The Impact of Airbnb on Long-Term Rentals, Gentrification, and Housing Inequality

Airbnb, the hugely-popular short-term rental infrastructure that holds more than 30% of the lodging market share, is exacerbating an already-slimming housing availability crisis, especially during the global COVID-19 pandemic. As over 92% of Airbnb users plan to use the service again, the model is an attractive service to consumers. 

Everyone’s favorite application to find cozier and less-sterile homestays is also attractive for landlords, with a median year-on-year growth rate in Airbnb listings of roughly 28% across ZIP codes. That which benefits tourists and landlords hurts local residents, as the underbelly of this unicorn disrupter hides a rapid shortage of long-term rentals, higher rent prices, and increased inequality, occurring in cities across the globe.

Airbnb’s Impact on the Decline of Long-Term Rentals 

For a landlord, Airbnb and other short-term rental options offer an attractive alternative to traditional long-term rental agreements: short-term rental profits are expected to increase nearly 5% year-over-year over the next five years (paywall), while traditional long-term rental profits are expected to fall 3% year-over-year in the same timeframe (paywall); the 300-most profitable units in New York City alone brought in over $100,000 each in rental income in 2017. 

Short-term stays skirt occupancy taxes and zoning regulations that are enforced against landlords who offer long-term stays; despite Airbnb repeatedly stating it wants to pay local occupancy taxes, when a city attempts to enforce the provisions, Airbnb often sues. Landlords are taking notice of these advantages, and the shares of available long-term rentals are falling rapidly. One study found that the ratio of Airbnb listings versus available long-term rentals averaged 11.77% across the nation, and more than 121% in the higher percentiles. 

For the average renter, this means 1 of every 9 units has been removed from the long-term market; in markets with the most demand, the number of long-term rentals available is lesser than the number of short-term listings available. In cities across the world, the resulting squeeze on long-term rentals are being felt. 

In Barcelona, Airbnb holds over 18,000 units; in New York City, over 50,000 units are reserved for short-term rentals; in London, the number is a staggering 87,000 units, and in some neighborhoods, 1 in every 4 homes are Airbnb rentals. The result for local residents is higher rents, gentrified neighborhoods, and a loss of community.

How Airbnb Contributes to Gentrification 

Across all areas with a heavy-Airbnb presence, three effects are nearly universal: (1) an increase in Airbnb listings leads to both higher house prices and rental rates, (2) the effect is slightly higher for house prices than it is for rental rates, and (3) owner-occupancy rates are decreasing.

 The rates at which Airbnb affects rental prices seems insignificant (one study found that a one percent increase in Airbnb listings leads to a 0.018 per cent increase in rents and a 0.026 per cent increase in house prices) but the rapid growth of the service, 105% year-over-year, and the number of rentals being converted has resulted in real rent-price increases, averaging over $380 per month citywide, with some neighborhoods in Manhattan seeing a $700 per month rise in rent prices directly correlated to an increased Airbnb presence. 

The effect on neighborhoods is a less-stable community population and an increased economic incentive to gentrify and cater to tourists. A study on Airbnb’s effect on Barcelona coined the term “collective displacement” to mean a substitution of residential life by tourism. 

The gutting of formerly-residential neighborhoods by short-term rentals, coupled with the resulting economic evolution of the area displaces long-term residents in a process akin to the normal understanding of gentrification; however, rather than being priced out by richer, usually whiter residents who are seeking long-term stays, this new process of gentrification transforms residential neighborhoods into tourist hotspots. 

Long-term residents have been cited as identifying community disruption as their most-pressing concern about short-term lets, nearly twice as often as property values or affordability, suggesting long-term residents are most worried seeing their changing neighborhoods become less like home and more like a touristy resort-town. 

This effect is not limited to larger cities that already welcome disproportionally more tourists; in direct response to the COVID-19 pandemic, a new era of “white-flight” has hit cities such as New York and San Francisco hard, which both experienced a 15-20% decrease in residents over the past year. 

In response, Airbnb has focused more on promoting its stays in areas more rural or isolated, leaving many worried the worst effects seen in cities is a precursor to what is to be seen in suburbs and rural areas everywhere. 

The Impact of Airbnb on Housing Inequality

Even within the Airbnb ecosystem, an inequality exists among hosts. 38% of Airbnb hosts with only one listing failed to generate any income from using the service, while only 2% of Airbnb hosts with over five listings failed to generate any income. 

This suggests that, like most other industries, a winner-take-all dynamic has emerged within the short-term rental market, with the hosts that can leverage their existing capital are the ones who are making the largest share of earnings. This is supported in other studies, which show the top 10% of hosts earning over 48% of the generated revenue, while the bottom 80% of hosts earned just 32% of total revenue. 

Data also shows a racial disparity, with non-Black hosts earning 12% more revenue than Black hosts with similar listings in the Los Angeles area. Other studies have found that, in all 72 of New York City’s predominately-Black neighborhoods, hosts are 5-times more likely to be white and earned 530% more revenue than Black hosts in the same neighborhoods, a statistic influenced heavily by the racial disparity in hosts. 

It is evident that Airbnb and other infrastructures hosting short-term rentals have been a negative influence on many local residents, despite the many advantages seen by both tourists and landlords. It is crucial that cities around the globe are allowed the resources and oversight into reigning in this wild unicorn.