New York City took decisive action against Airbnb on September 5. Despite the company’s attempts to block the city from implementing strict regulations on short-term rentals, the city enacted a law that effectively curtailed Airbnb operations. Within weeks, thousands of Airbnb listings in the city, a once-thriving market for the platform, were swiftly removed. Out of the remaining 3,000 Airbnb listings in New York, formerly numbering around 22,000 in August, the majority are now for stays of 30 days or more, meeting the minimum nights required by the city’s regulations.
Thank you for reading this post, don't forget to subscribe!This crackdown marked a turning point. Despite legal battles and objections from landlords, the city managed to largely eliminate short-term rentals. The rationale behind this move was straightforward:
New York City, where the average monthly cost of a studio apartment stands at $3,016, lies at the heart of the nation’s extensive affordable-housing crisis. By converting Airbnbs back into long-term housing, more options for accommodation would be available, fostering competition among landlords. Theoretically, this could lead to heightened affordability of housing in the city.
While Airbnb has consistently denied responsibility for the country’s housing crisis, the most recent evidence supporting New York City’s decision comes from the opposite end of the nation. Irvine, California, a scenic city of 300,000 in Orange County, banned short-term rentals in 2018 due to mounting frustration among residents at the growing number of vacation rentals in previously serene neighborhoods. A newly published study in Real Estate Economics revealed that Irvine’s prohibition had a notable impact. Post the ban, long-term rents in the city decreased by 3% on average, amounting to a $114 monthly reduction, as per the study.
Irvine serves as a singular case study, but also serves as real-world validation of extensive research showing that Airbnb and similar platforms contribute to rising rents and home prices. While this may be advantageous for property owners, those concerned about affordable housing should take heed of Irvine’s experience: Prohibiting short-term rentals can indeed lower rents.
The scenario in Irvine
When Irvine enacted regulations against short-term rentals in 2018, Airbnb appeared to be an unstoppable force. A decade after its inception, the company had revolutionized the hospitality industry and turned profitable for the first time. Its reach had extended to cities worldwide, transforming entire neighborhoods into short-term rental hotspots in the most extreme cases. “Home-sharing” had evolved from an idealistic, tech-enabled vision for more hospitable travel into an influential entity.
Irvine’s 2018 regulations, which banned rentals of 30 days or less in residential areas, were not groundbreaking. Numerous cities had already imposed similar prohibitions, only to witness a continued surge in Airbnb listings. However, as Michael Seiler, a finance professor at the College of William & Mary and one of the researchers involved in the recent study, explained, Irvine succeeded in eliminating Airbnbs due to enforcement.
“What sets Irvine apart is not just the imposition of this ban,” Seiler stated. “They actually enforced it.”
For instance, in New York state, it has been illegal for residential apartments to be rented for less than 30 days, except under specific circumstances. For a decade, Airbnb hosts had simply disregarded this law. Why? Enforcement had been exceedingly challenging. The thousands of Airbnb listings that vanished overnight in September had always been illegal but managed to persist due to being “validated by this multi-billion-dollar online platform,” according to Murray Cox, the founder of Inside Airbnb. New York City finally found a method to impose the law: It established a registration process for short-term rentals and prohibited Airbnb and other platforms from advertising unregistered rentals.
With such incentives, a stiff ban is necessary to return the unit to long-term rental status. Otherwise, why would the landlord willingly suffer such a loss?
In Irvine, it took approximately a year for the city to eliminate the short-term rentals that had proliferated in its sunlit, meticulously planned neighborhoods. The city had to enlist a specialized property-tech firm to identify and locate illegal short-term rentals in order to enforce the ban. Despite this, some landlords found clever ways to circumvent the city’s regulations, such as offering 30-day leases that, upon close inspection, could be cancelled at any time, enabling weekend stays. “It required some detective work,” recounted Ken Fairbanks, a homeowner’s association board member in Irvine who had frequently investigated complaints of Airbnbs in his neighborhood. Nevertheless, Fairbanks confirmed that his neighborhood is now free of Airbnb listings. This corresponds with data on short-term rentals in Irvine, which indicated that by January 2021, the number of listings in Irvine had halved.
Upon studying the aftermath of the sudden disappearance of short-term rentals in Irvine, researchers observed a notable outcome: Within two years of the ban, long-term rents saw significant reductions. They estimated that the roughly 60,000 rental units in the city witnessed an average rent decrease of 3%, resulting in a reduction of $80.7 million in annual total rental spending. The robustness of these findings led the researchers to conclude that the results “provide local governments with empirical evidence that STR regulation policies could be helpful in reducing rents in cities.”
‘Occupancy prior to this change’
While the Irvine study demonstrated that bans on Airbnb can effectively lower rents, numerous other studies have depicted the reverse side of the coin: The introduction of short-term rentals in an area results in rent hikes. A 2020 study on short-term rentals in Berlin revealed that apartments listed on Airbnb drove up rents of nearby units. A 2017 study in Boston reached a similar conclusion. Other studies have documented these effects on rents nationwide, including research from 2021 estimating that Airbnb listings accounted for one-fifth of rent growth in ZIP codes with a median share of homeowner-occupied houses.
These findings align with the law of supply and demand. When the supply of a commodity diminishes while demand remains constant, the price of that commodity will surge. This is precisely what Airbnb accomplishes with housing supply. As the Berlin and Boston studies indicated, when houses or apartments are withdrawn from the long-term market to be utilized as short-term rentals, the housing supply shrinks. However, actual residents still require housing, prompting them to contend for and pay higher amounts for the limited housing stock. The Irvine researchers surmised that rents decreased following the local ban because as landlords returned their Airbnbs to the market as long-term rentals, the housing supply expanded. Suddenly, landlords had to compete for tenants and found it harder to inflate rents. The Irvine study found minimal support for alternative hypotheses, such as the idea that the Airbnb ban adversely affected the local economy by curbing tourism, thereby displacing tenants and reducing rental demand.
This is “common sense,” according to Cox. “It’s not some abstract commodity,” he stated regarding short-term rentals. “People were living there before.”
During my time as a local reporter in Burlington, Vermont, where I covered the city’s pressing housing crisis, I resided in an apartment in a run-down downtown building, which I rented for $1,300 a month. After I vacated the unit in June 2021, it was refurbished, filled with the most unattractive Ikea furnishings I had ever seen, and transformed into an Airbnb, renting for nearly $300 per night, including an intricate “cleaning fee.” According to calculations, the apartment is significantly more profitable for the landlord as a short-term rental, even after factoring in the cost of cosmetic upgrades. The unit likely generates thousands of dollars more each month than my previous rent. With such incentives, it is, in my opinion, necessary to impose a strict ban to convert the unit back to long-term rental status. Otherwise, why would the landlord willingly suffer such a loss?
To counteract these adverse incentives, certain areas, such as Summit County in Colorado, have begun compensating landlords to convert short-term rentals into long-term housing. In the short term, programs like this could aid in revitalizing housing supply. However, it is costly—and potentially unsustainable—for cities to continuously bridge the gap between long- and short-term tenancies. In Summit County, the program expended $1.65 million over two years on just 87 units.
An urgent requirement for housing
Observers of the debate surrounding New York’s Local Law 18 likely recognized the myriad of arguments presented against the ban: Some contended that Airbnbs did not significantly contribute to the city’s housing crisis. Others claimed that the units would remain unoccupied if not utilized for Airbnbs or that they would exclusively benefit wealthier renters, neglecting those in need of affordable housing. In its legal dispute with the city, Airbnb maintained that the ban would “worsen the housing availability and affordability problem” by stimulating hotel development.
When questioned about Airbnb’s impact on housing affordability, a company representative remarked, “Numerous intricate factors contribute to today’s housing affordability crisis—from escalating income disparities to decades of exclusionary zoning, and even evolving location preferences after the pandemic, including the rise of remote working from home. However, many experts concur that the primary culprit behind the affordability crisis is the persistent shortage of housing, not short-term rentals. Unfortunately, short-term rentals, which constitute a minor fraction of local housing stock in most cities, have unfairly become a scapegoat for a housing crisis that predates the establishment of Airbnb.”
The spokesperson added that in New York City, “there is no evidence the new rules will help alleviate the City’s housing affordability issues,” citing a statement from a former deputy mayor for housing, Alicia Glen, who had not found evidence that short-term rentals had a significant impact on the housing crisis.
Housing is a critical need, and we should be doing everything we can to create more.
Based on the research conducted in Irvine and other areas, it appears that prohibiting short-term rentals has a more substantial influence on the availability of higher-quality, albeit less affordable, housing—housing that is more likely to be converted into an Airbnb. Yet, this does not imply that the bans do not benefit low-income renters. Enlarging the housing supply for wealthier renters can mitigate pressure on rental expenses for low-income tenants, which is “helpful and healthy for the overall housing market,” as per Sarah Saadian, the senior vice president of policy and field organizing at the National Low-Income Housing Coalition.
It holds true particularly, she stated, “when assessing a location like New York City, where demand for housing spans all income levels.”
It’s essential to note the profound disparities in the US between homeowners and renters. Property owners, particularly those with multiple properties, are disproportionately white. Conversely, renters in the US are more likely to be people of color, possess lower incomes, and face other disadvantages. Short-term rentals serve to exacerbate these inequalities by boosting rents and channeling the profits to property owners. On the other hand, increasing housing supply and reducing rents can aid vulnerable renters.
Naturally, banning Airbnb is not a panacea for the nation’s devastating lack of affordable housing. The country is still grappling with a severe housing shortage—estimates suggest that the US requires as many as 6 million new units to restore equilibrium to the market. However, depending on the specific housing market, such a ban may only have a marginal impact on housing expenses. This does not render the endeavor fruitless. Housing is a critical need, and we should be doing everything we can to create more.
“If we wait for a single solution to resolve all problems, we will not make any progress,” contended Saadian.
Katya Schwenk is a journalist based in Phoenix, Arizona. She has contributed to publications including The Intercept, The Baffler, and Truthout, and currently serves as a fellow at The Lever.
Source: www.businessinsider.com
