Is there an "Airbnb Bust"? A Case Study of Coastal West Michigan

Kate Stoermer Author

I went deep into the data to assess what's going on in my rental market - and up and down the entire West Coast of Michigan.

Coastal West Michigan, a secondary travel market for vacationers, enjoyed the explosion of short term rental growth in 2020 into 2021. Due to pandemic-related travel disruptions, regional travel dramatically increased with strong demand for single family homes for vacationers - and remote workers. With dampening pandemic fears, a return to air travel, and hotels almost back to pre-pandemic booking levels - as well as a sense of oversaturation of short-term rentals, a study was conducted along coastal West Michigan to assess the state of the short term rental industry in the region. Findings from this study parallel reports across the industry - rental industry with flat revenue, significant supply growth and steady demand, resulting in overall lower occupancy rates for individual properties and lower revenue as well.

The incredible demand for short term rentals in 2020 into 2021 - outstripping supply and causing prices to increase and revenue to jump, saw a sharp increase in short term rental investors swooping in to set up shop. The forecast for 2023 suggests the tide is turning for short-term rentals. The study of the coastal communities from New Buffalo to Glen Arbor, Michigan comparing 2021 to 2022 data highlights this with flat revenue and over 64% more supply while the US Travel Association reports leisure travel is steady, supported by reports from Deloitte which even suggests a softening of demand may be ahead .

Coastal West Michigan dots the shores of Lake Michigan with charming coastal towns, beaches, and breathtaking vistas. The more than 300 miles of shoreline draws visitors regionally from across the state of Michigan, greater Chicago, Indianapolis, across Ohio and beyond. With wineries, breweries, activities for kids, shopping, hundreds of miles of trails and year - round activities in addition to the beaches, Coastal West Michigan is a vacationer's delight. In 2011, Sleeping Bear Sand Dunes National Lakeshore in Glen Arbor was voted “Most Beautiful Place in America” by Good Morning America viewers in 2011.

A study of data available in AirDNA - a data clearinghouse for short-term rental data, looked at the question of revenue and supply in cities along Coastal West Michigan. Data from 34 communities along the coast was pulled and aggregated - Annual Revenue Growth, comparing revenue between 2021 and 2022 generated by those markets, and the number of short-term rentals active on the booking platforms in quarter 1 of 2021 and quarter 4 of 2022 in each market. In interpreting the additional research into recent regulatory changes was invested as well, as discussed.

FINDINGS

Aggregating the data across 34 communities, the average revenue growth was flat. The range was from 17% growth (Lakeside) to a 15% decrease (Muskegon) in revenue from 2021 to 2022 and distribution was even with zero growth being the median. Figure 1 provides the top 5 communities in terms of annualized revenue growth and the 5 communities that experienced the most revenue loss.

Overall supply grew 64.69%, from 3798 rentals reported on the booking platforms to 5904 between 2021 and 2022. The range from 152% (Empire) to 3.17% (Union Pier) with six communities seeing over 100% growth (Empire, Stevensville, Bridgman, Muskegon, Frankfort, Onekama) with the median being 54.55%. Figure 2 highlights the ten communities that showed the most growth in terms of supply.

Coastal West Michigan is anchored by a number of larger towns. In terms of the largest short-term rental markets in Coastal Michigan, Figure 3 provides the top ten short-term rental markets in the study, based on the number of available rentals in quarter 4, 2022. In terms of ranking, the top 4 largest markets retained their positions into 2022, while Union Pier slid from 5th largest in 2021 to 8tht, Frankfurt joined the list and Glen Arbor dropped off.

Arbitrarily grouping data by geography - Figure 4, highlights that the northern most area experienced both the greatest gain in annualized revenue and saw the biggest overall percent change in supply.

DISCUSSION

A highly relevant question to determine investability of markets when it comes to short-term rentals is regulations. New Buffalo issued a moratorium on new short-term rentals in October 2020 and an updated ordinance limiting short term rentals in November 2021. Given the significant growth in other markets in Coastal West Michigan, New Buffalo’s modest growth in terms of supply - although 23%, it is on the lower end of the list in terms of growth which suggests there is at least a correlation if not a causative relationship between the regulations and the growth being lower.

Using New Buffalo as an example, however, it also experienced modest gains in terms of annualized revenue - which many markets did not. The economic laws of supply and demand suggests, perhaps, that the regulations may have positively impacted on the revenue potential for existing rentals in that market, perhaps suggesting supply kept with demand more so than in other areas, perhaps. To try to discern any patterns, it makes sense to dig deeper.

Figure 4 provides us data regionally. While the southwest region - New Buffalo to Stevensville showed 3% annualized revenue growth and a 53% supply increase, a big contributor to significant growth was seen in both Bridgman and Stevensville - which are among the smallest short-term rental markets. Those markets more than doubled the number of available rentals - and yet saw a drop in revenue.

The most northern region in this study saw the highest annualized revenue change at 5% and most increased growth, annualized - more than doubling the number of rentals in the overall area. Empire is the only community that hits both the top ten in terms of growth and top five in terms of annualized revenue growth. This market likely has not outstripped demand yet, despite significant increase in the number of rentals from 2021 to 2022.

It is important to note that the community data reported by AirDNA reflect multiple localities, therefore encompassing the possibility of having regulations in one area within a community but differences at the locality level may exist.. For example, the city of South Haven - the largest short term rental market in Coastal West Michigan, has mature regulations and a cap on the number of rentals allowed in the city, whereas the nearby township does not yet have any regulations (notably they are looking to enact regulations).

Muskegon hit the list in terms of significant growth by numbers - 123% and significant annualized revenue loss at -15%. Muskegon conducted a survey in December 2022 and plans to look at housing issues in the city of Muskegon, including whether guidance for short term rentals need to be changed. The National Association of Realtors reported in November 2022 that the average cost of housing sold in the area was over $350K, but RedFin’s quarterly report notes the average cost of housing sold in Muskegon was $152K. This leads to the question if the significant uptick in supply stems from the lower cost of housing in Muskegon comparatively - and demand not keeping up with supply as properties were listed on the short term rental market.

CONCLUSIONS

When supply outstrips demand, the signs are clear - revenue drops. While in aggregate Coastal West Michigan has steady annualized revenue based on AirDNA data, it has experienced significant growth in terms of short-term rentals available on the booking platforms. National indicators suggest demand is steady and softening. The study revealed that many markets experienced significant growth in supply and a drop in revenue - sure indicators of the “Airbnb bust”. The more northern areas of Coastal West Michigan haven’t yet hit the ceiling - experiencing the highest revenue gain and largest overall percentage of growth in terms of supply.

What can Investors take away from this? When supply is up, demand is steady, and revenue is stable - the individual owner likely will see less revenue and less occupancy. For individuals who bought in the last couple of years, that means covering the expenses of short-term rental properties and paying the mortgage and taxes may mean the endeavor is less profitable. But like any investing endeavor, having a realistic approach to the numbers and a deep understanding of the industry, short-term rentals can still be a good - and fun, investment even in the midst of the “Airbnb bust"; it may just take a bit more work to find properties that offer unique attributes that will stand out among the sea of competition.

******

Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or looking for some help with your existing business, my goal - passion, and new career, is to help YOU succeed. I've coached hundreds of folks getting started, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences all in Short Term Rentals... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat! I work with landlords looking to pivot, owner - operators seeking some support to optimize, even businesses looking for some expert insights.  From sourcing deals to automation,  education to strategic planning, The CEO Host is here to help you succeed.