500<\/strong><\/p>\n

The largest city in the Coachella Valley, Indio, is also one of the least expensive. It’s mostly a bedroom community, with a majority Hispanic population. Confusingly, Indio also happens to be the actual city where the Coachella Valley Music Festival<\/a> aka “Coachella” takes place. Festivalgoers scoping out the nearest place to rent might look around Indio.<\/p>\n

STR regulations<\/strong>: Indio requires<\/a> owners of short-term residential rentals<\/a> to obtain a business license and a separate short-term rental permit\u2014and comply with local taxes.<\/p>\n

Cathedral City, CA<\/h2>\n

<\/a>This three-bedroom, two-bathroom home is listed for $835,000 in Cathedral City, CA.<\/p>\n

Realtor.com<\/p>\n

Population: 51,964<\/strong>
\nMedian listing price: $564,250<\/strong><\/p>\n

Cathedral City, the city closest and adjacent to Palm Springs, earned the pejorative nickname “Cat City” because of lore suggesting seedy happenings there\u2014outside the boundaries of the shinier Palm Springs next door (let your imagination run wild). Now it’s known as a more affordable bedroom community, with close proximity to Palm Springs.<\/p>\n

STR regulations<\/strong>: At the beginning of 2023, Cathedral City terminated all short-term vacation rental permits<\/a>. An exception was made for those in a homeowners association in the city’s “Resort Residential” zone, or home-swapping arrangements aka home shares, which are legal. The policy is relatively restricting, compared to other Coachella Valley cities, though none had the same STR density as Palm Springs.<\/p>\n

Palm Desert, CA<\/h2>\n

<\/a>This new-construction home in Palm Desert, CA, is listed at $534,000.<\/p>\n

Realtor.com<\/p>\n

Population: 51,290<\/strong>
\nMedian listing price: $664,250<\/strong><\/p>\n

Palm Desert is one of the larger cities in the Coachella Valley, and it’s seen as a more mild mannered, family-friendly city\u2014one with a reputation for high-end shopping, luxury auto dealerships, and antique megastores.<\/p>\n

STR regulations<\/strong>: STR operators in Palm Desert have to navigate a permit application process, with fees and regulations.<\/p>\n

Palm Springs, CA<\/h2>\n

<\/a>This quintessential 1960s, midcentury-style home in Palm Springs, CA, is listed for $875,000.<\/p>\n

Realtor.com<\/p>\n

Population: 44,935<\/strong>
\nMedian listing price: $898,900<\/strong><\/p>\n

Palm Springs is a playground of architecture and vintage charm, heavy on the glamorous old-Hollywood nostalgia. The shorthand namesake for the area, Palm Springs, sits at the northwestern edge of the Coachella Valley, the largest city in the valley east of Los Angeles. It’s pricey, touristy, and has a one-of-a-kind history and vibe that have to be experienced to be understood.<\/p>\n

STR regulations<\/strong>: Palm Springs implemented stringent STR regulations at the beginning of 2023, including capping the number of rentals<\/a> per neighborhood and reducing rental contracts per year.<\/p>\n

Coachella, CA<\/h2>\n

<\/a>This six-bedroom, three-bath home in Coachella, CA, is listed at $525,000.<\/p>\n

Realtor.com<\/p>\n

Population: 42,279<\/strong>
\nMedian listing price: $396,725<\/strong><\/p>\n

The city of Coachella is at the far southeastern tip of the Coachella Valley, the closest of the major valley cities to the Salton Sea\u2014a once-lively tourist destination in the mid-20th century that became a near-ecological disaster, threatening the region with toxic dust. Coachella is the area with the least-expensive real estate and the lowest median income.<\/p>\n

STR regulations<\/strong>:\u00a0STR operators in Coachella must get a county permit<\/a>, with requirements for business licensing and age restrictions for renters.<\/p>\n

La Quinta, CA<\/h2>\n

<\/a>Listed for $575,000, this home comes with sweeping views of the Santa Rosa Mountains in La Quinta, CA.<\/p>\n

Realtor.com<\/p>\n

Population: 37,933<\/strong>
\n<\/strong>Median listing price: <\/strong><\/strong>$884,998<\/strong><\/p>\n

La Quinta is a pricier area of the valley, renowned for its luxury resorts, seasonal golf tournaments, and an affluent demographic.<\/p>\n

STR regulations<\/strong>: The city issued a hold on any new STR permits<\/a> in 2021, in an effort to maintain a tranquility that many of its neighborhoods expect.<\/p>\n

Desert Hot Springs, CA<\/h2>\n

<\/a>A 2,054-square-foot, single-family home listed for $800,000 in Desert Hot Springs, CA<\/p>\n

Realtor.com<\/p>\n

Population: 32,386<\/strong>
\nMedian listing price: $497,000<\/strong><\/p>\n

Desert Hot Springs is a somewhat detached and dusty limb, akimbo to the Coachella Valley. It’s a sparse city, comprised of small neighborhoods scattered across the valley’s northern pocket. It does, in fact, have natural hot springs and spas that attract “wellness” tourists, but the area is far less populated and more laid back.<\/p>\n

STR regulations<\/strong>: In December 2023, Desert Hot Springs issued a cap on STRs<\/a>\u2014at 4% of the total parcels, it’s a significant restriction.<\/p>\n

Rancho Mirage, CA<\/h2>\n

<\/a>A waterfront condo listed for $560,000 in Rancho Mirage, CA<\/p>\n

Realtor.com<\/p>\n

Population: 17,257<\/strong>
\nMedian listing price: $970,500<\/strong><\/p>\n

Rancho Mirage is another of the Coachella Valley’s wealthy cities, with newer, ritzier homes. It has a small population and lush golf courses.<\/p>\n

STR regulations<\/strong>: Rancho Mirage also has strict STR regulations, with a stay on new STR permits outside of HOAs where they are specifically authorized, since 2021.<\/p>\n

Indian Wells, CA<\/h2>\n

<\/a>Bellagio Hotel architect Jon Jerde designed this home in Indian Wells, CA. It is currently listed for $8,950,000.<\/p>\n

Realtor.com<\/p>\n

Population: 4,832<\/strong>
\nMedian listing price: $1,460,500<\/strong><\/p>\n

Indian Wells is the smallest and most exclusive area of the Coachella Valley, marked by sprawling homes on golf courses that back into steep, desert canyons. The city is known for premier tennis facilities<\/a> and events.<\/p>\n

STR regulations<\/strong>:\u00a0Indian Wells does not allow STRs<\/a>.<\/p>\n

The post Is the Palm Springs Real Estate Party Over? Cap on Short-Term Rentals Could Return Region to Its Hideaway Roots<\/a> appeared first on Real Estate News & Insights | realtor.com\u00ae<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

Realtor.com \/ Getty Images Palm Springs, the posh desert getaway nestled into Southern California\u2019s Coachella Valley, has become a case study of what can happen when a community cracks down on short-term rentals\u2014like the ones listed on platforms such as Airbnb, VRBO, and Vacasa. In December 2022, the Palm Springs City Council enacted a new…Read More→<\/a><\/p>\n","protected":false},"author":0,"featured_media":4888,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-4887","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/posts\/4887","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/comments?post=4887"}],"version-history":[{"count":0,"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/posts\/4887\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/media\/4888"}],"wp:attachment":[{"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/media?parent=4887"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/categories?post=4887"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/billingsrealtybrokers.paradiseinnovations.com\/index.php\/wp-json\/wp\/v2\/tags?post=4887"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}