Does The Sharing Economy Threaten Housing Affordability?

Does The Sharing Economy Threaten Housing Affordability?

On Twitter this afternoon, I came across the following advertisement from Share Better D.C.

The group is focused on the housing affordability crisis in Washington, D.C. through the lens of short-term rentals (most commonly done through Airbnb, the bête noire of this group). From the group’s homepage:

With rents having risen by 30% over the past decade, Washington D.C is facing one of the most severe affordable housing crises of any city in the nation.

By empowering commercial operators to break the law and turn residential homes into short-term rentals, the rapid growth of Airbnb has quickly become a major factor of our housing shortage crisis, increasing rents, and the gentrification of communities of color.

Don’t confuse them for your friendly neighborhood YIMBY group. A report listed on their homepage includes such pro-zoning quotes as, “[l]awmakers have long recognized the need to protect affordable housing and neighborhood quality through rental housing laws and the zoning code” and “D.C.’s Zoning Code is designed to provide places for tourist accommodations while also protecting residential neighborhoods.”

Regardless, Share Better has a point–there is evidence to indicate that the rise of Airbnb and other sharing economy innovations do decrease the supply of rental housing. According to a paper from Kyle Barron, Edward Kung, and Davide Proserpio:

We assess the impact of home-sharing on residential house prices and rents. Using a dataset of Airbnb listings from the entire United States and an instrumental variables estimation strategy, we find that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices at the median owner-occupancy rate zip code. The effect is moderated by the share of owner-occupiers, a result consistent with absentee landlords reallocating their homes from the long-term rental market to the short-term rental market. A simple model rationalizes these findings.

The logic for this is fairly intuitive. If an apartment building is converted into a hotel, the supply of long-term housing is decreased (raising prices) as it is converted into short-term housing. Just drop “building” and substitute “Airbnb” for “hotel” in the last sentence and you have the basic logic.

This logic applies only in the very short term, though, unless there are constraints on building new housing. Of course, such constraints do exist–but the ultimate problem is the limits on new housing, not new uses for old housing stock. (Imagine, by analogy, binding constraints on the production of new automobiles. In that world, the rise of car rental agencies might be blamed for driving up car prices by diverting units away from the market for sale. In our world, nobody worries about such diversion.) If supply expands more broadly, long-term renters can benefit from reduced rent (and the possibility of earning extra money by renting out their homes) without need to further regulate the sharing economy.

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By |2018-09-20T12:30:06-07:00September 20th, 2018|Blog, Land Use Regulation|