Credit: Harvard Business Review
Since the emergence of Airbnb in 2008 the rental market landscape has significantly shifted with the online international rental marketplace bringing to life the idea of peer-to-peer renting and that anyone’s house can be quickly transformed into a luxury stay. As a result, this shift upped the scale of short-term rental and put unexpected pressure on residential rental markets. In May 2020 Airbnb recorded 7 million listings on their website worldwide with 14,000 new hosts joining in each month of 2020 preceding May. This huge impact led to a petition to the European Parliament in 2019 by 10 cities asking the EU to help restrict Airbnb expansion as it changes the face of so many neighbourhoods and questions have been raised around tax requirements, how many nights each year a property should be allowed to be rented out, licensing and the hiring of entire homes.
The impact of Airbnb can be directly compared to gentrification in an area as both have a slow upward effect on the value of an area and the increase of cost of living forces many local residents to move out. With the money to be made on Airbnb and at less regulatory cost, many landlords decide to take their long-term rentals off the market to enter the short-term rental market. In the UK for instance, as of February last year 2.7% of the 1.5 million UK landlord population had switched from long-term rental properties in the private rented sector to short-term lets, equating to 50,000 homes taken from long-term tenants. The reduced housing stock on the market for renters and over-tourism which is a nightmare in major cities where properties are already in short supply. A U.S. study found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices – these figures may not sound dramatic but these costs add up and the knock on effect in an area is strong, especially when 14,000 new hosts are joining each month.
In this way, Airbnb seeps into the cities having measurable impact on the housing market but doesn’t face the same level of regulation as existing landlords. In the UK, around 10% of landlords say they’re debating moving their private rentals to the short-term market, a lot of this can be explained by the long-term regulation they face, for instance in 2019 36% of landlords reported that the reason they switched to short-term lets was due to the changes in buy-to-let Mortgage Interest Relief. As of April 2020 private rental landlords were ruled unable to claim any buy-to-let Mortgage Interest Relief whatsoever, whereas if you match the criteria as a short-term let, you can still claim the full amount. On top of this, last year in the UK a Tenant Fees Act was introduced whereby tenancy deposits were capped and private rental landlords and agents were banned from charging letting fees. If that 10% of landlords were to move their properties to Airbnb and the short-term market, an estimated 470,000 or so properties would be removed from the private rented housing supply, it’s clear that Airbnb needs some clamping down in order to protect renters in the market.
Due to the sheer size and popularity of the company many experts claim that it’s protected from any kind of damaging defeats in court. Professor at New York University’s Stern School of Business, Aswath Damodaran claims that “Airbnb will be fighting regulatory bush fires across the world for the next decade. They have a lot of kinks to iron out, but the kinks will get ironed out.”
Airbnb Regulatory Battles Dragging (U.S.)
We are definitely starting to see these pop up more and more over the last couple of years with cities hitting back to protect the residential housing market, but the methods of balancing the scales that Airbnb haven’t fought off are relatively untested and the best method has not yet been found. In Ireland for instance, a ‘one host, one home’ regulation was imposed in 2019 to combat the high demand for housing in major cities such as Dublin. Homeowners were not allowed to let a second property on a short-term basis and a cap of 14 days was introduced for homeowners renting out their homes with a yearly cap of 90 days. In Edinburgh, lobbying from groups like ARLA Propertymark has led to the Scottish government green lighting regulation also being put into place (starting in April 2021). However, Edinburgh council and other Scottish councils still need to figure out which areas to put in controls and how they’re going to regulate short-term lets. It is understood that these regulations will differ from Irelands and no caps will be put into place on the numbers of short-term lets. In retort Airbnb states that, “home sharing with rules for the long-term is good news for hosts in principle”, but argue “there is no clear rationale” for the rules being proposed. In support of this, there is little evidence yet to show signs these measures are negating governments’ negative impact on long-term private rentals in the market and the increased demand of housing in cities.
There can be no doubt that after a decade since it’s emergence Airbnb has visibly damaged the rental sector in many big cities globally. This however, is not necessarily through any fault of their own as nobody can argue with the quality of their service. Airbnb has completely revolutionised the short-term rental market – reflected by its immense popularity. In cities like London the government clearly have not got the balance right with it’s regulation on long-term private rental housing and landlords, and Airbnb have simply intensified the damage this has caused with many landlords wanting to jump ship, further reducing the housing stock available. Tighter regulations need to be imposed on the short-term rental market to discourage more long-term private landlords from trading markets and to protect renters in inner cities from paying through the ear for scarce property. Having said that, it would be fundamentally wrong to go overboard on these restrictions and end up prohibiting such important technological optimisation from forcing definite need market progression.