What Does Airbnb Do to the Local Housing Market? Make It Less Affordable

Wednesday, August 18, 2021

Home-sharing platforms, particularly Airbnb, have enjoyed tremendous growth over the last decade, as property owners have capitalized on the opportunity to offer rooms, apartments and entire homes to travelers seeking short-term rentals.

The proliferation of Airbnb properties has sparked criticism that Airbnb hosts are snatching up homes that would otherwise be listed in the residential rental or housing market, thus reducing supply and driving up prices.

But is this really happening? Does home sharing make it less affordable to rent or buy homes in a particular market? Indeed, it does, according to research by Zaiyan Wei, assistant professor in Krannert School of Management, and his co-authors, Wei Chen of University of Arizona and Karen Xie of University of Denver. They found that in three U.S cities where Airbnb had implemented a policy to restrict hosts to a single address, rents and home values dropped by about 3 percent. "Airbnb is indeed making the real estate market more expensive," Wei says.

By enriching its hosts while making housing less affordable for others, Airbnb and other home-sharing platforms may be compromising public affordability for private wealth, the research suggests. "It's going to increase the gap between the rich and the poor," Wei says. "It's going to make inequality a little worse."

The researchers used a unique quasi-experiment on Airbnb—a platform policy that capped the number of properties a host could manage in certain cities—to explore how home sharing affects local residential markets.

Airbnb announced its so-called "one host, one home" policy for New York City and San Francisco in April 2016 and implemented it seven months later. In February 2017, it implemented the same policy in Portland, without a prior announcement. The policy induced hosts with listings at more than one address to place the extra properties in local residential markets, while deterring them from taking other properties off the market. These conditions gave the researchers an opportunity to study the impact of Airbnb on the long-term rental and for-sale housing market.

To conduct their study, they created a comparison group of zip codes from cities that were similar to the three policy-affected cities but had not been affected by the policy. Their main sample included more than 400 zip codes from ten cities across the U.S., including New York City, San Francisco and Portland.

They studied data from Airbnb, residential platform Zillow and a third-party real estate information company over a period of almost three years (October 2014 to July 2017).

They found that the "one host, one home" policy led to a drop in both rents and home values in the affected zip codes. Rents declined by 1.2 percent and home values by 1.7 percent when the policy was announced, and rents dropped by 2.3 percent and home values by 1.3 percent when the policy was implemented.

"People either choose to buy a house or to find a place to rent, so these two markets are connected," Wei says. "In equilibrium, these two markets should stay relatively stable. The policy shouldn't affect one market more than the other one."They also found that the policy increased the supply in both the rental and housing market, and also increased equilibrium quantities (the number of homes rented or sold) in a similar magnitude.

Exploring how the policy affected the supply of properties listed on Airbnb, they found that the number of properties of "multi-listing" hosts —those who manage properties at different addresses—shrank significantly, as would be expected. In contrast, properties managed by single-listing hosts—those who have a property at only one address on Airbnb—seemed to increase. These new listings, however, are primarily shared or private rooms, which are less likely to have been taken off residential markets.

The study shows that home sharing has become a major alternative for real estate investment and has a significant impact on housing affordability. Noting that platforms have the ability to self-govern—as Airbnb has done in New York City, San Francisco and Portland—the researchers suggest that platforms should be "mindful of unexpected societal impact" and should "proactively self-govern for goodwill."

By Melvin Durai