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How AirBnb is hurting an already high-cost, shrinking housing market

Posted at 7:30 PM, Jul 13, 2022
and last updated 2022-07-13 21:30:40-04

There have been many public complaints about short-term rental sites like AirBnB, VRBO and HomeAway over the past couple years — and not just because of those wild cleaning fees.  

The short-term rental industry has been repeatedly accused of driving housing prices up by contributing to the housing shortage both in the U.S. and abroad. 

The accusations have been coming from both local residents and city councils in popular travel destinations like Amsterdam, London and New York. AirBnB gets the brunt of much of the criticism for its status as the short-term rental industry leader and the size of its operations. New York, one of the U.S. cities with the most AirBnBs, reportedly now has more locations than actual apartments to rent.

Along with that short-term rental effect, a housing shortage from other reasons — like a major slowdown of building and exclusionary zoning laws — has already pushed housing prices in the U.S. up about 20% within the past year. Mortgage rates are at the highest they’ve been since 2006.

The theory goes that AirBnB is converting long-term rentals that would have housed local residents and families and putting them up on the short-term rental market for visitors, thus decreasing an already short supply of housing.

But how valid is this criticism, and what is known about the real impact of these companies on the housing market?

First, the data suggests that AirBnBs are shrinking the long-term rental market by converting homes to short-term rentals, and this can potentially cost a city’s renters millions.

The New York City’s Comptroller’s Office published a report arguing the increase of AirBnB supply cost New Yorkers a total $616 million in additional rent in 2016 as a result of price pressures. The study compared prices across 55 neighborhoods to what the prices should have been as a long-term rental over a number of years. AirBnB responded by criticizing the methodology, saying it “severely misrepresents the impact of [the] platform on housing.”

But although preliminary research suggests AirBnB supply does have some kind of impact on local housing prices, there’s still a lot of debate over how big a rise it actually is. Outside of the New York City report, the rise in local prices as a direct cause from AirBnB supply seems to hover around only one percentage point.

Other factors in rising prices make this a tricky knot to untangle. For example, do the AirBnBs or other signs of gentrification come first? There hasn’t been widespread data to answer that yet definitively, but there is, at least, a relationship between the supply of short-term units and gentrifying neighborhood changes.

By looking at the hosts, it's also visible the other ways AirBnB can contribute to gentrification directly. Going back to New York, one study, conducted by Inside AirBnB, found that in 72 predominantly Black neighborhoods, white residents were about 14% of the overall population but accounted for 74% of the host population. Predictably, hosts identified as white earned an estimated 73.7% of the income from rentals in those neighborhoods.

AirBnB denied the report's accusations and questioned its findings. In its defense from accusations of gentrifying, AirBnB has argued it's still a net gain to local revenues. The company argues it provides household owners accessible sources of income and attracts visitors to less-traveled and more residential areas that may need more tourist attention.

But it’s hard to prove their positive impacts in available data. For example, when surveying users, only 2% to 8% of respondents said they would not have gone on the trip anyway, using hotels or other resources if AirBnBs weren’t available. 

Many cities have passed restrictions against the short-term rental market, ranging from near-total bans, to limits on how long a property can be rented to limits on how many people can get licenses to open an AirBnB.

It is known though that converting long-term rentals to short-term rentals shrinks a housing market already experiencing historic shortages. How much companies like AirBnB directly cause a rise in housing prices is hard to measure, especially taken as only one factor driving gentrification. 

What is clear is that as discontent grows and cities start to take action, we may see a shift in the short-term rental landscape over the next few years. 

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