The Hamlet era of the housing crisis

Airbnb dominates the short-term rental market, but the success of the service has started a new conversation: the company’s impact on housing affordability, also known as the “Airbnb Effect.” But it’s a layered conversation, Michael Seiler, professor of real estate and finance at the College of William & Mary, said. luck. The real impact to watch out for, he said, is what Airbnb is doing with long-term rentals.

Seiler decided to dig deeper into his research, along with co-authors—Purdue University economics professor Ralph Siebert and Chinese University of Hong Kong real estate professor Liuming Yang—in a paper, “Airbnb or Not Airbnb? That’s the Question: How Airbnb Stops Disrupting Rental Markets,” shared in luck. The paper is under revision for a top real estate field journal, they said. The takeaway is clear, though.

“If people are renting their place for a short period of time, then that place is not going to be available for a long time,” Seiler said. “So there is a substitution effect, as we call it.”

To understand this impact of Airbnb on long-term rentals, the authors focus on legislative restrictions on short-term rentals in general, and an Airbnb ordinance in Irvine, California, specifically. Irvine is one of the few cities that strictly enforces such regulation and actually bans Airbnbs in residential zoning areas. And to further enforce its regulation, Irvine is working with a property technology company to monitor and detect violations.

So Irvine is an ideal case study. “Everybody wants to know the effects of Airbnb, that’s just a hot topic,” Seiler said. “But with our data ability, we can study this matter in a legitimate way.”

He explained that they measured the impact using contracted long-term rental prices versus asking long-term rental prices, which were used in previous Airbnb studies—despite the fact that anyone may ask $10,000 per month for rent but not that. means that’s what they get.

They found that the number of Airbnb listings in Irvine dropped by 23.1% after the city’s short-term rental ordinance—proving that the ban was “effective and had a significant impact on Airbnb’s activities,” wrote the authors.

So they did a little digging and found that Irvine’s short-term rental ordinance led to a 2.7% decrease in contracted long-term rental prices, on average—which amounts to of $101 relative to the average amount and a decrease of $72 million in the annual total. rental costs. In other words, a $3,749 rent is $101 cheaper in Irvine thanks to the city’s curbing of Airbnb’s impact.

If you take out Airbnbs, rents will go down. Seiler said luck that is expected, considering that there is a supply effect that cuts the market, that rents will go down and rental units will move to long-term rentals, making rent cheaper.

“You oversupply the market, so people stop renting their property for a short period of time [and] they started renting it for a long time,” he said. “That’s an increase in supply, and therefore should put downward pressure on prices, and it did.”

But it’s not a universal thing, Seiler said. And that’s a little surprising, if not surprising.

“This is not true for all rental properties,” Seiler said. “This is especially true for properties that lend themselves to the sweet spot of what Airbnb does… that’s interesting because it’s a very special effect.”

What he means is that the decline in rents is more pronounced for long-term rental units with similar property characteristics as those listed through Airbnb and those located in areas with greater exposure to Airbnb before the ban was implemented.

However, there are some things to consider instead of just looking at it as “better for society” because short-term rental regulations reduce rents, Seiler said. luck.

“It’s a source of income for people,” he said. “So when you set a policy, like an Airbnb policy, you have to be very concerned about its consistency.” There are people who buy real estate because they want to rent it for a short period of time, if that suddenly changes, that money is gone.

“So we have to be really careful about changing policies and allowing something to happen and then restricting or banning it all because it can destroy people’s personal budgets,” Seiler said. “And I don’t think enough people are thinking about that.”

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