Last Call for Nantucket Short-Term Rentals?

Short-term vacation rentals are a lucrative source of income for Nantucket property owners and an increasingly large share of the town’s budget. iStock photo

On an island where high-end properties rent for over $30,000 per week and one oceanfront estate is asking $100,000 for a week’s stay, Nantucket property owners have powerful incentives to offer their homes as vacation rentals.

Demand and rental prices surged in recent years, along with the presence of outside investors buying properties specifically for short-term rentals.

A recent state Land Court ruling and a May Nantucket Town Meeting vote dealt a pair of blows to Nantucket’s short-term rental industry. One major investor is seeking to unload a portfolio of rental properties that came to symbolize the potential of summer homes as big business, and questions are swirling around the status of next year’s bookings.

“We are getting questions from renters about whether the lease they booked is going to be honored by the owners next summer,” said Stephen Maury, principal broker at Nantucket-based Congdon & Coleman Real Estate.

For 2025 listings, the agency has been advised to add language in rental agreements that the owner can cancel the reservation at no penalty if short-term rentals are banned by new regulations.

“It will have a chilling effect on who’s willing to put down a deposit on a rental,” Maury predicted.

Real estate and business groups predict that removing homes from short-term rental use will remove a lucrative source of local tax revenues while contributing to the island’s housing shortage.

“When you’re talking about $3 million-plus homes, these are homes that will probably be bought up by second- or third-home owners,” said Ryan Castle, CEO of the Cape & Islands Association of Realtors. “If they aren’t vacation rentals, they will be vacant for the vast majority of the year. If that’s the ultimate goal, you’re going to see the effects on Nantucket’s economy.”

The short-term rental market is a growing source of local tax revenues. In 2019, the state legislature gave Massachusetts communities the power to include short-term rentals in their occupancy taxes. Nantucket’s short-term rentals generated $4.8 million in the summer of 2023, according to data obtained by the Nantucket Current, toward the town’s $115 million annual budget.

This four-bedroom cottage overlooking Nantucket’s Quidnet Beach is listed by online service WeNeedaVacation for weekly rentals starting at $14,000. A state Land Court judge issued a ruling that’s thrown the future of properties like this in doubt. Photo courtesy of WeNeedaVacation

Backlash Against Commercialization

Concerns about outside investors snapping up luxury properties for resort-like rentals and complaints from neighbors about noise and nuisances have prompted a series of attempts to regulate short-term rentals on the island in recent years.

The Copley Group, a Boston real estate company founded by CEO Norman Levenson, acquired a dozen residential properties in recent years and began marketing them as “the Nantucket Collection,” listing some for up to $35,000 per week. The Copley Group recently placed 10 of the properties on the market for a combined $38.9 million through a listing at Maury People Sotheby’s International Realty.

Copley Group did not return messages seeking comment, but the company’s decision may have been prompted by a March state Land Court ruling that short-term rentals are not legal as a principal use of a dwelling under Nantucket zoning.

The ruling settled a dispute between resident Catherine Ward and her neighbors Linda and Peter Grape, who offered their home for vacation rentals at up to $8,000 per week. Associate Justice Michael Vhay ruled that short-term rentals are not allowed as principal uses of a dwelling in Nantucket residential zoning districts.

In what has become a spring tradition, Nantucket Town Meeting again took up the issue of new short-term rental regulations in May, rejecting an article that would have made short-term rentals legal in residential districts.

At the meeting, Town Counsel John Giorgio said the ruling and vote would not affect existing contracts for summer 2024.

Steve Adams

Bookings Retreat after Pent-up Surge

Brokers say demand has softened for summer 2024 bookings, following a post-pandemic surge from pent-up demand.

Congdon & Coleman has 788 active listings that represent about half of the island’s inventory, said Maury, the principal broker. Vacationers are opting for shorter stays, with average bookings of eight days, down from an average of 12 days in the previous five years.

Average nightly rent this year is $1,397, compared with $1,064 in the three years leading up to COVID, potentially driving the trend toward shorter bookings, Maury said.

Online listing services such as WeNeedaVacation.com also reports a slight decline in Nantucket bookings since 2023. Overall bookings for the May-October period are down 8 percent from the previous year, but 12 percent higher than 2019, said Jim Reese, WeNeedaVacation’s chief operating officer.

The legal questions about short-term rentals could come to the forefront in the coming months. Nantucket homes often are reserved as early as September of the previous year, Reese said. And factions on both sides of the zoning debate have promised to revisit the issue at a special town meeting this fall.

“During 2021, homeowners could name their price and people would be willing to pay,” said Spencer Heydt, an agent with Fisher Real Estate Nantucket. “I don’t think that’s the story anymore. There’s more competition and demand isn’t as high as it was in the past.”

The firm also has added a clause to leases for 2025 protecting both owners and renters if new regulations ban short-term rentals, Heydt said.

“With the whole short-term rental debacle, we’ve kicked the can down the road and this debate has been going on for three years and we haven’t come to a compromise,” she said.

Bruce Percelay, whose Mount Vernon Co. owns three boutique hotels on the island, said the two sides remain entrenched in what remains a polarizing divide.

“Commercializing the home business is something that is a two-edged sword,” Percelay said. “This could have a very positive effect on hotels, but the big concern is that it could reduce revenue to the island in a meaningful way. The question is: how will that be made up? Will those people stay in hotels? The jury is still out.”