Is Future Scarcity More Important Than Occupancy?

Question

Most STR investors focus on occupancy, ADR, and annual revenue when evaluating a market.

But I've started paying increasing attention to something else:

Future scarcity.

While researching Springdale, Utah (gateway to Zion National Park), one thing stood out:

New short-term rental permits are effectively frozen.

That changes the investment equation.

When future supply is constrained, existing compliant properties may become more valuable because future investors may not be able to enter the market under the same conditions.

In other words, you're not just buying a property.

You're potentially buying access to a limited supply pool.

It got me wondering:

Have any of you invested in markets where permit caps, zoning restrictions, or regulatory changes ended up benefiting existing operators?

I'd be interested to hear examples.

David Blake · Answer

Thanks for that valuable reply Garrett.  I'm working on another report right now and can see exactly the same issues coming into play.  There's more to choosing a good and lasting investment than simply looking at the ADR's and RevPAR's etc

Garrett Crosby · Answer

This is one of the more underrated angles in STR underwriting. Scarcity of supply absolutely matters — and in markets where permits are frozen or effectively capped, existing operators do hold a real structural advantage.

I've seen this play out in parts of coastal California and some mountain towns where municipalities cracked down on STRs. Operators who got in before the freeze — and stayed compliant — effectively own a license that can't be replicated. The comps on those properties started carrying a premium that had nothing to do with the house itself and everything to do with the permit attached to it.

The caveat I'd watch: regulations can also evolve in ways that hurt existing operators (stricter enforcement, permit non-renewals, additional fees). So I'd treat it as a tailwind — valuable, but not permanent. Still worth a lot on the buy side when you can get a compliant permit in a frozen market. Springdale is a great example of exactly this dynamic.