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Research: Restricting Airbnb Rentals Reduces Development - Sun and Planets Spirituality AYINRIN
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Summary.
Much has been written about the harm caused by short-term rental (STR) platforms such as Airbnb. By driving up demand for housing, these platforms can result in higher rents and house prices, thus potentially driving out long-time residents. However, the authors’ new research explores the upside of STRs, suggesting that they can also have a substantial, positive impact on communities’ long-term economic growth. Specifically, the authors find that people invest more in developing residential properties when demand for Airbnbs increases, and that restricting Airbnbs directly leads to less residential development, less growth in home prices, and thus less tax revenue for cities (to the tune of at least $40 million per year in the U.S.). While this is not to suggest that unregulated growth is the answer, these findings highlight the importance of a targeted approach to regulation that limits the short-term harm of STRs without eliminating their potential to spur long-term growth.
It’s well-known that one of the downsides of short-term rentals (STRs) is that they can reduce the availability of housing for long-term residents, thus driving up both rents and house prices for locals. In a previous study, we found that home-sharing through Airbnb alone is responsible for about 20% of the average annual increase in U.S. rents, leading many policymakers to take an understandably aggressive approach to regulating STRs. For example, New York City has made it outright illegal to rent an apartment for fewer than 30 days in most buildings.
It’s
well-known that one of the downsides of short-term rentals (STRs) is
that they can reduce the availability of housing for long-term
residents, thus driving up both rents and house prices for locals. In a previous study,
we found that home-sharing through Airbnb alone is responsible for
about 20% of the average annual increase in U.S. rents, leading many
policymakers to take an understandably aggressive approach to regulating
STRs. For example, New York City has made it outright illegal to rent an apartment for fewer than 30 days in most buildings. However,
while this short-term impact is well established, the longer-term
impact of the last decade’s boom in STRs is less clear. Could the
immediate harm of services like Airbnb to the local economy be offset or
even outweighed by the long-term increase in demand they create?
To explore this question, we conducted a large-scale study
analyzing a decade’s worth of Airbnb listings and residential permit
applications in the U.S. Residential permits are necessary for both new
construction projects and substantial changes to existing structures,
which makes them an effective way to measure the local economic growth
that results from owners investing significantly in developing their
properties. Based on this dataset, we identified a clear connection
between STRs and residential permits: On average, a 1% increase in
Airbnb listings led to a 0.769% increase in permit applications,
suggesting that Airbnb can play a major role in supporting local real
estate markets and thus boosting local tax bases. Given these findings,
it follows that restricting STRs can have a significant, negative impact
on local economic activity. Of
course, this is not to say that the negative economic impacts
identified in our prior work are irrelevant. In the next part of our
study, we took a more granular approach in an attempt to measure the
direct impact of various STR regulations and identify strategies that
can help communities reap the long-term benefits of the economic
activity generated by these rentals while minimizing the short-term harm
to residents.
To
dig deeper into the underlying market forces at play, we divided our
analysis into two parts: a nationwide examination of Airbnb’s impact
across 15 major U.S. metropolitan areas from 2008 to 2019, and an
in-depth exploration of the effects of different local restrictions
within Los Angeles County. The national study ensured our findings were
applicable across diverse geographic and demographic settings, while the
detailed look at LA offered specific insights into the on-the-ground
impact of different policies. In addition, it’s worth noting that STR
regulations were rolled out in the different cities at various points
between 2012 and 2019, enabling us to avoid muddying our findings with
factors specific to any particular city or time period.
In
the first part of our analysis, we looked at 2.9 million residential
permit applications, 750,000 Airbnb listings, and 4 million residential
sales transactions across the country. The main limitation to expanding
this beyond the 15 cities we looked at was access to residential permit
application data, since in general, only larger metropolitan areas in
the U.S. share their permit data publicly. Public tax data and sales
records, however, were easily obtained from data aggregators, as was
Airbnb listing data, which we cross-checked with several overlapping
sources.
We then used a popular research design known as “difference-in-differences”
to measure the causal impact of STR regulations on economic activity.
We compared both Airbnb listings and residential permit applications in
the three years before and after an STR restriction was passed in a
given neighborhood, and then averaged these effects over all the
neighborhoods in our study. Our analysis identified a clear downward
trend in both listings and permits after a regulation was enacted:
Airbnb listings fell by an average of 21%, and residential permits fell
by an average of 10%. The
second part of our analysis zoomed in to focus on these effects within a
single metropolitical area. We chose to look at Los Angeles County
because it has a uniquely large, interconnected housing and labor
market, with many independent jurisdictions and regulations coexisting
side by side. Specifically, only 18 of LA’s 88 municipalities have STR
regulations, enabling us to perform direct comparisons between areas
with STR regulations and their unregulated next-door neighbors. We
focused our analysis on residential permits within a kilometer of a
border between regulated and unregulated municipalities, in order to
maximize the chances that the trends we identified were purely due to
the difference in STR restrictions, rather than other, external factors
that may have incentivized residential construction on one side or the
other. Furthermore, in addition to general residential permit
applications, we tracked permit activity for a category known as
accessory dwelling units (ADUs) — that is, additions to existing homes,
which are often especially well-suited for renting.
The
results of this analysis were conclusive: On the sides of these borders
without STR regulations, there were 9% more non-ADU permit applications
and 17% more ADU permit applications than on the sides with
restrictions. Clearly, demand for STRs has been driving the creation of
extra housing capacity in LA, and it’s been especially driving growth
for housing that is suitable for home-sharing (i.e., ADUs).
In
the final part of our study, we explored the relationship between
permit applications and residential property values, which are
associated with cities’ property tax revenues. We looked at residential
properties in our nationwide dataset that were sold during our sample
period, and we found that those with a permit application between sales
(i.e., those whose owners invested in improving their homes before
selling them, potentially in order to meet STR demand) sold for an
average 38% more than those without a permit application. Since STR
regulations decrease the number of permit applications which in turn
stymies growth in property values, we conservatively estimate that for
the 15 cities we studied, STR restrictions reduced property values by a
total of $2.8 billion and tax revenues by $40 million per year.
Of
course, this is not to suggest that unregulated growth is the answer.
While higher property values can increase cities’ tax revenues which can
then be reinvested into local communities, they can also lead to issues
related to housing affordability, including pricing out existing
residents or preventing new residents from entering these neighborhoods.
But our research illustrates that with the right policy approach, STRs
can be leveraged as a tool to encourage local real estate development
and economic growth.
As
such, rather than enforcing blanket restrictions that hinder growth, we
recommend creating targeted policies that meet local needs. For
example, a study of real estate activity in Chicago
showed that encouraging STR development for properties in distressed
neighborhoods and then turning those properties into Airbnb rentals
fostered parallel development in nearby retail properties, creating jobs
and adding value to the entire community. As development spurs growth,
policies could be implemented that would set aside a portion of the
resulting increased tax revenue to fund affordable housing for local
residents. Similarly, to address gentrification concerns, the total
amount of space available for STR use could be capped at a percentage of
available housing capacity, thus encouraging the development of
long-term housing alongside STRs.
Ultimately,
our research highlights the importance of taking a nuanced approach to
STR regulation. As with many fraught policy decisions, the main
challenge that regulators face is to balance residents’ shorter-term
needs with the longer-term economic wellbeing of the community. There
are no easy answers — but any effective solution will have to
acknowledge the very real economic downsides of restricting what people
can do on their property.
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