Restricting AirBnb Offerings by Pro Landlords Cuts Local Rent by 3%

Data suggests that short term rentals can offer a lifeline for homeowners trying to keep up with property taxes and performance upgrades, but commercial companies spoil the plan.

A press release landed on my desk that’s bullish on the number of AirBnbs saturating various U.S. cities. Places like Austin, for example, have seen a large percentage of their apartment stock “converted” into short term rentals.

Findings Summarized

Source: The Perfect Rug 

The article fails to mention, however, that this trend is highly controversial, and not always well received by locals. The problem, as with many great “grass roots” ideas, is that the commercial sector has used it as a profit center. Large-scale property owners have embraced AirBnb with suffocating enthusiasm and figured out how to milk massive profits out of what originated as a “mom and pop” side hustle.

Research shows that once short-term rentals hit a certain critical mass in a city, fewer available long-term rents drive the price of rentals up. In Austin, for example, rents have surged to about $2600 a month, on average. And commercial owners cause cities to hit that inflection point much, much faster.

Do Restrictions Work?

Two researchers at Purdue University, Ralph Siebert and Zaiyan Wei, have independently examined the effects of regulating Airbnb. The looked at the impacts of a new self-imposed AirBnb policy designed to restrict commercial use of the service. 

“The restriction, known as the “One Host, One Home” policy, provided Wei with a unique opportunity to examine changes in long-term rental prices, home values, and competition between professional and nonprofessional hosts before and after the implementation of this rule. Wei and his colleagues find that when Airbnb enacted the “One Host, One Home” policy, long-term rents and home values decreased by about 3% in the affected cities.

“They also find that this increase in housing affordability can be attributed to an increase in the housing supply in local residential markets after the policy took effect,” the article continues. “Our finding supports that the platform has indeed evolved as a major alternative for property owners to list their assets. The result will be a housing shortage in local markets, which only aggravates home affordability issues that are prevalent in many major U.S. cities,” says Wei.”

Drawing a Clear Line

It’s important to distinguish between small scale house sharing and commercial ventures. For homeowners, services like AirBnb and VRBO offer one of the last defenses against out-of-control property tax hikes and revaluations. 

Seibert’s study drew similar conclusions to Wei’s research. He zeroed in on the City of Irvine, CA, which in 2018 “enacted a complete ban on short-term rentals in residential zones to encourage affordable housing.”

Siebert found that the ordinance “led to a 2.7% decrease in long-term rental prices on average.”

But he also notes that when AirBnb restrictions do NOT work, the reason often traces back to a lack of local enforcement. In New York City, for instance an estimate 85 percent of AirBnbs of active listings are technically illegal.

“The city of Irvine was unique in its approach, as it strictly enforced its short-term rental legislation by assigning extra resources and a third-party company to monitor and detect violations. Airbnb listings in Irvine declined by 23.1%.”