It didn’t, but in 2023 many homes around Palm Springs have been.At a city council meeting in early May, acting Finance Director Kristopher Mooney said vacation rental tax revenue for the city government was down about 11% so far in the 2022-2023 fiscal year compared to the prior one.
However, he said he was hopeful stronger revenues the rest of the fiscal year would allow the city to close the gap.The tax receipts since then, however, have not supported that optimistic outlook: May revenues were down by about 18% from May 2022.
The rates customers pay have been dropping, too.Oscar Flink, who owns a company that manages vacation rentals for their owners, said properties he listed for $1,300 to $1,500 a night during the busy travel months of February and March in 2022 could only fetch $600 to $900 a year later.McDougall, meanwhile, said she’s been dropping her rates by about a third.‘Everyone’s feeling the pinch’ McDougall hears from many of the other homeowners who are seeing a slowdown.She’s the administrator of a Facebook group called Palm Springs Vacation Rental Owners where Coachella Valley property owners share information and discuss the industry.Recently that group has been dominated by discussion — and worry — about the rapid decline in bookings.
“Everyone in my group is talking about no reservations, no inquiries even,” she said.“Everyone’s feeling the pinch.” But you don’t have to take her word for it, she says.
People only need to peruse the big vacation rental sites Airbnb and Vrbo for Palm Springs listings to get a sense of how desperate some vacation rental owners have become.“It’s like a race to the bottom,” she said.“Everyone’s dropped their nightly rate down to rates that I personally think are just not sustainable.It’s scary.” A flood of competition Even as Palm Springs’ tax revenue from home bookings has dropped by about 13% over the past year, hotel tax revenues are up by about 1.5%.Combined revenue from the two types of stays — known as transit occupancy tax — is down by about 3%.
Such ups and downs can have a major impact on city coffers given that TOT is the single largest source of city revenue in tourism-heavy Palm Springs, accounting for about 29% of the city’s general fund revenue last year.The recent dip follows a huge jump in vacation rentals locally and nationally during the COVID-19 pandemic, so short-term rental revenues for the first 11 months of the 2022-2023 fiscal year are still nearly twice those of the 2018-2019 fiscal year.But there’s no doubting the squeeze many Palm Springs rental owners are feeling, in part because hundreds of new vacation rentals have entered the market.From the start of 2022 through the end of April, the number of licensed vacation rental properties in the city grew from 2,316 to 2,881, a nearly 25% increase.This most recent run on permits came after the city council passed a new rule in November capping the number of permits in each of the city’s official neighborhoods at 20% of homes.
Nine neighborhoods have already reached the 20% cap (existing permitholders were grandfathered in).When it comes to the impacts of a potential Airbnb bust, Palm Springs also appears to be far from alone.
Earlier this month, CBS News reported that several popular tourism markets, including San Diego, Maui and Cape Cod, Massachusetts, have all seen a slowdown in bookings this year.A March Yahoo News article, meanwhile, quoted owners in Arizona and Oregon who said they were seeing fewer bookings and worried about oversaturation in their respective markets.One owner in the Phoenix area resorted to cutting his list prices by 50% to fill homes during the weekend the city hosted the Super Bowl, normally a bonanza for rental property owners.Even Airbnb itself seems to be acknowledging a slump.
Reuters reported in May that the company’s stock fell by 10% after it reported it was anticipating fewer bookings and lower daily rates because of “price sensitive travelers in the US.” Some still thriving The effects of the current “Airbnbust,” however, do not seem to be distributed equally.Multiple owners of firms in the Coachella Valley that manage vacation rental properties say there is still plenty of money to be made.Michael Flannery’s business, Acme House Company, manages over 160 rentals located mostly in Palm Springs.He attributes much of the drop in vacation rental tax revenue in the city to owners dropping their rates in response to increased competition.
“I actually think there’s the same exact amount of people coming to stay,” he said.“And the average rates have dropped probably equal to the 14% drop in TOT.” But his business is up 20% this summer compared to last, which he attributes to the advantages that management companies like his have when competing against rentals that are self-managed by their own owners.He said those advantages include several staffers working in both reservations and marketing, which allow it to provide better and quicker customer service and make pricing decisions that are more responsive to a constantly changing landscape.“You show up with the right rate and the right property at the right time, you end up getting the deal,” he said.But not every owner of a management agency is feeling immune to the recent changes in the market.
Flink said he first noticed a drop in bookings during the second weekend of this year’s Coachella music festival.He said his company is now making about 15% to 20% less revenue than it did last year despite increasing the number of properties it serves.Megan Rodriguez, who has both owned and managed vacation rentals in the Palm Springs area for years, said she’s recently noticed people opting less for the pricy and fancy homes that had been popular in recent years.
She said investors looking to get in the market now should opt for either one-bedroom properties or those with four bedrooms or more.
“Everything else that falls in the middle, those homes are not making what they used to make,” she said.Bruce Hoban, the co-founder of the vacation rental advocacy group Palm Springs Vacation Rental Owners, said he thinks a lot of the current angst is driven by people who bought in when the industry was thriving last year.“Some people are going ‘Wow, I bought my house in 2021 and I made a fortune in 2022 and where did all the business go?’” he said.“2022 was an extraordinary year and they expect 2023 to be the same and it’s not.” ‘Not what we expected’ Among those disappointed new owners is Tammy Trull Skeath.She said she and her husband bought a home in the Palm Springs in 2022, which she called “the height of the buying craze right before things went sideways with interest rates.” Now, she said they are struggling to make enough to cover their mortgage payment, let alone make a profit and are feeling increasingly frustrated with the restrictions and taxes levied by the city.
“It’s not what we expected,” she said.“We always thought owning a vacation rental in Palm Springs would be a cash cow.It’s been a lot of work and hardly any cash.” Now she says she’s hoping to eventually sell the house but currently plans to hold onto it until the real estate market improves.Another local owner, Rachel King, said she recently changed her property from a vacation rental to a long-term one because vacation rental bookings had become “non-existent.” But while the impacts of the recent slump are being acutely — if unevenly — felt across the city, it remains unclear if the trend has been just that or the start of something with more staying power.“A part of me is wondering, is this permanent?” said McDougall.“Like is this the new normal for us? And if it is, then I kind of circle back to how that is going to impact property values in that a lot more people are going to be selling or being foreclosed on.” Paul Albani-Burgio covers breaking news and the city of Palm Springs.
Follow him on Twitter at @albaniburgiop and via email at [email protected] article originally appeared on Palm Springs Desert Sun: Short-term rental prices plummet in Palm Springs; some owners struggle.
