Imagine waking up one day to discover that your small neighborhood, home to familiar faces and friends, has transformed into a hub of transient tourists accompanied by skyrocketing living costs.Â
The drastic effects of home-sharing services, such as this hypothetical, aren’t visible immediately but have been found to occur in cities worldwide. Home-sharing isn’t something new, it’s been done by real estate agents and other middlemen for decades. The existence of these hoops to jump through and the general unpopularity of this concept didn’t make this a common choice for renters. Airbnb revolutionized this field. Airbnb (Airbed and Breakfast) started out as a simple idea to rent out an air mattress in the living room of the then-financially struggling founders’ apartment. Brian Chesky, Nathan Blecharczyk, and Joe Gebbia found their gem in this niche.
Airbnb launched in 2008 as a quirky alternative to traditional accommodations. There was a certain initial appeal to it that captured both travelers and homeowners. Homeowners now had an extra source of income and travelers obtained more authentic and local experiences. This appeal eventually compounded, leading to a meteoric rise no one could’ve predicted in 2008. Airbnb hit 7 million worldwide listings by 2020. With such a large user base, unanticipated issues started to crop up. These issues prompted debates among policymakers and local communities.
Rental Crisis
profit. As owners converted their properties to vacation rentals, they enjoyed this initial profit. However, Airbnb’s popularity eventually led to a notable reduction in available housing stock for long-term tenants in many cities.
A study published in the Washington Law Review highlights how this issue has affected New York City. From 2013 to 2017, more than 13,500 rental units were lost to Airbnb in NYC. In 2017, the available listings in NYC showed that there were 5,600 listings available for long-term rentals. What about short-term leases? A staggering 12,200 listings! This impact of short-term rentals is not limited to NYC. Urban areas around the world, like Barcelona and Sydney, have experienced this pool of available housing shrinking.Â
You would quite obviously expect an increase in rental prices with this drop in the supply of long-term rentals and a rise in the demand for short-term rentals. A study in the Social Science Research Network found that a 1% increase in Airbnb listings leads to a 0.018% increase in rental rates and a 0.026% increase in house prices. Doesn’t that seem insignificant? Well, not really. When you consider Airbnb’s year-over-year average growth of about 44%, the cumulative effect becomes significant. In fact, when this data is compounded, it’s found that Airbnb contributes to about 20% of the average annual increase in rents in the USA!
As rents rise due to home-sharing, lower-income residents on long-term leases may find themselves priced out of their neighborhoods. This leads us to the next part of our analysis of Airbnb’s effects: displacement and gentrification.
Neighborhood Dynamics
We looked at the statistics and numbers backing the impact of short-term rentals. However, the impact goes much further than that. Think back to our initial hypothetical. Short-term rentals fundamentally alter local communities, leading to the pressing issue of community displacement.
The case of Barcelona is one of contention and is one of the key examples of this problem. The influx of tourists converting residential properties into vacation rentals led to such significant disruption that the Mayor of Barcelona called for a complete ban on short-term rentals for tourists! This is set to take effect in 2029.
The topic of gentrification is brought up with any form of tourism but is particularly intensified by short-term rentals. This is because these rentals are present in nearly every single part of a major city. This influx of higher-spending tourists all over the city instead of specific hotel districts can lead to the development of upscale amenities, such as boutique shops and gourmet restaurants. While this may seem like positive local economic growth, it leads to diverse communities becoming more homogenized. This leads to an inevitable loss of cultural heritage and the unique identity of neighborhoods.
Beyond just community displacement and gentrification, the transient nature of these tourists occupying these residential areas has implications for neighborhood safety. Research conducted by Northeastern University, located in Boston, suggests that a strong community of neighbors looking out for each other helps to deter crime. In an area where residents may no longer know their neighbors, this traditional bind no longer exists. The lack of familiarity and a reduced sense of belonging will lead to increased crime rates as well as a general sense of unease among residents.
What’s more? The influx of tourists into residential areas can lead to quality-of-life issues for permanent residents. These areas have historically been designed for long-term stays. With short-term leases now making their way into these places, noise complaints, parking problems, and the misuse of common areas are frequent concerns.
Economic Impact
Is it all bad? Of course not. There’s a reason Airbnb’s model has been so successful around the world. It has contributed positively to the economy of urban areas around the world.
According to Airbnb’s 2024 statistics, the platform’s activity in America alone contributed to 22.1 billion USD in total tax revenue. Airbnb has also created over 1 million jobs for Americans in the Accommodation and Food Services industry.Â
It’s not just the country as a whole either. For hosts, the economic benefits can be life-changing. Airbnb reported that hosts earned around 24 billion USD, with 43% of hosts stating that this income helped them stay in their homes. The latter is a rather poignant statistic; Airbnb doesn’t simply serve as a means of income, but also as a means of maintaining housing stability.
Short-term rentals help spread tourism revenue to a broader range of neighborhoods and businesses, and not just areas with hotels. This can lead to increased spending in local shops, restaurants, and attractions, potentially revitalizing areas that may have previously struggled economically.
However, we shouldn’t simply run with these statistics. These benefits are not evenly distributed. While some property owners and entrepreneurs may profit significantly, long-term renters seeking affordable housing may bear the brunt of the negative consequences. This disparity here, as well as several other of the other issues we’ve discussed, calls for balanced policies that can harness the economic potential of short-term rentals while combatting the negative impact on the housing market.
Striking a Balance
In major urban centers like New York City, Las Vegas, and Los Angeles, common reforms include imposing registration fees on hosts, ensuring that short-term rentals are located away from hotel districts, and requiring host availability to reduce the risk of absentee landlords and commercial operations.
These measures have worked for now, but more nuanced and comprehensive policy solutions may be necessary as the short-term rental landscape continues to evolve. Several advocacy organizations have put forth proposals, and a particularly popular one is discussed here.
The National League of Cities, an advocacy organization representing around 20,000 American cities, proposes a tiered regulation system to differentiate between commercial operations and occasional home-sharing. This is a very important consideration that hasn’t been implemented in any city yet. Why is it important? Not all short-term rentals have the same impact on communities. A homeowner renting out a spare room occasionally and an investor operating multiple full-time short-term rental properties evidently must have different types of regulations.Â
Another proposal is to mandate community impact assessments before granting short-term rental licenses. This system allows cities to anticipate and mitigate potential negative effects on neighborhoods, ensuring that community well-being isn’t affected negatively.
Increasing occupancy taxes on short-term rentals is another way to offset the impact on housing affordability. However, this approach may reduce the economic benefits that made short-term rentals attractive in the first place. Clearly, as with all policy decisions in this area, a balance must be struck. Different cities have different contexts. Each city must consider its unique housing market, tourism industry, and community needs. This is an issue that must be uniquely handled in each city and maybe even each neighborhood.
The Future
Christopher Nulty, Airbnb’s Head of Public Affairs for the Americas, rightly stated that home-sharing is here to stay. What began as an entrepreneurial idea created by 3 roommates in an apartment less than 2 decades ago has become an integral part of today’s housing landscape. It’s as fundamental as long-term renting and homeownership.Â
The story of short-term rentals is still being written. Cities continue to experiment with different regulatory approaches and the industry itself continues to evolve. These approaches can only work if they are data-driven and nuanced, created when policymakers, urban planners, and communities work together.Â
Residential areas continue to turn commercial today. Our challenge is to create cities that are not just tourist-friendly but are resident-friendly first and foremost. Only when we prioritize the needs of long-term residents can we build safe and prosperous urban environments.
Citations
- The Effect of Home-Sharing on House Prices and Rents: Evidence from Airbnb by Kyle Barron, Edward Kung, Davide Proserpio :: SSRN
- The Role of Airbnbs in America’s Housing Crisis | Published by Lincoln Memorial University Law Review (scholasticahq.com)
- The Airbnb Effect On Housing And Rent (forbes.com)
- “Community Consequences of Airbnb” by Allyson E. Gold (uw.edu)
- Barcelona to Ban Short Lets in Blow to Airbnb (ABNB) – Bloomberg
- Why Does Crime Increase in a Neighborhood When Airbnbs Increase? (northeastern.edu)
- Airbnb’s 2023 US Economic Impact Report – Airbnb Newsroom
- Short-Term Rental Regulations: A Guide for Local Governments – National League of Cities (nlc.org)
