Do vacation rentals like AirBnB harm housing affordability? The simple answer is yes.
Turning homes into small-scale hotels provides more options for tourists at the
expense of housing for locals to buy or rent, making housing more expensive for them.
The more complicated answer is that it depends. If your city has a fixed or restricted supply of
housing — let’s say you’re a European city with a strict height limit, an American suburb that
wants to pretend it’s still a rural area, or a Canadian city that thinks density should only go
on polluted arterial roads — then residential floor space in your city is scarce and any
house or apartment used as a vacation rental really is one less home available to locals.
But if your city has a functional housing market where supply can increase easily to
match demand then tourists and locals aren’t actually in a zero-sum competition and AirBnB
doesn’t have to be a hit to affordability. We approach the question of vacation rentals
with mixed feelings. On one hand we often use AirBnB while traveling and we think it offers
real value to people visiting cities. One reason is location. Especially in North America, hotels
tend to be clustered in one of three places: (1) downtown, (2) by the airport, or (3) by highways.
This is great for business travelers and people visiting by car but not as great for other types
of travelers. On our trips to Toronto, Montreal, and San Francisco this year we used AirBnBs to get
outside of traditional hotel zones and stay in more residential neighbourhoods. We like seeing
regular life in the city and we’re always trying to get footage of housing for this YouTube channel
that we have. Click the “subscribe” button if you’re interested in hearing more about that.
Our travel goals might be niche but there are tons of reasons why someone visiting a city
might want to stay somewhere outside of downtown without going as far as an airport or a highway.
Maybe they want to be close to friends they’re seeing, a music venue that’s hosting a show,
a job they’re in town interviewing for, or apartments they’re viewing because they’re
planning to move to the city. We use the term “vacation rentals” for simplicity but not everyone
using AirBnB is actually on vacation. Vacation rentals (or short-term rentals if you prefer)
are also good for people on a budget because they’re usually competitive with hotels on price
while being a lot more likely to offer a kitchen. Preparing your own food from the grocery store
can save you a lot of money over a one or two week trip compared to going to restaurants.
On the other hand, while vacation rentals provide value to visitors, lots of cities
all around the world are experiencing housing crises and the well-being of residents trying to
find a place to survive is more important than the convenience of tourists. Cheap vacations are nice,
but keeping residents housed is much more important. And the evidence is clear that
vacation rentals or short-term rentals absolutely can drive up the price of housing for residents.
One study from Portugal found a dramatic effect: every one percent of the housing stock that gets
turned into vacation rentals contributes to house price increases of up to 27% in
Lisbon and 16% in Porto. That’s enormous, and it suggests that cities have not just a right but a
duty to restrict vacation rentals to keep more supply available for residents.
But there was something interesting about their finding: not all places were affected
the same amount. Lisbon, the capital, saw a bigger price increase for the same amount
of AirBnB activity than Porto, the second biggest city, and there were differences
between municipalities within those metropolitan areas too. The study linked those differences
to housing supply elasticity — if builders can respond to lost supply and house price
increases from AirBnB by building more housing, that can slow or reverse the rise of prices.
The study found that Porto has a more elastic or responsive housing supply than Lisbon,
which helped Porto suffer less for the same amount of AirBnB activity. In both metropolitan areas
they found that “[t]he construction of new housing was not enough to offset the transfer of housing
to [short-term rentals]”, but they concluded that “If housing supply becomes more elastic,
housing transferred to [short-term rentals] can be quickly replaced by new construction, without
a significant impact on housing prices.” We can quibble about exactly how “quickly” builders can
respond, but the basic idea is sound. Places with static housing supplies are naturally going to
be much more vulnerable to vacation rentals than cities with more functional housing markets.
In the end, cities are justified in restricting vacation rentals like AirBnB. Maybe this means
setting a cap on licenses or limiting people to only renting out part of their
home instead of whole apartments. But from our perspective, restricting short-term rentals is
a short-term strategy to mitigate the effect of a dysfunctional housing market. Our long-term plan
should be supply-side reforms like loosening density or height restrictions for an abundant
and elastic housing supply where tourists and residents aren’t in zero-sum competition for
the same scarce floor space. Because here’s the conundrum with banning vacation rentals:
if it’s wrong to convert an apartment into an AirBnB, is it also wrong to build a hotel on a
vacant lot when you could have built an apartment building instead? Is it wrong to build an office
building instead of housing? AirBnB feels like a more visceral loss of housing because it’s
a conversion and it can mean eviction for a long-term tenant, but in theory the same idea
applies whenever somebody wants to build a hotel or even an office — “we’re in a housing crisis,
that should be housing instead”. And maybe that does make sense as an emergency measure,
but it’s not a policy we’d really like to keep around long-term.
In this video we focused on housing affordability but there are other valid concerns with vacation
rentals, like noise. It shouldn’t be a surprise that tourists sometimes get noisy. Once we stayed
at an AirBnB in the bottom unit of a Montreal duplex while another AirBnB above us (operated
by the same owner) was extremely loud with stomping and music well into the night.
We’ve experienced the same thing at hotels too but this AirBnB was in a residential area and we
felt really bad for the neighbours who might have to deal with that on a regular basis.
That’s a major quality-of-life issue, not simple NIMBYism, and cities should absolutely be willing
to hand out fines, revoke licenses, and hold hosts and the platform responsible.
To summarize our position, AirBnBs are essentially small-scale hotels that offer certain conveniences
that many people find useful, whether a kitchen or a better location. And while it’s totally fair in
the short-term to say that housing for residents should take priority over hotels for tourists,
in the long-term, suppressing hotels isn’t a very desirable housing affordability strategy.
We should be able to have both hotels and affordable housing.
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