The Airbnb Effect on the Rental Economy

Blog posted On November 14, 2017

Airbnb, the popular home rental service that allows property owners to rent rooms or entire homes to vacationers, may be driving up home prices and long-term rental cost, according to a new study.  In the working study, currently under research by University of California Los Angeles and University of Southern California’s Marshall School of Business professors and the National Bureau of Economic Research, a 10% increase in Airbnb listings may lead to a 0.39% increase in rents and a 0.64% increase in home prices.  This figure increases in metros with a tighter ratio of Airbnb to long-term rentals. 

When homeowners or real estate investors choose to rent their property through Airbnb, or another short-term rental service, they are taking inventory from the long-term rental market.  As the long-term rental supply shrinks, rental rates increase, home price appreciation corresponds with rising rents, and the affordability crisis worsens.  From the assistant professor of economics at the UCLA, Dr. Edward Kung, “Between 2012 and 2016, rents rose by about 2.2% annually [on average in the 100 areas], so a 0.39% increase in that context isn’t very small at all.” 

The study shows that cities with growing Airbnb markets see a decrease in available homes for sale and rent.  Real estate investors turn to seasonal or vacation rentals, rather than long-term rentals, through the ease of use and profit availability.  The reallocation of housing stock impacts all market participants from renters to would-be home buyers. 

In regard to rental regulation, Dr. Kung suggests, “policies should try to stop the conversion of properties from long-term rental units to short-term rental units.”  However, he asserts that homeowners using Airbnb for home or room sharing while they are either occupying or away from the home, are not impacting the market as drastically. 

Sources: MarketWatch