Do short-term stays have long-term costs? The impact of Airbnb on rental markets

With accommodation typically being one of the largest single costs of an international assignment, the prospect of increasing rents is often high on the list of our clients’ concerns. At ECA, it is essential that we identify and understand movements in expatriate rental markets to assist companies with the management of their assignee housing programmes. While many causes of changing rents are longstanding, surprising new factors can emerge. One point of interest that has arisen out of the tech-driven sharing economy, garnering a significant amount of public attention, is the website Airbnb.

Controversy 

Over the last decade Airbnb has grown to become the world’s largest property sharing site. It has allowed millions of home owners to rent out their property on a short-term basis, by enabling direct access between hosts and guests. Airbnb, and smaller competitors such as FlipKey and HomeAway, have provided an additional source of income for hosts and a flexible alternative for guests. However, Airbnb has recently found itself subject to criticism for allegedly pushing up prices in the long-term rental market.

Community activist groups claim that many landlords are now choosing to host properties on Airbnb that would otherwise have been rented out on the traditional long-term market. This is because Airbnb makes it easier for landlords to schedule series of shorter stays at their property, charging higher prices than would otherwise be achieved with a regular long-term rental. It is claimed that this reduces the supply of properties on the long-term market, increases relative demand and pushes up prices.

It is not only renters that have a problem with Airbnb. The platform has emerged as a new and innovative challenger to rival the more traditional elements of the hospitality industry. Many large hotel chains now see Airbnb as an unfair competitor that is subject to less stringent regulations. The industry is especially critical of so-called ‘professional hosts’ – multi-property owners who have set up de-facto hotels in residential blocks. Other criticisms have also been levied against the company, ranging from concerns over safety to suggestions that Airbnb is enabling unsustainable levels of tourism.

Despite the traction that the argument has gained, the extent to which Airbnb causes long-term rents to rise is not immediately clear. Factors that cause rents to shift in a city are often complex and isolating a single factor can be challenging. Considering the various groups that seem to have a less-than-positive view of the company, the possibility that Airbnb is being (at least to some extent) scapegoated over an issue for which there is no obvious solution should also be considered. It may not come as a surprise that hostility towards Airbnb is often most vocal in cities that are already struggling with sky-high rents, such as San Francisco or Barcelona.

Political intervention

The growing public hostility between Airbnb and its critics is illustrated in a report published by McGill University in January 2018, which highlighted the impact of Airbnb on rents in New York City. The study claimed that Airbnb had pulled properties from the long-term market to such a degree that it had cost the average renter an additional USD 380 per year (and up to USD 700 in some parts of Manhattan). The report generated a lot of interest, was highly publicised, and later referenced by some of the city’s political figures to successfully push for increased regulation.

Airbnb, predictably, condemned the study. Along with criticising the methodology, they pointed out that the report was commissioned by the Hotel Trades Council, a representative of hotel workers in an industry that, Airbnb claimed, was simply targeting an emerging competitor. They went on to accuse many of New York City’s political figures of repeatedly blaming Airbnb for their own administration’s failed housing policies.

Despite the questionable validity of the McGill study, it highlights the political pressure that has emerged in opposition to Airbnb, which in many cases has proven to be effective. A number of city (and national) governments have found the combined lobbying power of the hospitality industry and local community groups to be potent enough to convince them to introduce regulations. Major Airbnb destinations such as Amsterdam, San Francisco and Barcelona have introduced a variety of rules, such as limiting the number of days a property can be rented out annually, requiring the host to register for a tourist licence, or introducing additional taxation. 

Looking ahead

While those opposing Airbnb in many cities can claim victory based on the introduction of such policies, the effectiveness of the measures taken remains unclear. City governments have met criticism for the use of visibly draconian rules rather than opting for more evidence-based policies. Furthermore, while some cities are escalating measures against the company, others are scaling back. In May 2016 Berlin restricted short-term rental platforms from operating in the city, banning them in all circumstances except when renting out extra rooms (less than 50% of the house). However, amid ineffectual enforcement and a series of legal challenges, the city loosened regulations against Airbnb in early 2018. It now has one of the lowest levels of regulation of any major European city.

Despite the questionable research and disputable success of government regulation, most reasonable studies indicate Airbnb does indeed have a small but noticeable impact on long-term rents. One of the most widely cited is a report by the University of California, published in 2017. It estimated that an increase of 10% in the number of Airbnb listings in any given US zip code translates to a 0.42% increase in rents. Extrapolated upwards, this equates to an average increase of 0.27% in annual rents between 2012 and 2016. It also highlights the issue of density. Central locations in popular tourist cities tend to have a high frequency of Airbnb properties, and can be expected to facilitate greater rental pressure. Another recent report from Australia, noted that Sydney’s city centre contained more Airbnb properties than long-term listings.

Overall, it appears Airbnb pushes up rents to an extent that is almost certainly downplayed by the company and exaggerated by its detractors. Its high profile also seems to have compromised the freedom of many local governments to opt for evidence-based regulations over ones that are imposed for the sake of political appeasement. With the site ambitiously targeting one billion annual guest stays by 2028, about 10 times its current number, we expect the debate about the company’s impact on the wider housing market to intensify in the future.

  FIND OUT MORE