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September 13 2016

No, Elizabeth Warren, Airbnb Doesn’t Drive Rents Higher

Patrice L. Onwuka

Airbnb and other companies such as Homeaway and FlipKey are the latest targets of the hotel industry and friendly politicians because they disrupt the travel industry by offering visitors the choice of another place to lay their heads – often at far less cost than hotels. Critics contend that these short-term rentals are making affordable housing units unavailable for rent, but new research says not so fast.

A FiveThirtyEight economic analysis of Airbnb booking and revenue data shows that Airbnb’s impact on the rental market in most cities is small. However, a large share of the company’s revenue does come from residences that are rented out for a large portion of the year. These residences could very well be traditional long-term rentals or they could just as easily sit idly unused.

From June 2015 to May 2016 in Airbnb’s largest U.S. markets, 10 percent of Airbnb’s total listings were commercial listings, but that made up almost a third (32.7 percent) of host revenue. These listings are what critics point to as reducing the supply of housing and driving up rents. Commercial units on Airbnb overall represent below 1 percent of all rental units, so any impact on rental supply is small and limited to a handful of cities where they are popular.

FiveThityEight explains:

In some cities, commercial listings make up a large share of Airbnb bookings. In Los Angeles and Portland, Oregon, nearly half of all the money travelers spent on short-term rentals went to commercial hosts. In New York and San Francisco, two cities where Airbnb has faced particular scrutiny, commercial listings accounted for about 30 percent of revenue. In every one of Airbnb’s top 25 markets, commercial listings accounted for at least 20 percent of host revenue.

Stockton Williams, executive director of the Terwilliger Center for Housing at the Urban Land Institute, said that as a percentage of total rental units in America’s big cities, the commercial units don’t add up to much. He said other factors, such as the increasing demand for urban living, have played a much larger role in driving up prices in big cities.

“It’s a very valid concern,” Williams said. “But I’m not sure there is evidence that Airbnb has had a significant effect on either price or supply.”

Home sharing (also called room sharing) allows homeowners to use technology to rent space in their homes or the entire dwelling to complete strangers. Akin to ridesharing, home sharing has been threatening the hotel industry.  Just as Uber and Lyft have significantly cut into the taxi cabs’ revenue, home sharing companies are giving hotels a run for their money.

As we reported recently, the proliferation of home sharing rentals has cut into the most profitable nights for hotels, so called compression nights, when hotels make reportedly anywhere from between 35 to 70 percent more revenue. These are nights when demand is extremely high for a room (such as vacation weekends near the beach or school vacations near Disney parks).

Trying to get ahead of the disruption that home sharing can have on the hotel industry, progressive policymakers leaders such as Democratic Senators Elizabeth Warren and Dianne Feinstein recently called for a federal investigation into home sharing noting:

"On one hand, these firms have sparked innovation, increased competition, and have provided new means by which our constituents can earn extra income," they said.

"On the other hand, we are concerned that short-term rentals may be exacerbating housing shortages and driving up the cost of housing in our communities."

Despite this evidence, progressive policymakers like Warren and Feinstein as well as the New York State want to put home sharing out of business. New York passed legislation to ban Airbnb users from renting their homes for less than 30 days. A violation comes with an up to $7,500 fine. The purpose of the legislation is keep landlords from creating what they consider illegal hotels and removing apartments from the rental market.

This effort is based on the faulty premise that Airbnb in New York is draining the housing market of affordable apartments, when evidence shows that some 96 percent of hosts are listing their primary unit. According to Airbnb, the median annual earnings for Airbnb renters in New York City is $5,474 – an “economic life preserver” for many living in a pricey city where costs of living are only rising.

Home sharing is a way to put money back in the wallets of families. Public policy should encourage innovation, entrepreneurship, and economic activity that puts families on surer financial footing, not be a roadblock to it.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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