Short-Term Rentals and Housing Affordability

Insights from Recent Research

The short-term rental (STR) market has undergone remarkable transformations in recent years, fueled by technological innovations, evolving consumer preferences, and shifting regulatory landscapes.

Among the numerous players in the short-term rental market, Airbnb has emerged as a dominant force, often at the center of regulatory scrutiny. This attention largely stems from the perceived negative spillovers of Airbnb listings on housing affordability.

Housing affordability has become a pressing concern in many American cities, where owning a home has increasingly shifted from a reality to (literally speaking) a dream. This is due to steep increases in house prices (see figure below) and rents that have outpaced income growth, in large part due to a chronic shortage of new housing supply across some of the largest metropolitan areas in the country.

So, do STR platforms like Airbnb contribute to housing affordability problems?

The answer is not straightforward. To better understand the issue, it is essential to explain how platforms like Airbnb operate. Hosts—those renting out their properties on Airbnb—can list either shared spaces (e.g., an extra room in their home) or entire properties (e.g., houses, apartments, or Accessory Dwelling Units). While shared spaces are unlikely to impact the broader long-term rental market, as demand for shared rooms as long-term housing is minimal, entire properties are a different matter.

Recent research suggests that Airbnb has incentivized some landlords to convert long-term rental properties into short-term rentals, often because STRs are more lucrative and Airbnb simplifies the management of these properties. By doing so, these landlords effectively reduce the supply of properties available for long-term rental, driving up rents. 

Now that we understand how Airbnb can drive up rental rates, let’s talk about house prices. Two channels can lead to effects on house prices. First, higher rents are capitalized into higher house prices. Second, Airbnb has made it simple for homeowners to monetize their extra space, whether by renting out spare rooms or their entire home during holidays. This additional income potential also gets capitalized into higher prices.

The research paper mentioned above calculates Airbnb's contribution to house prices and rents. In the authors’ words: “Considering the median annual Airbnb growth in each zip code, these results translate to an annual increase of $9 in monthly rent and $1,800 in house prices for the median zip code in our data, which accounts for about one-fifth of actual rent growth and about one-seventh of actual price growth.”

From the above discussion, two key takeaways emerge. First, while Airbnb's overall impact on rents is not massive, it worsens an already serious issue. Second, the degree to which individual Airbnb properties are to blame varies greatly. In simple terms, an owner sharing a bedroom when she is on holiday is going to have very small effects on rents and prices. The bedroom is not a substitute for long-term rentals, and has limited income potential.

This last point is crucial because it highlights the importance of nuanced regulations that tackle the housing affordability crisis without undermining the benefits of Airbnb hosting. Policymakers should consider property types when designing regulations, rather than outright banning the entire short-term rental sector.