Palm Springs Home Market Choked by Airbnb Rules

UPDATED, Feb. 1, 2024, 12:36 p.m.: Investors who once saw shimmering profits in Palm Springs short-term rentals have hit an impasse.

A cap on short-term rentals in the Coachella Valley hub has all but frozen the housing market in high-demand neighborhoods, the Los Angeles Times reported.

Homes sit unsold for months and investors who gobbled up Palm Springs properties during the pandemic now face hundreds of thousands of dollars in losses.

When the Airbnb platform launched in 2008, it transformed the rental market by making it easier for homeowners to rent out houses and rooms. But then cities started to notice how much housing was lost to short-term rentals.

Critics said Airbnbs strip affordable housing from the market, while neighbors complained of waves of tourists and loud, late-night parties, in addition to disputes between hosts and renters.

As a result, some cities put the kibosh on short-term rentals, according to the Times.

New York allows such rentals only if the host remains present for the entire stay. L.A. adopted a Home Sharing Ordinance that requires a license allowing hosts to use only their primary residence to rent for up to 120 days per calendar year, providing owners live there at least six months of the year.

Coachella Valley cities such as La Quinta, Cathedral City and Indian Wells have banned new short-term rental permits entirely. Palm Springs, a mecca for tourism, tried a different strategy to safeguard its identity in the era of Airbnb, Vrbo and RentCafe.

In 2022, the City Council adopted an ordinance that capped the number of rental certificates in any neighborhood to 20 percent of its homes.

Ten Palm Springs neighborhoods are now over the limit, with owners on a waiting list for a rental license that may take years. Homeowners with licenses who sell their properties can’t pass them down to buyers.

Of the 66 organized neighborhoods in Palm Springs, the 10 over the limit include Desert Park Estates, El Mirador, El Rancho Vista Estates, Gene Autry, Lawrence Crossley, Movie Colony East, Racquet Club Estates, Ranch Club Estates, Sunmor and Vista Las Palmas.

For the many Palm Springs buyers who snapped up properties to list them on Airbnb, owning one they can’t rent out has negated their plan. And the new ordinance is killing home values in those 10 neighborhoods, real estate agents say.

Michael Slate, a local agent with Equity Union, said most agents don’t even bother hosting open houses for listings in capped neighborhoods.

“No one shows up,” Slate told the Times. “Buyers are aware of the cap, and properties on the market in those neighborhoods don’t get a lot of activity.”

Slate has one client who paid $1.1 million for a home and poured $300,000 into renovations before the cap kicked in. Now, she’s not sure if she could get $1 million.

Michael Copeland, a real estate agent for Keller Williams based in Seattle, bought a home in March 2022 in the Gene Autry neighborhood for $1.8 million. He obtained a rental license before the ban.

But now he wants to sell the home, and Gene Autry has the longest waiting list of any neighborhood in Palm Springs, with 32 applications in limbo, according to the Times.

Copeland listed the home for $1.725 million, then cut the price to $1.595 million. After more than a year on the market, it still hasn’t landed a buyer.

“One of the things Palm Springs did wrong with this ordinance is not letting licenses transfer when you sell a home,” Copeland told the newspaper.

Some have tried to persuade the City Council to overturn the cap, but most locals have accepted the new way of life, Copeland said.

As a compromise, the city has introduced a junior vacation rental certificate that anyone can apply for, whether they live in a capped neighborhood or not. It costs $642 and allows homeowners to rent out a property six times per year.

— Dana Bartholomew

This story has been corrected to reflect that short-term rental regulations apply to all platforms, not just Airbnb.