Ever since it was founded in 2008, Airbnb has been met with open arms by supportive real estate investors worldwide who see it as the optimal rental strategy. The short-term rental platform has also faced criticism and rejection because of how Airbnb affects home prices and rents.
A New Study
The preliminary results of a new study conducted this year are backing up critics’ claims of how Airbnb affects home prices and rents. The study looked at one hundred ZIP codes in the United States that have the highest number of Airbnb listings. It used an average of different types of rental properties as well (from one bedroom to single-family homes). From the years 2012 to 2016, it was found that a 10% increase in Airbnb rentals leads to a 0.42% increase in rent prices and a 0.76% increase in house prices in these ZIP codes.
This is the first study to show that how Airbnb affects home prices and rents is a causal relationship, not just a correlation. It was a bit difficult to analyze the relationship before as cities are, in general, becoming more expensive and there is an increase in tourists. It seemed before that these two phenomena were going in the same direction, but were not necessarily related. Now, however, it would seem that as Airbnb investments increase, so do real estate property price and rent.
Airbnb vs. Other Factors
The study also considered other factors besides how Airbnb affects home prices and rents of the local housing market such as population growth, job growth, and income trends. For example, the Brooklyn neighborhoods of Bushwick and Bed-Stuy experienced an annual average increase of 41% over the years of 2012 to 2016. With this increase came a rise in rent of 7.7% a year from the baseline rent price of $1,712 a month in 2012. For the total rent increase of $131, it was found that Airbnb rentals were the cause for $27 of the increase.
Overall, the study found that rents rose by a total of 2.2% and real estate property prices by a total of 4.8%. Considering these numbers, how Airbnb affects home prices and rents versus other factors is not negligible.
Different Types of Short-Term Rentals
Real estate investors have two options when it comes to Airbnb rentals. They can be owner-occupiers, which is when the owner lives in the Airbnb investment he/she rents out to tenants or he/she chooses to rent when he/she leaves the property. There are also absentee landlords who do not live in their Airbnb rentals at all. The study took these differences into account when looking at how Airbnb affects home prices and rents.
It was found that ZIP codes with more owner-occupied Airbnb rentals experienced only a small increase in rent prices. For example, Huntington Beach, California has an owner-occupancy rate of 51%. In the years that were studied, Airbnb listings grew by 48% in Huntington Beach. With this came only a 2.7% a year growth in rent prices.
On the other hand, Hollywood, California has a higher rate of absentee landlords with only 5% of an owner-occupancy rate. Here, the Airbnb listings increased by 50% a year and rent prices increased by 6.4%. It would seem, then, that how Airbnb affects home prices and rents is also dependent on the type of Airbnb strategy a real estate investor uses.
Why Does Airbnb Have This Effect?
How Airbnb affects home prices and rents is simply a case of supply and demand. Real estate investors know that if supply is limited and demand is high, then the real estate property prices can go up as well as the rents. Basically, Airbnb is taking traditional rentals off the local housing market and moving them into the short-term rental market. That is why the Airbnb effect on housing prices is so great.
For example, real estate investors or buyers looking for traditional rentals in Pleasant Valley in Austin, Texas would have found one Airbnb rental in every 13 houses that were listed for rent in 2015. Places like Sunset Beach in St. Petersberg, Florida, which saw the highest relative growth rate in Airbnb rentals in the housing market, had 50% of the units listed as Airbnb rentals instead of traditional rentals.
Airbnb can’t ignore these facts or the cries from critics and they haven’t. One major step they’ve taken earlier this year to lighten the Airbnb effect on housing prices was to start paying hotel taxes. As they were accused of giving real estate investors the opportunity to go around many of the rental regulations of traditional rentals, Airbnb paid about a billion dollars in hotel and tourist taxes. This was a good step in countering the negative effects Airbnb investments have on supply, house prices, and rents.
Beyond this monumental step, Airbnb also claims that short-term rentals have other positive effects on the community that can’t be ignored. Why is Airbnb so popular? Airbnb says that it is an optimal rental strategy that gives middle-class families an additional source of income. A study they conducted found that 60% of Airbnb hosts would otherwise not be able to stay in their homes if not for the income generated from Airbnb rentals.
While first-time buyers are having issues with affordability, owners are enjoying an increase in positive cash flow. The value of their homes is also increasing because they are getting rental income from the Airbnb investments. So, why is Airbnb so popular? Basically, it’s a great way to make money and still live in your home despite how Airbnb affects home prices and rents.
The Future of Airbnb
It’s true, then, that the Airbnb effect on housing prices results in low homeownership rates. Even with this affordability issue, Airbnb is not going anywhere as the optimal rental strategy because its positive impacts are so great for many. Not only are there countless real estate investors benefiting, but you also have owner-occupiers making extra cash from Airbnb rentals. Tourists and travelers find it to be more convenient and cheaper than traditional hotels.
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Some cities have rejected Airbnb all together with strict laws and hefty fines to keep people from renting out real estate as short-term rentals. Other cities are more lenient but have taxes in place to regulate Airbnb rentals. Studies like this one should be used by city officials and legislators to help solve issues of affordability. This is why real estate predictive analytics, like those provided by Mashvisor, are so important. They help identify trends in local housing markets.
Ultimately, the question is not whether Airbnb is going anywhere, but it’s really a matter of what will be done to help the way how Airbnb affects home prices and rents.