'Airbnb Effect' Changing SoCal's Real Estate Market

PALM SPRINGS, CA — It's not a great time to buy a home in Southern California, but crackdowns on short-term rentals have created unanticipated cracks in the market for buyers in vacation havens such as Palm Springs.

Housing prices are softening in many sought-after neighborhoods after a crack-down on short-term rental properties have made it difficult for some owners to afford their properties by renting them on Airbnb, the Los Angeles Times reported. The number of short-term rentals allowed by the city in any Palm Springs neighborhood is capped at 20 percent of the homes. In Airbnb-saturated neighborhoods, that pretty much rules out buyers hoping to turn the home into a short-term rental income property. That's taking a toll on property values in the city, according to reports.

Palm Springs is one of Southern California's most popular vacation destinations, and over 5,900 homes across 66 neighborhoods are registered as Airbnb and short-term rental properties, according to the LA Times and KTLA. Ten of those neighborhoods are considered 'over-permitted.'

For owners of short-term rental properties in Palm Springs, nightly rates can range from $200 to over $800 a night, according to the Airbnb website. Many rentals in the neighborhoods of Desert Park Estates, El Mirador, El Rancho Vista Estates, Gene Autry, Lawrence Crossley, Movie Colony East, Racquet Club Estates, Ranch Club Estates, Sunmor, and Vista Las Palmas are over the 20 percent limit, according to the Times report. Many homeowners in those areas who don't have permits or face losing their permits are looking to sell.

The Racquet Club Estates considered a high-demand Palm Springs neighborhood, has over 40 percent of homes classified as short-term rentals, according to a KTLA report.

Patch examined the homes for sale in that area.

Each property averages 1,700 square feet, with three bedrooms and two baths, and all were built in the late 1950s, designed by famed architect William Krisel of the Alexander Construction Company. Listings show over half of these for-sale properties were purchased in the pandemic market between 2020 and 2021. Two of the homes were last purchased between 2008 and 2009.

According to the LA Times, sales are down and homes are "languishing on the market for months." As of Friday, the oldest Racquet Club East listing has been on the market for 115 days. The newest property in that neighborhood just hit the market this week.

Current prices range from $1.5 million to $895,000, according to Realtor.com. If you plan on purchasing a home to use as a short-term rental, be sure to check with the city first. According to Palm Springs city ordinances, STR permits are not transferrable to new owners after the sale of the property.

Real estate agent Tim Sarlund told the Times his client's home values have plummeted and some pandemic-era buyers are facing foreclosure.

“Homes that used to pull $1.2 million are struggling to get $800,000,” Sarlund told the Times. “My neighborhood has dropped 30% to 40% in value.”

Desert Sotheby's International Realtor Craig Chorpenning discussed the changes to the market in the greater Palm Springs area with Patch.

"Overall sales activity is higher than it was a year ago, and what I see is that some speculative buyers got caught in a tough spot, where pricing normalized, and city regulation changed," he said. "There are certain spots of the market that are softer than others. This creates some buying opportunities, but it's not as widespread as the picture may be painted."

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