Airbnb has led to much of the rental housing stock in some of the world’s most expensive cities being turned into unlicensed hotel rooms, driving up both rents and house prices even further.
Opponents of regulatory approaches to fix this often say that Airbnb’s contribution to inflation in housing costs and values is negligible, and/or that any benefits from curbs on Airbnb would be canceled by other forces that are driving up housing costs.
But LA County provides a natural lab for evaluating this claim: some of the cities within the county have limited Airbnb and others haven’t, allowing a group of researchers to publish a study that found that limits on Airbnb and other short-term rental platforms does exactly what proponents of the rules promise they will: lowers the cost of rentals, and also the cools down property price bubbles.
What can we say about the distributional and welfare effects of Airbnb regulation? Using a back-of-the-envelope calculation, we show that regulating Airbnb has stark distributional implications. A regulation implies losses for homeowners, which are substantial for individuals who live in areas popular with tourists. The opposite holds for households who typically rent, who can only gain from such a regulation. Given the average housing price in HSO cities and given our assumptions, this therefore implies an annual welfare loss due to HSOs of about $680 per property. The intuition for such a substantial loss is that the investors’ willingness to pay is much higher than the willingness of the incumbent households being priced out of the market.
There are clear distributional implications of the HSO. We show that rents will decrease due to the HSO, so the average renter will gain. Because of the HSOs, homeowners lose, while renters tend to gain. This offers a plausible explanation as to why cities around the world that have heavily restricted short-term rentals typically have a high share of renters.