Cities across the U.S. are grappling with a housing crisis, and short-term rental platforms like Airbnb (NASDAQ: ABNB) and Vrbo (NASDAQ: EXPE) have found themselves at the center of the debate. Since Irvine, California, banned short-term rentals six years ago, the city's leadership remains confident in the decision.
"It's been great," Irvine Mayor Farrah Khan told reporters, adding that residents have supported the ban. Irvine is just one of several municipalities tightening restrictions on short-term rentals, arguing that they exacerbate housing affordability issues by removing homes from the long-term rental market.
As reported by CNN, however, economists and housing experts do not completely agree on how significant a role short-term rentals play in driving up rent prices. "Real estate is local," said Michael Seiler, a finance and real estate professor at the College of William & Mary.
According to Seiler, the impact of Airbnb and similar platforms varies based on local market dynamics, making it a nuanced issue rather than a one-size-fits-all problem. "Everything that someone says is bad about Airbnb, I can tell you there's a corresponding group who feels it's good."
The short-term rental market in the U.S. has exploded, reaching $64 billion in 2023, up from $39 billion just four years earlier, according to data from AirDNA. The increase in listings, which now number over 2.4 million, coincides with a nationwide housing shortage.
Experts estimate the U.S. needs to build around 2 million homes to address the supply-demand imbalance. Still, many properties listed on platforms like Airbnb are vacation homes or people's primary residences, meaning they might not return to the long-term rental market even if restrictions are imposed.
According to Airbnb's Vice President of Public Policy, Theo Yedinsky, targeting short-term rentals to solve the housing crisis won't fix the problem. "Every housing unit that's on Airbnb isn't necessarily going back on the long-term rental market," Yedinsky told CNN.
Research backing this viewpoint includes a 2019 study published in the Harvard Business Review, which found that a 1% increase in Airbnb listings correlates with a negligible increase in long-term rents - just 0.018%. These findings suggest that the housing crisis is more complex than short-term rentals alone.
However, there are cases where restricting short-term rentals has appeared to benefit local housing markets. A study co-authored by Seiler indicated that Irvine's short-term rental ban contributed to a 3% reduction in long-term rental prices between 2018 and 2021. At the same time, the number of long-term rental units increased.
Even so, Mayor Khan admitted that Irvine's affordability issues persist, with median rents still 134% higher than the national average, according to Zillow. "The ban is not the end of it," Khan said, noting the need for more housing development.
In contrast, Telluride, Colorado, experienced unintended consequences of short-term rental restrictions. After implementing a cap on these rentals in hopes of improving housing affordability, the city saw a decline in tourism, a vital part of its local economy.
"We're a tourism economy," said Telluride City Council member Dan Enright. The city let the cap expire as they were faced with economic repercussions. They opted for a compromise in which short-term rental hosts pay fees reinvested in affordable housing projects. "Only time will tell, but I feel the early signs are positive," Enright told reporters.