The mild March weather has brought spring fever to Cape Cod a little earlier than usual. The sun is out, the ospreys are returning, daffodils are popping, and the Cape Cod Chamber is buzzing with preparations for the summer, including calls from the media, businesses, and others seeking answers to the perennial Cape Cod question: “What’s this summer going to look like?”
Every year around this time, the Chamber is asked to forecast how vacation rentals will fare in the upcoming summer tourism season. On the surface, this may seem like a simple question. However, the performance of vacation rentals (a.k.a. short-term rentals) is, in reality, one of the most complex things we measure at the Chamber. The best available data sources still have significant flaws, and information often doesn’t always line up from one source to another. It is difficult, for example, to even quantify a total number of short-term rentals in our region. Many rentals do not follow state registration requirements, making them difficult to track, and marketplaces like AirBNB and VRBO can include duplicate listings for the same properties.
Instead of relying on a single source of information, the Chamber cross-references multiple data points and consults with industry professionals to get the most reliable estimates for the number of registered rentals, advance booking performance, and prior year occupancy trends – resulting in the highly sought-after “summer vacation rental outlook.” So, what is the data telling us about the upcoming season?
- Rental supply is increasing. The number of registered short-term rentals on Cape Cod is up this year, according to the Massachusetts Department of Revenue – nearly 18,000 rentals this year, compared to around 16,000 at the same time in 2023. Local operators are also reporting an increased supply of rentals compared to previous years.
- Demand and prices are also on the rise. Demand for rentals has grown but has not matched pace with the increased supply. Many in the real estate and rental industries are expecting a market adjustment, but this is unlikely to stem the growth of short-term rental prices, which have been on a steady climb for many months now – even in “shoulder season” months.
- Bookings are on par with this time last year. Rental operators expect this year’s to largely mirror what we saw in 2023, as rental activity continues its trajectory to match pre-pandemic levels.
- Performance is not the same for hotels and motels. When we contrast the performance of short-term rentals with hotels, motels, and bed and breakfasts, a different sort of picture emerges. In the traditional lodging market, both supply (number of available room nights) and demand (booked room nights) are slightly down. In 2023, traditional lodging rates adjusted downward, even during peak months like August. We are also losing hotel rooms, as more properties close their doors or convert to housing.
But the summer rental outlook isn’t the full story here. What does the performance of short-term rental properties tell us about Cape Cod’s regional economy? How do short-term rentals impact our local communities, for better or for worse? The answer is…it’s complicated.
Short-term rentals are so ubiquitous that it’s easy to forget the current flavor of these operations is a relatively recent development. While Cape Cod homeowners have opened up their properties to visitors as vacation rentals for as long as most people can remember, online marketplaces like AirBNB and VRBO have made it much cheaper and easier to list and rent a home. Increased demand for outdoor recreation-adjacent areas during the pandemic, coupled with record low interest rates, resulted in a rush of new home purchases, many of which were acquired to be used primarily as a vacation rental.
The short-term rental market is a significant contributor to the $1.5 billion dollar tourism industry that anchors Cape Cod's economy. Rentals contribute a significant amount of tax revenue, both locally and at the state level. In 2023 alone, short-term rentals generated more than $20 million in rooms tax, accounting for more than half the total rooms tax revenue for the region. These rentals are also significant contributors to the Cape & Islands Water Protection Fund, which helps towns subsidize critical wastewater infrastructure projects, alleviating the impact on residential taxpayers. Rentals provide economic opportunity for residents to supplement their income and fill a critical gap in lodging supply for communities that lack large-scale hotel and motel properties.
Unfortunately, short-term rentals aren’t always viewed in a positive light by residents. Regulation and oversight of rentals has proven challenging for municipal and state officials, and efforts – from capping the number of rentals per property owner, to increasing taxes and registration fees - have been introduced in several Cape Cod communities. The meteoric rise in the prevalence and popularity of short-term rentals has also frequently been tied to rising housing costs and the decline of traditional lodging room supply.
The recent ruling by the Massachusetts Land Court in the Styller case raises serious questions about how local zoning addresses - or, rather, doesn't address - the use of residential properties as short-term rentals. In Styller, the court found that short-term rental activity was not allowed as a primary use. The particulars of local zoning vary from community to community but the fundamental question is whether the use of a private home as an income-generating rental property amounts to running a business.
The answer is…TBD, and the answer could be different from one town to the next, depending on municipal bylaws.
In most cases, zoning doesn’t define residential “use” by length of occupancy or rental status. No towns on the Cape include a definition for “short-term rental” in their zoning bylaws. Some Town zoning bylaws, for instance, don’t even have a definition for short-term rentals, or include them in zoning use charts.
The Styller case opens up many questions and enforcement issues, presenting an existential dilemma for towns to decide how and if they want to define short-term rentals. Nantucket Town Meeting voters will be faced with a decision as soon as this spring, when they'll be asked whether to define short-term rentals as commercial operations, or continue to view them as a variation of residential use. Cape Cod towns and their voters will be watching.
And if your head is spinning, take a deep breath and smile knowing that March is in the rearview mirror and another summer in paradise is on the horizon.