How Airbnb Regulations Can Impact Your Rental Business

Key Takeaways

• Airbnb regulations can either restrict or create opportunities for STR hosts, impacting supply and demand dynamics in each market.
• Understanding local regulations is crucial, as stricter markets can provide advantages like reduced competition and higher pricing power for compliant hosts.
• Staying informed and using data to adapt to changing regulations can help STR investors navigate challenges and maximize profitability.

In recent years, regulation has become a bit of a dirty word in the short-term rental (STR) space. On paper, Airbnb regulations may sound like an obstacle. They’re seen as a headache for local hosts or a surefire way to hinder investment plans.

All the pessimism around Airbnb regulations isn't necessarily warranted, though. In some cases, it’s actually lucrative to invest in strictly regulated markets that have a finite supply of available STRs. Plus, compliance with Airbnb regulations is a way to demonstrate responsibility and competence to your lender if you’re financing an STR property.

It can also be helpful to think of regulation as just another data point. At the end of the day, you cannot fully understand your market’s earnings potential without first considering the influence of regulations—and whether that influence will be positive or negative.

Strict Versus Relaxed Regulations: What’s the Difference?

Imagine Airbnb regulations on a spectrum. At the far left are markets with no restrictions whatsoever. At the far right are markets that have outlawed STRs entirely. In the middle is where most markets live. 

Mid-level regulations could require simply registering your STR with the city. City officials want to know who you are, where your STR is located, and who they should contact in the event of a complaint. Many cities track and issue penalties for an excessive number of complaints. These include trash buildup, noise violations, and overcrowded parking, to name a few.

In stricter markets, cities may regulate what STR owners can and cannot do with a property. 

This includes:

• Limiting the number of active STR units a single operator can own
• Only allowing owners to rent out properties they’re also occupying at the same time
• Only allowing stays that are 30 days or longer
• Requiring owners to collect and pay specific taxes

Read our complete guide on understanding short-term rental regulations for an exhaustive list of Airbnb regulations that may apply to your rental.

Airbnb Regulations Aren’t Set in Stone

Like all laws, STR regulations can evolve over time. Just because a market is relaxed now doesn’t mean it won’t become stricter or vice versa. Such changes have to go into consideration when you make your investment decision.

New York City offers a good example. All eligible hosts must register with the city or hold a Class B status, which is usually for hotels. The registration process is more rigorous compared to other state requirements, as it includes matching the listing address with the city's records and sharing hosting and performance data with the city. In addition, hosts must live on-site and they can only welcome 2 guests to their property at a time. Non-compliance can lead to a complete ban on short-term rentals for that listing. 

These changes to Airbnb regulations went into effect in September 2023, completely changing the STR hosting experience and industry landscape from what it looked like as recently as two years ago. The primary work-around to registration and the related requirements is to set your minimum night stay to 30 days or longer—a pivot that many hosts made, with listings for stays of 30 nights increasing by 29% over the last year. Our article on the effects of the NYC crackdown reports on this in more detail.

Keep in mind that, if you can invest in an STR property before new regulations take effect, you may have a competitive advantage as you become grandfathered into the new status quo.

How to Self-Educate on STR regulations

Airbnb offers an online repository that details regulations in dozens of large markets in the United States and abroad. Vrbo also offers a contact email address for STR operators seeking regulation information for specific markets. However, it’s often necessary to directly review your local government’s policies. 

We cover 10 ways to find information on your local Airbnb regulations in this article.

Keeping an eye out for future regulations is just as important as understanding current ones. It’s always worthwhile to carefully study all facets of your investment market.
Another important consideration is whether you are financing or outright purchasing an STR property. When investing with your own money, the risks are yours and yours alone. If you’re investing with a bank or lender’s money, however, they’ll want to know your investment is legal and abides by all local regulations.

When Are STR Regulations a Good Thing for Investments?

Airbnb regulations can directly influence the supply-and-demand equation in any given market. Think about it: if a local government only grants a finite number of short term rental licenses, and you’re able to secure one, then you’ve struck investment gold.

In this situation, you’ll always know exactly how many competitors you have. This provides a major advantage when it comes to pricing and profits. It means other investors can’t suddenly swoop in and steal your slice of the market share.

A good sample market is Maui, Hawaii, although your stance on recently proposed regulatory changes may depend on how your property is categorized. Maui recently proposed a new set of strict regulations that could phase out up to 7,000 short-term rentals, particularly those in apartment-zoned areas. This reduction aims to address housing affordability issues and preserve residential neighborhoods. 

While this is a significant setback for many operators, those who hold existing, compliant licenses are poised to benefit greatly. With a dramatic decrease in STR supply, these operators could see increased demand and higher nightly rates as fewer units are available for tourists​.

In another example, Denver has implemented a unique set of STR regulations that include mandatory licensing and limiting STRs to primary residences only. While these rules might appear restrictive, they have created a competitive advantage for compliant hosts by reducing the overall number of available short-term rentals in the city. Limited supply translates to higher occupancy rates and revenue for eligible hosts. Plus, laws that favor individual hosts discourage vacation rental management companies from entering and potentially monopolizing the STR market.

Cases For and Against Airbnb Regulations

AirDNA data reveals that some of the best markets for rental arbitrage are those with moderate to strict regulations. Cities like Nashville and Charleston, South Carolina, are prime examples. While these markets can be challenging for newcomers, they can also present lucrative opportunities for experienced hosts willing to navigate the complexities of local regulations.

AirDNA data also shows dramatic impacts to the STR industry in international markets where regulations are strictest. New licensing requirements have historically caused a substantial drop in active listings. This was the case in both Amsterdam and Sydney when new regulations went into effect in 2021. 

It’s worth noting that some governments aim to restrict STRs for cultural reasons, like reducing the effects of gentrification. At the same time, a strong STR presence can offer a real economic boon to many markets, small and large.

The most common argument against strict Airbnb regulations is that they’ll hamper the local economy. Often, that’s true. A strong STR scene can certainly help support small businesses, accommodate more year-round travelers, and raise a city’s profile as a legitimate destination market. 

A flexible supply of STRs may also allow a market to better support one-off attractions like music festivals or sporting events. This lessens the need for overbuilding hotels that will remain half-empty for the rest of the year, and it encourages out-of-towners to lodge in unique neighborhoods and more closely connect with local culture.

STRs can also give new life to underused real estate. Vacant housing units, meaning houses, condos and apartments without a permanent resident, are given a new life—and greater foot traffic—when they’re listed on platforms like Airbnb. In highly seasonal markets like ski towns and beach destinations, making private vacation homes accessible to travelers year-round extends the life cycle of tourist-driven boosts to the local economy.

It suffices to say that every market is different. It’s misleading to declare that regulations are wholly positive or wholly negative. Believing so can mislead you on your journey to achieving STR success.

Using AirDNA Data for Advocacy

AirDNA’s mission is to support STR entrepreneurs far and wide with actionable analytics. We can be a valuable partner to anyone seeking fair regulations. Our data provides concrete evidence of the impact of STRs—who they attract, where those travelers come from, and a measurement of their impact on local economics.

AirDNA data is being actively leveraged as an advocacy tool in the earlier examples of Maui, Hawaii and Denver, Colorado. During Denver’s 2024 legislative session, policymakers introduced a proposal quadrupling property taxes on all STR properties renting over 90 nights a year. The Colorado Lodging & Resort Association (CLARA) used data to demonstrate how higher property taxes would drive vacation rental operators out of the market. They successfully killed the bill by demonstrating that the forecasted tax revenue generated from the measure was unrealistic and based on faulty assumptions about STR host behavior.

In Hawaii, the Maui Vacation Rental Association is using data from the Maui Realtors Association, AirDNA, and other sources to demonstrate to lawmakers that there are more effective ways to generate resources for affordable housing in lieu of a ban, such as additional taxes.

AirDNA’s publicly sourced data accounts for STR properties that are operated with and without short term rental licenses. We routinely analyze which listings are still active after one year on the market. A sudden and significant decrease in active listings is often an indication of new regulations or better enforcement of licensing requirements. The fluctuation in active listings can indicate whether or not a market is currently sustainable for hosts.

How AirDNA Helps You Assess Airbnb Regulations

AirDNA uses a proprietary algorithm to assess the regulatory environment in short-term rental markets. This Regulation Score is one of five indicators factored into our overall Market Score, a comprehensive metric designed to evaluate the strength of an STR market.

The Regulation Score answers a critical question: Can you run a short-term rental business here without getting into legal trouble? 

The score evaluates host and property behaviors to identify potential regulatory challenges and enforcement. In general, a higher Regulation Score indicates a lower level of regulation and enforcement.

Here’s what gets factored into your market’s Regulation Score:

• Percentage of Hosts with Multiple Properties: Markets with a higher percentage of hosts owning multiple properties typically have fewer regulatory restrictions on large-scale investors. The higher this percentage, the higher the Regulation Score.
• Percentage of Properties Available Full-Time: Measures the proportion of properties that are rented out for more than 80 days in the past year. A high percentage suggests lenient regulations around full-time rentals, contributing to a higher Regulation Score.
• Ratio of Entire-Place Rentals: Compares the current percentage of entire-place properties against the highest percentage observed in the past 12 months. A higher ratio of entire-place listings indicates a more relaxed regulatory environment, leading to a higher Regulation Score.
• Percentage of Properties Actively Listed After One Year: Reflects market stability and regulatory consistency. A high percentage of properties still actively listed after one year suggests fewer disruptions from new regulations, translating into a higher Regulation Score.
• Percentage of Properties with Instant Book Enabled: In markets with low regulation, hosts are more likely to enable Instant Book. A high percentage of properties using Instant Book suggests a lack of stringent requirements, leading to a higher Regulation Score.
• Percentage of Properties Featuring a License Number: Indicates the level of regulation enforcement. A high percentage of properties displaying a short term rental license number often points to stricter regulatory oversight, resulting in a lower Regulation Score.

This scoring system helps you navigate complex markets and identify investment opportunities in locations with favorable regulation environments.

Navigating STR Regulation Changes with AirDNA

Adapting to changing Airbnb regulations can be daunting for short-term rental hosts, but leveraging the right data can turn uncertainty into opportunity. By analyzing key metrics like occupancy rates, revenue forecasts, and booking trends, hosts can adjust their strategies and thrive even in the face of new rules.

Adjust pricing strategies based on occupancy data

One of the most immediate responses to regulation changes is to adjust pricing to match shifts in demand. For instance, if a city enacts stricter licensing laws that reduce the number of short-term rentals, the remaining properties may see a surge in demand. Hosts can capitalize on this by increasing their average daily rates (ADR) based on occupancy forecasts and local competitor pricing trends. 

Conversely, if regulations or the lack thereof lead to an increase in supply, hosts may need to consider lowering prices to remain competitive.

Use revenue forecasting to plan ahead

If new regulations impose caps on the number of nights a property can be rented annually, hosts should monitor their monthly and seasonal booking patterns to optimize availability for high-demand times. 

AirDNA also allows hosts to project revenue based on historical data, enabling them to identify revenue potential across time in addition to occupancy. This ensures they can maximize bookings during peak periods when traveler demand—and revenue potential—is highest.

The Bottom Line: Regulations Affect All Vacation Rental Markets Differently

Regulations are often thought of as black or white, altogether good or altogether bad. But the reality is—surprise, surprise—they live in a gray area. For that reason, we find it more practical to assess the impact that Airbnb regulations have on local markets. Those findings then factor into AirDNA’s tools and resources, which are designed to help you make the best possible decisions for your STR business.

For more insights on the current state of the American STR industry, explore our recent Outlook Report.