Airbnb and other short-term rental platforms have fundamentally changed the way people travel and vacation. By enabling homeowners to rent out rooms or entire properties on a short-term basis, Airbnb provides an alternative to traditional hotels.
However, the rise of short-term rentals has not been without controversy. Some argue these platforms are negatively affecting local housing markets, especially in popular tourist destinations.
What Exactly Are Short-Term Rentals?
Short-term rental platforms like Airbnb allow homeowners to list spare rooms, apartments, or entire houses for travelers to book for a few nights or weeks at a time. Airbnb was founded in 2008 and has since grown to over 4 million hosts worldwide.
Hosts set nightly rates, with Airbnb collecting a 3-5% service fee from each booking. Some hosts rent out their own homes when they are out of town or have unused space. Others manage multiple Airbnb properties as a business.
In addition to Airbnb, platforms like Vrbo, HomeAway, and FlipKey also enable short-term vacation rentals. The business model offers an alternative to hotels, with hosts providing more space, amenities, and local flavor.
How Might Short-Term Rentals Impact Housing Markets?
Critics argue the rise of short-term rental platforms has reduced housing inventory in some regions, raised rents and home prices, and made finding an affordable rental more difficult.
Here are some of the potential housing market impacts:
– Reduced housing inventory – Properties listed frequently on Airbnb are no longer available for people who live and work in the area year-round. Each Airbnb listing potentially removes a unit from the long-term rental market.
– Increased rents – With fewer properties to choose from, renters compete for a limited supply, allowing landlords to charge higher rents. Even a 1% increase in Airbnb listings could raise local rents, according to a Harvard Business School study.
– Higher home prices – Similarly, lower inventory and increased investor interest can drive up prices for prospective homebuyers. The same Harvard study found a 0.026% increase in home values for every 1% increase in Airbnb listings.
– Changes neighborhood character – Neighborhoods with many Airbnbs can lose their sense of community when units frequently turnover with short-term guests. Long-term residents may find constant temporary neighbors disruptive.
However, the impact is not uniformly negative. Allowing short-term rentals can benefit individual homeowners, travelers, and even provide more efficient use of housing units.
What Does the Research Say?
A Purdue University study found that Airbnb’s “one host, one home” policy positively impacted housing markets in New York, San Francisco, and Portland. Over three years, rents declined 1.2-2.3% and home values dropped 1.3-1.7% after the policy was implemented. This suggests restricting multi-unit Airbnb listings can help ease housing shortages.
Similarly, the Harvard Business Review determined a 1% increase in Airbnb listings raises local rents by 0.018% and home prices by 0.026%. The high year-over-year growth of Airbnb listings compounds these small impacts.
A 2018 New York City report stated Airbnb resulted in renters paying an extra $616 million due to its effect on housing costs. However, a Carnegie Mellon study highlighted income benefits for lower-income homeowners renting affordable units on Airbnb.
A number of studies have tried to quantify the impact of short-term rentals on local housing costs:
– A study of 100 U.S. cities found Airbnb raised local rents by 0.4% on average. But the impact was far greater in some already supply-constrained cities like Boston, Los Angeles, and San Francisco.
– Researchers in Los Angeles estimated Airbnb took over 7,000 units off the rental market, leading to $44 million in lost local revenue and a 0.15% rent increase from 2015 to 2017.
– A study in Vancouver found nearly 1,000 entire-home Airbnb listings would have otherwise been long-term rentals. This led to increased rents between $29 to $59 per month and median sales prices up $76,000 to $386,000.
– Meanwhile, a study in Syracuse, NY, an area with housing oversupply, found little impact on rents and home prices from Airbnb. This demonstrates short-term rentals only adversely impact housing when supply is already constrained.
So while the average effects may be small, short-term rentals appear to more substantially restrict supply and raise costs in already tight housing markets.
Have Cities Cracked Down on Short-Term Rentals?
In response to concerns about housing availability, some popular travel destinations have imposed restrictions:
– Limits on entire-home rentals – Cities like London, Amsterdam, and San Francisco have capped the number of days per year a host can rent an entire property on Airbnb and similar platforms. This stops units from being removed entirely from the long-term market.
– Bans on multi-unit listings – Many cities prohibit renting multiple units on Airbnb, blocking the rise of landlords managing several Airbnb properties as a business.
– Permit requirements – Cities such as Santa Monica and Chicago require hosts to register properties and display permit numbers on listings. This regulates the short-term rental market.
– Fines for violations – Strict home-sharing laws impose hefty fines on hosts who violate rules. In New York City, fines reached as high as $7,500. Laws with teeth more successfully limit illegal listings.
– Tax agreements – More cities are striking deals to collect lodging taxes directly from Airbnb on each booking. This ensures the city budgets benefit from short-term rental activity.
What About Declining Airbnb Revenues?
Some reports in mid-2023 claimed Airbnb revenues had fallen dramatically in cities like Seattle, Portland, San Francisco, and Boston. Airbnb denied the size of the reported revenue decreases.
If bookings were down considerably, that could prompt some hosts to withdraw listings from Airbnb and offer properties for long-term rental instead. This would benefit renters and buyers competing in tight markets.
However, Airbnb disputed the claims of over 50% revenue drops in top cities. Data from other firms showed more modest declines of around 10% to 30% in bookings in some Metro areas.
This level of decreased Airbnb activity would be unlikely to free up significant housing inventory. Some hosts may shift properties back to long-term rentals, but not in droves.
Future Impacts Depend on Market Forces
The future effects of short-term rentals on local housing markets depend on how conditions evolve:
– If mortgage rates continue rising, fewer investors may buy homes aiming to list them on Airbnb. This would reduce conversion of homes from long-term rentals.
– A recession limiting travel could curtail Airbnb demand, prompting some hosts to shift strategy. But others may lean more on rental income.
– Cities building more housing supply reduces Airbnb’s impact. But in growing cities struggling to add enough units, short-term rentals will continue squeezing out long-term residents.
– As hotels recover post-pandemic, travelers may shift back from short-term rentals, freeing up housing inventory. Or Airbnb demand may remain strong.
The Bottom Line
Research clearly shows Airbnb and other short-term rental platforms can negatively impact affordable housing availability and costs – but only in supply-constrained markets. The effects are modest in the aggregate, but more pronounced in select cities.
Policymakers in cities with the greatest housing shortages may continue passing restrictions to limit conversions of long-term rentals to temporary listings. However, cities shouldn’t go so far as to unduly restrict the home-sharing model, which also carries benefits.
With the right balance of regulation, short-term rentals and local housing needs don’t have to be mutually exclusive. Compromise policies can allow home-sharing to thrive while ensuring it does not limit housing access.
Are you interested in learning more about multifamily real estate investing? Our team of experienced professionals is here to help. Whether you’re looking for advice on conducting market research or need assistance in identifying the best investment opportunities, we have the knowledge and expertise to guide you through the process. Connect with us today through our Telegram channel for real-time updates and valuable insights. Subscribe to our YouTube channel to access informative videos and expert discussions on multifamily real estate investing. Follow us on Instagram for inspiring visuals and exclusive content. Contact us now to schedule a consultation and take the first step towards achieving your financial goals in the multifamily real estate industry.