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What is good for investors can be very bad for tenants.
Key points
- The short-term rental market has grown so rapidly that tenants are forced to pay more for long-term accommodation.
- Cities around the world are looking for solutions to the problem.
- If Airbnb hosts don’t follow restrictions set by local governments, it’s hard to know if they can be contained.
Airbnb, a publicly traded company based in San Francisco, is a giant in the world of short-term rentals. This may also be one of the reasons why the United States finds itself in a housing crisis. While Airbnb strongly denies this is part of the problem, a growing number of cities around the world are working to limit the damage short-term rentals are inflicting on their housing supply. Here’s how Airbnb is helping the housing crisis.
1. The industry is growing at a faster rate than local governments can keep up
Many factors have contributed to creating the housing crisis, including the COVID-19 pandemic and the inability of builders to obtain building materials needed to build more structures. However, it’s hard to deny the role that Airbnb – and, to a lesser extent, its smaller competitors – have played.
We know that Airbnb has over 6 million rental listings in over 100,000 cities around the world. We also know that landlords, referred to as “hosts” by Airbnb, can make significantly more money renting their property to strangers on a short-term basis than they would collect in monthly rent from a traditional renter.
This may help explain why vacation home sales jumped 44% in 2020 from the previous year. Many people have purchased property to use as a short term rental. And it’s not just individuals who want to join the ranks of Airbnb hosts. Real estate investment firms have gobbled up as much property as possible in an effort to cash in on the Airbnb craze.
Real estate investment companies have contributed significantly to Airbnb’s growth, according to the Inside Airbnb watchdog group. In fact, about a quarter of hosts on the Airbnb platform own nearly two-thirds of the listings. The return on investment is simply good.
2. Airbnbs limits the number of rental units available to locals
Airbnb hosts who snap up a property as soon as it hits the market diminish the supply of homes available to ordinary families. Tenants were particularly affected because rents have skyrocketed.
For example, the average rent nationwide has increased by 15% between 2021 and 2022, with some cities being more affected than others. Seattle, Cincinnati and Austin saw rent spikes of over 30%. New York, Los Angeles and Nashville were hit even harder. For tenants without enough money in their Bank account to cover the monthly increase, the options are limited.
There’s nothing inherently wrong with short-term rentals. The problem is that local governments are struggling to get a handle on the number of short-term rentals operating in their cities. The overwhelming number of Airbnbs makes it difficult to provide enough housing for permanent residents in the area.
With listings in over 100,000 cities around the world, Airbnb is everywhere, from small hamlets to big cities. Here is a partial list of cities that have imposed restrictions to minimize the number of parties that open an Airbnb:
- New York City
- Barcelona
- Berlin
- Paris
- amsterdam
- London
- miami
- San Francisco
- santa monica
- Charleston, South Carolina
- Jersey City, New Jersey
- Bangkok, Thailand
- Reykjavik, Iceland
3. Restrictions may not work
Strict restrictions seem to be working in Santa Monica, Calif., but it remains to be seen whether other cities can put up enough barriers for Airbnb hosts to slow industry growth.
In New York, where there may now be more Airbnb listings than available rentals, a new measure goes into effect this month. The measure will require Airbnb hosts to register their property with the city and provide proof that they live there themselves. Failure to do so could result in fines of $1,000 to $5,000. The city hopes to reduce the number of Airbnbs in New York by at least 10,000.
4. There is no clear picture as to whether Airbnbs can be mastered
Because the proliferation of short-term rentals is a new issue, it remains to be seen how local governments will balance community needs with investor rights. They may set a strict limit on the number of Airbnbs allowed in their cities. They may also impose a high enough tax on short-term rental transactions to discourage hosts from moving to their city.
As municipalities struggle to find a solution to the problem, local tenants continue to struggle to find a affordable place to call home.
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