Short-Term Rental Impact

Posted By: David Nielson ICOR Blog & News,

Airbnb is one of the best-known short-term rental companies, and there has been a lot of research into how their prices affect the housing market around them. Airbnb frequently gets a bad rap from the neighbors, from the perception that it takes away from local culture to the idea that it destroys a sense of neighborhood and increases rent prices.  All these issues are generally covered under the term the “Airbnb effect,” which collectively refers to everything bad that happens because of Airbnb’s short-term rentals. However, it is not immediately clear if that bad reputation is justified. 

The ‘bad boy’ reputation is summarized in a report out of Los Angeles in 2014 suggests that when Airbnb rentals cluster in an area, the rent in that area generally increases faster than rent in the areas around it. Furthermore, many people who live in tourist destinations like London, Japan, and Barcelona have seen the uptick in tourists renting through Airbnb destroy the local shops and businesses that do not cater as heavily to tourists. Airbnb guests are also viewed as outsiders in communities of all types and not subject to the same consequences regular homeowners are. Airbnb guests are often much less accountable as they do not own the home and so can be noisy, messy, and generally bad neighbors. And some governments have looked at this and  banned Airbnb rentals, forcing Airbnb to build a large legal team to deal with the new legal issues facing it. 

Airbnb’s side of the argument, however, seems equally convincing and provides a slew of benefits that are not considered. Obviously, homeowners rent their homes out voluntarily, which means that Airbnb is beneficial to at least one person in the relationship. Airbnb rentals help renters in a variety of ways, from helping to diversify rental incomes to helping them have a social life. Obviously, renters are also very happy about the arrangement, as having Airbnb as an option provides tourists and people looking for rental homes with a variety of options. The kind of rentals that Airbnb make easy are also helpful for people seeking supplemental incomes and can help those with extra space in their homes to make a little extra money on the side. While it is certainly true that rental and home prices have risen in areas where Airbnb prices have increased, the areas most affected are also areas where rent is rising anyway and that have faced similar issues before Airbnb and will likely face the same issues after Airbnb. The other issues attributed to Airbnb are similar. Airbnb and other short term rental companies are often merely symptoms of an already existing issue. Before Airbnb existed and short-term rentals were as much a part of private business, there were still issues with places losing their native culture and neighborhoods to rentals and tourists. In many cases, the causal link between Airbnb and all the problems associated with it is flimsy at best. Plenty of the issues thrown at Airbnb are often common issues that have merely been contextualized in relation to Airbnb and rentals rather than caused by it. 

So, what is the net effect?  Current research concludes “Using a data set of Airbnb listings from the entire United States and an instrumental variables estimation strategy, we show that Airbnb has a positive impact on house prices and rents.” However, continues to note “Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices.”  In other words, it moves prices up but only a very little bit.