Airbnb is getting a free ride, and it’s hurting renters

Many of the companies that make up the “sharing economy” have something useful to offer American families by introducing competition or more efficient business practices into a range of industries.

But too much of what these companies have offered so far is an end-run around regulations and taxes. This end-run definitely benefits some but also inflicts costs on many.

Take the case of Airbnb, an internet-based platform that allows property owners to rent out their residences for short-term travel lodging. I recently reviewed the research on the costs and benefits of Airbnb’s rapid expansion in recent years.

{mosads}The upshot of this research is that for long-term residents of a city, the costs of Airbnb’s expansion are significant and widespread, while the benefits are narrow and skewed toward wealthier households.

The biggest benefit from Airbnb accrues to property owners in cities that attract lots of out-of-town travelers. Whereas previously, property owners were largely limited to renting out their property on a long-term basis, Airbnb gives them more options to generate revenue from their property, by reducing the logistical costs of offering their properties as short-term rentals. 

Providing benefits to homeowners is nice, but while housing wealth is more democratically distributed than other forms of wealth (like corporate stock, for example), it’s still quite concentrated. For example, the bottom 50 percent of the wealth distribution only holds about 10 percent of all housing wealth.

Further, well over a third of Airbnb’s revenue is generated by hosts renting out two-or-more whole-home units —meaning people who own substantial property besides their primary residence.

The distribution of housing wealth excluding one’s primary residence is extremely skewed, with the top 1 percent of the wealth distribution holding almost a third of this type of wealth. In short, lots of the revenue generated by Airbnb is going to quite-wealthy households. 

As property owners take advantage of new options made available by Airbnb, they shift housing units from the long-term rental market to short-term accommodations. The winners of this shift are travelers who now have more options (and likely lower prices) for places to stay on their vacations.

The losers are long-term residents of a city who may face higher costs as housing units are moved out of the long-term rental sector and into short-term accommodations. In New York City, for example, estimates are that the expansion of Airbnb might be boosting rents by nearly $400 annually for families.

The rising cost of housing in American cities is a key problem for tens of millions of American families. Housing is the single biggest component of families’ consumption basket, and housing prices have outpaced overall inflation for years.

Short-term travel accommodations constitute a far smaller part of family budgets, and the last decade has seen no real difference between prices in this sector and overall inflation. In short, the shift of housing supply from long-term markets to short-term travel accommodations exacerbates a key economic problem facing many families while providing no real solution to any pressing problem.

Other losers from Airbnb’s expansion include traditional short-term travel accommodations (hotels), who have seen their business eroded by Airbnb’s introduction. Further, long-term residential neighbors of Airbnb units might suffer from more noise and stress on neighborhood infrastructure (more trash, for example) that stems from having lots of short-term travelers cycling through their block.

These considerations are exactly why parts of cities are zoned only for residential dwellings and not for short-term hotels. Yet these regulations are being effectively rolled back — not by a transparent and democratic debate, but simply by being ignored. 

{mossecondads}Some have argued that Airbnb’s expansion in cities has attracted tourism and spending that would not have happened otherwise. The evidence on this, however, is weak. One survey found that only 2–4 percent of travelers who used Airbnb said that they would not have made their trip absent Airbnb.

The remainder of these trips essentially replaces hotel business. As Airbnb substitutes for hotels, often-significant lodging taxes are not collected in full by cities. 

All in all, the story of Airbnb is a familiar one in the sharing economy. There is real value-added in their platform, and using technology to lower logistical costs that are blocking economic transactions that both parties would like to make is great.

But too much of the core business so far has been ignoring regulations that bind their more-traditional competitors. Airbnb is free to argue that these regulations don’t make sense and should be changed through the democratic process. They shouldn’t be free to ignore them completely.

Josh Bivens is the director of research at the Economic Policy Institute.