Big cities around the world are getting over-populated to unprecedented levels. Everyone wants to live in the big cities especially the young people who are just starting out their lives and want to make a name for themselves in a big corporation in a big city. This makes rental properties and traditional ones even harder to find. Overpopulation in certain areas and neighborhoods leads to a massive hike in rental and property prices. In the real estate business it is normal to witness a rise in prices like this; it is not an anomaly.
Rising prices can partially be blamed on Airbnb rental properties. The expansion of Airbnb rental properties and its familiarity with most property owners and investors can have that type of effect. This has affected major cities in the U.S. like New York, San Francisco, Los Angeles, Oakland and Seattle. If you are planning to invest in rental properties in any of these cities you will notice that the purchasing prices there are over the top.
How have rental properties affected this increase in prices? There are four main reason that explain how Airbnb was in the invisible hand in rising housing prices in cities.
1. Competition on Airbnb is Fierce
The Airbnb platform and other vacation rental property websites create a lot of competition between hosts or property owners. Most owners want to invest their money in the best and most touristic locations so that they are guaranteed to be renting the property most of the year. For them, it is about profit. Property owners are concentrated on buying and renovating property in selected neighborhoods that have become over-populated and trendy. If all Airbnb hosts or potential ones are focusing on buying property in the city center, then property sellers will see an advantage; demanding more and raising prices. It is well within their rights to do that because they can obviously see the rising demand for rental properties because of platforms like Airbnb. Other investors are just more opportunistic, they bought property years ago only to resell it years later for a higher price and make a significant yet easy profit.
2. Commercial Operators Entering the Market
This problem of commercial operators is undermining anyone involved with Airbnb or rental properties. Commercial operators are just buying so many properties in so many cities and giving them a hotel atmosphere to rent them for high prices. Commercial operators are usually big real estate companies that have decided to invest their money in Airbnb and try to cope with the evolving market. In New York, commercial operators who are just abusing the market own 30% of the Airbnb listings. When these big sharks are out there buying any property they can get their hands on, it means normal investors will have it more difficult.
3. Illegal Airbnb Housing
Major cities have tried to protect inhabitants of their districts by issuance of rules that require owners of rental properties to register as a vacation rental or tourist rental. Taking New York as an example again, reports suggest that 55% of rooms and houses listed on Airbnb are illegal. This affects prices of the housing market in the city in an easy way. If the illegal houses are unable to rent their places on Airbnb for short-term rental then that means they would have to rent them traditionally for long-term. Long-term rentals are cheaper and when so many are available again it will take the housing market prices down eventually. This problem has proved to be international as well, in Barcelona one of the most visited cities in Europe; protests were organized by locals to stop the illegal use of Airbnb rental properties by landlords.
4. Airbnb Hosts and Greed
The thing is, Airbnb rental properties are money-making machines. If you’re an investor in a big city, you’re guaranteed a respectable sum of profit to be made each year. This is why property owners have decided to dedicate the entire year for short-term rentals instead of doing half short-term on high touristic seasons and half long-term in the off-season. This created a gap, a huge percentage of previously existing flats for long-term rental are no longer available. A declining number of flats for rent means more tenants to compete on whatever is left which again pushes the prices up due to demand.
All the factors that contribute to the growing prices of in the housing industry are purely economical based because of the choices people make and how all of they are trying to make as much profit as possible. In big cities, demand is the enemy that is pushing prices, tourists are more ready to be wallet happy spenders unlike locals that’s why landlords are focusing on hosting tourists rather than locals. It is all connected in the end, but the conclusion is that Airbnb rental properties are now probably biggest player in the housing market. A system needs to be created that helps housing affordability while not preventing people from listing properties on Airbnb.