Economist Warns of Airbnb’s Impact on Housing Crisis

Economist Warns of Airbnb’s Impact on Housing Crisis

EPI researcher cautions local policymakers against letting Airbnb bypass tax or regulatory obligations.

Airbnb rentals reduce the supply of long-term rentals in communities, creating economic costs that outweigh the benefits, according to research presented by Economic Policy Institute Research Director Josh Bivens in a new paper. Local policymakers should pay heed, says Bivens, and certainly not change local regulations and tax structures to benefit Airbnb.

By limiting the number of long-term rental housing units, Airbnb increases the cost of rents overall, Bivens explains. Housing demand is relatively “inelastic” in that people’s demand for somewhere to live doesn’t decline when prices increase, so even small changes in housing supply—like those caused by converting long-term rental properties to Airbnb units—can cause significant price increases for local residents.

Housing costs have risen significantly faster than overall prices since 2000, and housing accounts for more than 15 percent of overall household consumption expenditures. Because housing costs are a serious issue for typical American families, anything that exacerbates their upward trend is cause for concern.

“The evidence is clear that any benefit that the introduction or expansion of Airbnb provides to a city’s residents can be quickly offset by the costs it imposes,” said Bivens. “Because Airbnb doesn’t provide a compelling net benefit to city residents, there is little reason to think that traditional tax and regulatory structures governing travel accommodations should be changed to aid Airbnb’s expansion.”

Price indices for short-term travel accommodations and overall personal consumption expenditures (PCE), 2000–2016

Benefits of Short-Term Airbnb Rentals

One of the potential benefits of Airbnb rentals is that it increases supply of short-term travel accommodations, and thus lowers its cost. However, the price of travel accommodations in the United States has not risen particularly quickly in recent years, and accounts for just 1 percent of overall household consumption expenditures.

There is little evidence that cities with an increasing supply of short-term Airbnb rental accommodations are seeing a large increase in travelers. Instead, accommodations supplied via Airbnb seem to be a nearly pure substitution for other forms of accommodation. Two surveys indicate that only 2 to 4 percent of those using Airbnb say that they would not have taken the trip were Airbnb rentals unavailable.

Additionally, Bivens shows that while Airbnb allows property owners to diversify potential revenue streams from owning homes, the total value of housing wealth—and especially housing wealth besides primary residences—is quite concentrated among white and high-wealth households, so these benefits disproportionately accrue to the wealthy.

Lost Tax Revenue

Another large potential cost of Airbnb expansion is the loss of tax revenue as travelers switch to Airbnb from traditional hotels. Many cities impose relatively steep taxes on short-term lodging, hoping to obtain revenue from out-of-town travelers. The most common and straightforward of these revenue raisers is a tax on traditional hotel rooms.

If Airbnb expansion comes at the expense of traditional hotels, and if the apparatus for collecting taxes from Airbnb or its hosts is less well-developed than the apparatus for collecting taxes from traditional hotels, this could harm city revenues.

Several large American cities with a large Airbnb presence rely heavily on lodging taxes. Airbnb has largely blocked the ability of these cities to transparently collect lodging taxes on Airbnb rentals that are equivalent to lodging taxes on hotel rooms. One study found that the voluntary agreements Airbnb has struck with state and local governments “[undermine] tax fairness, transparency, and the rule of law.”

Playing by the Same Rules

While initially Airbnb advertised itself as a way for homeowners (or long-term renters) to rent out a room in their primary residence, or as a way for people to rent out their dwellings for short periods while they themselves are traveling, the business has evolved. Bevins notes that in recent years Airbnb listings and revenues have become dominated by “multi-unit” renters—absentee property owners with multiple dwellings who are essentially running small-scale lodging companies on an ongoing basis.

Bevins concludes by raising questions about the preferential treatment afforded to Airbnb. These questions include, “Why isn’t Airbnb required to ensure that lodging taxes are collected, as traditional hotels are?” And, “Why is Airbnb allowed to offer short-term rentals in residential neighborhoods that are not zoned for these uses, while traditional hotels are not allowed in these same neighborhoods?”