Santa Monica, California, a prime coastal city known for its appeal to tourists and its tight housing market, enacted stringent regulations on short-term rentals (STRs) in 2015. This law, called the Home Sharing Ordinance (HSO), aimed to address concerns about housing affordability and displacement by drastically limiting STR activity. A study published in 2024 by Cayrua Chaves Fonseca analyzed the effects of this regulation, offering important insights into the complex relationship between STRs, rents, and property values.
Here’s what the study found, what happened to housing prices, and what it all means for cities grappling with the challenges of short-term rentals.
The Santa Monica Home Sharing Ordinance
The Home Sharing Ordinance is among the strictest regulations of its kind in the United States. It prohibits the rental of entire homes for less than 30 days, allowing only homeowners or tenants who reside in the property full-time to offer a room for short-term rental. The ordinance also imposes stringent licensing requirements and hefty fines for noncompliance.
This regulation was implemented in response to fears that STRs were:
- Driving up rents and home prices.
- Displacing long-term residents.
- Reducing the availability of housing for permanent residents.
By targeting STRs, city leaders hoped to curb these trends and ensure that housing was prioritized for long-term residents.
Key Findings of the Study
The study, titled “Short-Term Rentals and Residential Rents: Evidence from a Regulation in Santa Monica”, was published in the International Journal of Housing Markets and Analysis. Using advanced Synthetic Control Method (SCM) analysis, it provides a data-driven look at the outcomes of Santa Monica’s regulatory approach. Here are the core findings:
- Sharp Decline in STR Listings:
- Within two years of implementing the HSO, the number of Airbnb listings in Santa Monica dropped by a staggering 60%. The reduction primarily affected entire-home listings, the main target of the ordinance.
- No Significant Impact on Residential Rents:
- Despite the drastic reduction in STR activity, residential rents in Santa Monica did not show a significant decline. This finding challenges the assumption that reducing STR activity directly translates to lower rents.
- The study suggests that STR units removed from platforms like Airbnb were not necessarily reintroduced into the long-term rental market, limiting the ordinance’s impact on housing availability for permanent residents.
- Housing Prices Showed No Decrease:
- Interestingly, the regulation did not lead to a decline in home sale prices. Housing prices in Santa Monica remained steady, reflecting the strong demand for real estate in this desirable coastal city.
- This finding suggests that STRs were not the sole or primary driver of high home prices, which are influenced by broader factors such as location, scarcity of land, and ongoing demand from affluent buyers.
- Limited Reallocation to Long-Term Rentals:
- A critical takeaway is that the STR units removed due to the HSO were not repurposed for long-term rental housing. Instead, many properties likely remained vacant, were used as secondary homes, or shifted to other uses that did not benefit the long-term rental market.
Why Didn’t Rents or Housing Prices Decline?
The lack of a measurable impact on rents and housing prices highlights the complexity of urban housing markets:
- Supply Side Factors: STRs, while highly visible, represent a small fraction of the total housing stock in most cities. Even a 60% reduction in STRs may not significantly increase long-term housing supply.
- Demand Side Dynamics: Santa Monica remains a highly desirable place to live, with strong demand from affluent renters and buyers. This demand likely offset any potential benefits from the ordinance.
- Alternative Uses for STR Units: Properties previously used for short-term rentals may not align with the needs of long-term renters, particularly in terms of affordability. Many units were likely retained as vacation homes or high-end real estate investments.
Lessons from Santa Monica’s Experiment
Santa Monica’s experience offers valuable lessons for cities considering similar regulations:
- STR Regulations Alone May Not Address Housing Affordability:
- While limiting STR activity can reduce some pressures on the housing market, it is not a cure-all for high rents or housing prices. Comprehensive housing policies are needed to address affordability challenges.
- For example, strategies such as increasing the housing supply, promoting affordable housing development, and addressing speculative investments are also essential.
- Targeted Policies Are Critical:
- Cities should assess how STRs are used in their markets. If STR activity is concentrated in luxury properties or secondary homes, removing them from the STR market may have limited impact on affordable housing availability.
- Understanding Housing Market Dynamics:
- The Santa Monica case underscores the need for context-specific evaluations. What works in one city may not yield the same results in another, especially if housing demand and STR saturation differ.
The Broader Implications for Other Cities
Santa Monica’s bold regulation provides a crucial case study in the ongoing debate over STRs. It demonstrates that while such ordinances can drastically reduce STR activity, their impact on rents and housing prices may be less dramatic than expected. For cities considering similar measures, the following takeaways are key:
- Comprehensive housing policies, not just STR regulations, are needed to tackle affordability.
- Targeted approaches that account for the specific dynamics of local housing markets will likely be more effective.
- Policymakers should anticipate that STR regulations may primarily affect tourist-heavy areas without significantly alleviating broader affordability challenges.
Conclusion: Moving Forward
Santa Monica’s Home Sharing Ordinance underscores the complexities of regulating STRs in urban housing markets. While the regulation achieved its goal of curbing STR activity, its limited impact on rents and housing prices highlights the need for multifaceted solutions to address housing affordability. As more cities grapple with these issues, Santa Monica’s experience offers valuable insights—but also a reminder that STR regulations are just one piece of the puzzle.
For more insights into housing policies and short-term rentals, visit NASTRA.org and stay informed about how cities across the U.S. are tackling these challenges.
Study Details
The study, authored by Cayrua Chaves Fonseca, is titled “Short-Term Rentals and Residential Rents: Evidence from a Regulation in Santa Monica”. It was published in 2024 in the International Journal of Housing Markets and Analysis. You can access the full study here.
Barb is the president of NASTRA and has spent her professional career in hospitality and real estate. After acquiring her first short-term rental in 2018, Barb moved her focus to legal advocacy after she sued the city of Nashville over a permit issue. Over the last three years, she has mentored more than 2,800 new STR hosts and is the Community Leader for Airbnb in Nashville, as well as an Airbnb “Ask a Superhost” Ambassador. Barb has appeared on numerous radio broadcasts, television shows, and podcasts to talk about her love of hosting. She also manages and co-hosts a number of short term rentals across Tennessee and Arkansas. Barb and her husband Pat own a hotel brokerage, development, and consulting company. Barb has a podcast titled “Woman of Airbnb” which features conversations with incredible women in the STR space, focusing on their unique Airbnb hosting journeys. You can find it on Spotify, Amazon Music, and Audible.