Will stricter Airbnb laws lower rents in 2023?

For some, the allure of owning an Airbnb property is too great to resist.

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Key points

• Airbnb manages over 6 million rental listings worldwide.
• The number of investors buying a rental property to convert it into an Airbnb rental has contributed to the surge in rental prices.
• As cities establish strict regulations in hopes of curbing the growth of the short-term rental market, it remains to be seen whether rental prices will come down.

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The economy is a matter of supply and demand. When demand is high but supply is low, prices skyrocket. Given the limited number of rental units in the United States, it is not surprising that some households have been overpriced. Between 2021 and 2022, the average rent increased by 15% nationally, reports Redfin. In cities like Seattle, Cincinnati and Austin, rents have soared more than 30%. The situation is even worse in places like New York, Los Angeles and once-affordable Nashville.

There is no doubt that several factors have converged to create this problem, including the global pandemic, lack of building materials, and shortage of labor. Add to this list the short-term rental industry, especially Airbnb, the biggest player in the game.

Airbnb manages over 6 million rental listings in over 100,000 cities around the world. This means that on a global scale, Airbnb has single-handedly transformed residential neighborhoods into quasi-hotel neighborhoods. In doing so, the company also swallowed up rental houses for rent to short term guests.

The call for investors

Imagine that you own a small rental house near a lake in Kentucky. There isn’t much industry in the area outside of hospitality, and you can only rent the house for $1,200 a month. By sprucing up the place a bit and adding homey touches, you can rent it out to tourists for $1,200 a week. From a business perspective, the choice is easy when it equals money in the bank.

In recent years, the number of buyers looking for a high-yield investment has caused rental property sales to skyrocket. For example, in 2020 vacation home sales increased by 44% compared to the previous year. Why not enjoy buying a vacation home that others are paying for?

Real estate investment firms across the country plan to spend billions building a portfolio of short-term rentals. Airbnb’s watchdog group, Inside Airbnb, found that about a quarter of hosts on the platform hold about two-thirds of all listings.

At issue: For every investor who buys a rental home to use as an Airbnb, one less property is available for locals to rent. Major American cities are now looking for a way to control the cycle.

New Restrictions

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 strict restrictions to minimize the number of people who 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

The potential impact

Strict restrictions seem to be working in Santa Monica, Calif., but it remains to be seen whether cities can throw enough barriers at 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.

Although the measure sounds like it has some teeth, Airbnb hosts in other cities have reportedly lied about living in the property they rent. Before real progress can be made, cities need to find a way to verify the veracity of host claims and assess penalties if necessary.

For now, renters in more than 100,000 cities around the world continue to struggle to find affordable housing. It will be up to local governments to fight on their behalf.