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How vacation homes went from private escape to investment opportunities

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How the Great Recession and sites like Airbnb unleashed the profit potential of second homes


Airbnb’s meteoric climb from small startup to multibillion-dollar hospitality juggernaut has seen the short-term rental service closely associated with cities.

Local leaders across the U.S. have sought regulations and restrictions to curb the company’s impact on real estate prices and the housing supply, while some hosts have turned the home-sharing marketplace into a lucrative business that in some cases generates millions of dollars for owners of multiple properties.

But Airbnb’s impact—and that of other short-term rental services—isn’t limited to urban areas. Over the last decades, rural areas, beach communities, and ski towns have seen their hospitality and hotel markets shift as second homes increasingly become second sources of income—and targets of speculation.

According to a new report, one in every 24 homes in Hawaii is used as a vacation rental and half of the state’s 23,000 vacation rentals were owned by nonresidents. In rural northern Florida, smaller counties with just a handful of hotels have seen the beachfront home rental business boom. A report by the state’s Department of Economic Opportunity found that in 32 rural counties last year, Airbnb hosts welcomed 125,000 guests, a 110 percent increase in business year over year that generated $24.7 million.

Perdido Key Beach in the Florida Panhandle.

“When that tourism is delivering hundreds of thousands of dollars into the pockets of working-class Floridians in the process, that’s even better,” state Sen. Bill Montford, who represents many of these rural districts near Tallahassee, said in a statement.

Both Hawaii and Florida exemplify significant shifts changing the second-home market in the last decade. A new report from HomeAway, a vacation rental service, and Savills, an international real estate firm, analyzing the second-home market in U.S. and major European countries found that vacation homes have increasingly become more about returns on investment than personal recreation.

For the first time, the report concludes, the primary motivation for ownership of these properties is the potential for rental income. In the United States, 42 percent of vacation homeowners cover all their costs through rental income, 40 percent have seen increased booking over the last year, and 28 percent turn a steady profit. According to research from the National Association of Realtors, while 19 percent of home purchases were purely investment-based, more and more owners are blurring the lines.

Properties that previously saw sporadic use by owners are now on the market all season or all year. More than two-thirds of owners rent their second homes for at least part of the year to cover some or all of their ownership costs.

According to Adam Annen, public relations manager for HomeAway, the shift has been sudden. Back in the 1970s, nine out of 10 owners kept their second homes to themselves. Even as recently as 2000, eight out of 10 owners never rented their properties.

But in the decade since the Great Recession, technological shifts in the travel industry and changes in the real estate market have made it easier—and for many, necessary—to seek additional sources of income.

“In a recession, when the purse strings are pulled tighter, people aren’t looking for Bali, they’re looking for drive markets,” says Andrew McConnell, CEO of, another home-rental service. “It’s a cyclical, virtuous cycle in terms of growth.”


How the Great Recession kicked off a home-rental boom

The Great Recession and subsequent recovery, a catalyst for change across the real estate market, also sparked a shift in the vacation-rental market, according to McConnell, of As demands shifted—travelers sought cheaper trips, and homeowners needed more income—platforms such as Airbnb emerged, making mutually beneficial connections. Once-dormant properties became valuable assets.

HomeAway’s Annen says that the fallout from the financial crash of 2008 created a perfect storm for growth in the vacation-home market: Many long-time second-home owners initially didn’t expect to rent. The report found that 49 percent had no intention to invite anyone aside from friends or family. But after the 2008 crash, those same people often found themselves in a bind, unable to afford the cost of a second home, yet facing a depressed real estate market where selling a vacation property would have meant taking a significant loss.

According to the HomeAway/Savills report, of the group of second-home owners who never expected to rent, 42 percent not only rent out their property today, but also cover the entire cost of the home through renting.

“The market for renting vacation homes has grown nearly five times since 1999,” says McConnell. “There’s a realization that the best use for these assets has changed.”

The majority of properties have always been owned by the same demographic, says Annen: investors in their 40s and 50s with the capital to purchase a second home. What’s changed in recent years is the way new owners have used rental property as a justification to buy, in effect opening the door to new potential owners.

HomeAway estimates that 28 percent of the vacation rentals listed on the site are co-owned. In addition, there’s been a rise in owners purchasing vacation homes before buying primary residences, especially in expensive markets like San Francisco and New York. Younger owners are buying vacation homes in the Hamptons or California wine country to build equity and work toward buying their own home in the city—or just continue to invest in vacation properties.

How active rental homes change communities

There’s evidence that vacation-home rentals via Airbnb and other sites aren’t just cannibalizing traditional hotel stays, but creating new markets and new lodging opportunities.

According to a March 2018 study by MIT and Harvard University researchers, hospitality industry revenues would have been 1.5 percent higher since 2014 if Airbnb didn’t exist. But researchers also found that 42 to 63 percent of Airbnb stays would not have translated into hotel bookings if Airbnb weren’t available. Those travelers would have stayed with friends or family, spent fewer nights on vacation, or simply not taken the trip.

It’s arguable that a significant portion of these new stays, or room nights, came from vacation homes or second homes that recently entered the market. After all, that’s been one of the most attractive parts of Airbnb and similar services: the ability to stay in a unique home, rather than a cookie-cutter motel in a tourist-trap beach town. A recent Airbnb report about rentals in Long Island, New York, backs this up; rentals have been up nearly 40 percent in Nassau County, mostly from New Yorkers seeking more unique, private, and affordable beach house rentals.

According to McConnell, the increasing availability of vacation homes for rent has changed small towns and rural communities, often for the better. Renting out vacation homes activates empty inventory, and in doing so, creates a more vibrant community.

“The traditional owner of these properties may only visit three or four weeks of the year, and it was fine that the home sat empty [for the rest of the time],” he says. “These communities, therefore, operated on peaks and valleys. They’d exist on weekends, when people were there, and you’d effectively have migrant workers who would come to town for certain periods of time. Now, with guests staying in these homes the rest of the season, [you] can attract new people into these communities.”

Services that rented out vacation homes existed well before Airbnb. But technology has made the market more efficient and lucrative. Today, the average vacation rental in the U.S. costs $319,000, has four bedrooms, and earns its owner $36,000 a year, according to the HomeAway/Savills report. The main states for the vacation-rental market are Florida—where 14 percent of rentals are located, mostly in beach areas of the Panhandle and near theme parks in Orlando—followed by California and North Carolina.

HomeAway’s Annen adds that the growth of the vacation-rental market can feed on itself; an increased number of properties on the market means new areas for travel and tourism, which in turn create more investment opportunities for potential second-home investors.

Local beach and ski communities sound more wary. In Portland, Maine, residents of the popular New England destination have discussed taking action against “unhosted short-term rentals,” potentially limiting rental dates.

And in Summit County, Colorado, which contains Breckenridge and other famous ski destinations, local politicians are considering raising property taxes for short-term rentals, an attempt to make those properties pay for the city services that a constant stream of guests utilize. Roughly one in five homes in the county are used for short-term rentals.

“We have people who don’t live in the area who own 10 or 15 condos,” Beverly Breakstone, the assessor in Summit County, told the Denver Post. “We’re thinking from the fairness point of view.”

The debate in these vacation communities about the impact of short-term rental services quickly begins to resemble the conversation taking place at a larger scale in cities, a conversation that hinges on issues of displacement, housing supply, and the freedom of property owners to do as they please.

McConnell says this growth is all about getting the most out of the land. But in a time when home ownership has become more difficult for many Americans, second-home speculation showcases another impact of the Great Recession: the widening growth of inequality.