Only a few years ago, most travelers stayed in hotels. Airbnb changed that. As of 2018, the company offers over 5 million properties, in over 85,000 cities across the world, and its market valuation exceeds $30 billion. In 2017 alone, Airbnb users booked over 100 million nights.
But what does the company’s growth and popularity mean for the cities and municipalities it operates in? According to Airbnb, it brings more money to these cities, in the form of both rental fees and the money that renters spend during their stays. The company also notes that roughly three-quarters of its listings aren’t in traditional tourist neighborhoods, which means that money is going to communities typically ignored by the hospitality industry.
Critics, on the other hand, have argued that home-sharing platforms like Airbnb raise the cost of living for local renters. There is not much evidence to support this claim one way or the other, though a study focused on Boston found that an increase in Airbnb listings there was associated with an increase in rents. It is not difficult to see why the idea could be true more widely: By making short-term rentals easier, Airbnb could cause some landlords to switch their properties from long-term rentals, which are aimed at local residents, to short-term rentals, which are aimed at visitors. Cities and towns have a finite supply of housing, so this process would drive up rental rates over time.
Because of the limited empirical evidence, we decided to dig deeper. The results of our analysis are in a working paper. We started by collecting data from three sources: (1) consumer-facing information, from Airbnb, about the complete set of Airbnb properties in the U.S. (there are more than 1 million) and the hosts who offer them; (2) zip code–level information, from Zillow, about rental rates and housing prices in the U.S. real estate market; and (3) zip code–level data from the American Community Survey, an ongoing survey by the U.S. Census Bureau, including median household incomes, populations, employment rates, and education levels. We combined these different sources of information in order to study the impact of Airbnb on the housing market.
However, measuring this impact is not straightforward. The main challenge is that the housing market is, of course, affected by factors other than Airbnb, such as gentrification and economic trends. In our study, we control for these factors, and additionally use a technique known as instrumental variables to isolate the part of housing costs that is driven only by changes in Airbnb supply.
In simple terms, we argue that if a zip code is “touristy,” meaning it has a lot of restaurants and bars, and if awareness of Airbnb increases, which we measure using the Google search index for the keyword “Airbnb,” then any jump in Airbnb supply in that zip code is likely driven by an increase in demand for short-term rentals through Airbnb, rather than local economic conditions.
Read more here.
Written by Kyle Barron, Edward Kung,Davide Proserpio for hbr.org.
