This post has been created very quickly because of the nature of the situation, so please forgive any typo’s and forthcoming corrections.
As we know, San Antonio is a few months past the February deadline to apply for a permit to operate an STR. Well I have been tracking to about a 5-6 month time-frame from that deadline to when I would think the city would start issuing citations and fines. That was based on some case studies I informally did on other cities Host Compliance has worked with in the past couple years.
The best example of a city that went through a very similar regulation implementation process is Denver. At about this time in their process (they went through this a couple years ago), enforcement kicked in, citations went out, and active listings dropped by about 40%.
So, as I mentioned, I have been waiting for June/July because I knew that was when we would likely enter that phase. Well, we are entering that phase as of about 10 days ago.
Anybody who’s studied any fundamental economics knows the basic relationship between supply and demand as it relates to pricing. Fundamentally,if you have a lot of rental houses out there, but few people who want to rent them,you need to have low prices; if you have very few rental houses out there and a lot of people who want to rent them, you should have higher prices.
We are in an inefficient market in many ways when it comes to how supply and demand should affect pricing. In this case, I suspect many people won’t even know a change has happened to supply, and they will just see a higher occupancy and think things are going great. However,ones who know about the change, should adjust their prices up if you want to take advantage of the sudden lack of supply with no change to demand (regulation isn’t going to affect how many people are visiting the city).
The data we have says that there were 3,837 rentals active last quarter. According to data that we have confirmed through a couple sources,active rental supply has dropped by -17% in the last 10 days.
Let me be clear, a -17% change in supply is a BIG change for a 2 year period, much less 10 days. Based on where Denver, a city that has mirrored SA in this process, just 2 years ago, ended up by the time the dust settled on supply and the fact that citations probably haven’t been seen by a lot of the intended recipients yet, this drop in supply could get to 40% or more very easily.
At the time of this phase happening in Denver, they had a pretty good amount of rentals in the city relative to demand. From what I have observed and analyzed, San Antonio does not.
Let me throw a few more numbers at you to help put whats happening in context. So if there were 3,837 active houses this last quarter in San Antonio, and a 40% drop in supply means there will be 2,302 houses left to rent. Occupancy rates vary depending on what you look at, but its between 40% and 60% on average in San Antonio. Lets use the low number, 40%, to look at what the situation would be right now if we had a 40% drop in active listings.
Currently if we applied a 40% occupancy to the 3,837, that means there are 2,302 houses not booked at any given time. Factoring in the drop in supply, that would go to 767 houses not booked. If you factor in that some of those houses have bad reviews, aren’t in great locations, ect, you're looking at a situation where there simply aren’t enough houses to meet demand. If you factor in that we are in season, which means higher occupancy rates, we are already there. According to our data, there are about 2,800 booked properties in San Antonio this month. Note that 2,800 is higher than the 2,302 number we would be at if 40% of listings disappeared (remember, we are already at -17%). So using actual numbers of booked properties right now, we wouldn't have enough houses to meet the current demand if our supply was 40% less.
The point is, a lot of houses are leaving the market, and while it may not last forever, this reduction means that we should all be moving our prices up. Some people won’t, maybe thinking they will nab higher occupancy, but if this trend continues the way it historically has, then everyone will have great occupancy if your prices aren’t outrageous, some of us will just make more money than others by smartly reacting to changes in the market.
Alex Cruz & The Welcome Home Club Team