Regulation is the risk that never appears in a revenue projection and the one most likely to end an investment outright. Every jurisdiction sits in one of four positions, and identifying which answers most of what matters. This is where it stood in 2023, which was the year the market cooled and underwriting started to matter again.
What 2023 changed
2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.
The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.
Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.
How it works
Regulation is the risk that never appears in a revenue projection and the one most likely to end an investment outright. Every jurisdiction sits in one of four positions, and identifying which answers most of what matters.
- State preemption of bans, as in Arizona and Idaho, is the strongest protection available because it removes the possibility that the property becomes unable to operate legally.
- Local control with light regulation is comfortable and offers no guarantee against a future tightening.
- Local control with permit caps cuts both ways: a barrier when buying and a moat once in, because capped supply protects against rate compression.
- Effectively prohibitive jurisdictions, including New York City, Denver, Atlanta and Charleston for non-owner-occupied purchases, are closed regardless of the numbers.
What that meant in 2023 specifically
The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.
The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.
2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.
Where it goes wrong
The failure modes are consistent across years, which is itself useful information: they are not caused by the market cycle, so a different year does not protect you from them.
- Assuming a state-level headline settles a parcel-level question.
- Skipping the homeowner association declaration, which binds independently and which state preemption does not reach.
- Treating prior operation as evidence of legality or of transferability.
What a buyer should have done in 2023
2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.
The underwriting discipline does not change with the year. Twelve individual monthly revenue figures from a comparable set you assembled, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.
We screen roughly a thousand deals a week and eliminate about 98% of them. That ratio has held across every year on this site, through the boom, the correction and the stabilisation, because it is a function of how listings are selected rather than of the market.
What generalises, and what does not
Reading a year in isolation is the most common analytical error in this business. 2023 had its own conditions, and someone who learned the wrong lesson from it carried that lesson into a market that no longer rewarded it.
What generalises is the mechanics above. The definitions, the tests, the sequence and the failure modes are the same in every year on this site, which is why they are worth learning properly once rather than relearning each cycle.
What does not generalise is the environment: the cost of capital, the depth of supply, the bonus depreciation percentage, and the regulatory posture of a given jurisdiction. Those change, sometimes abruptly, and a model that treats them as fixed is a model that was only ever right about one year.
The practical consequence is to build the analysis so the environment is an input rather than an assumption. A property that only works at one interest rate, one occupancy level and one tax treatment is not an investment thesis, it is a bet that nothing moves.
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Frequently asked questions
What was different about short-term rental regulation in 2023?
2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.
What was the main risk in 2023?
The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.
What were financing conditions like in 2023?
Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.