Opinion: Restricting Airbnb may be a waste of time

Suzy Wu

Airbnb is often associated with decreased affordable housing supply and increased rent prices. While policymakers have made various attempts to address these problems through restrictive regulations, the effectiveness of such regulations are limited. Rather than focusing on restricting the growing home-sharing industry, policymakers need to find the root cause of the affordable housing crisis.

A 2015 report prepared by BJH Advisors LLC estimated that Airbnb rentals occupied about 10% of New York City’s available housing units. This shortage of long-term affordable housing consequently drives up rent prices. Data retrieved by a business professor at USC demonstrates that Airbnb is responsible for 20% of the annual increase in U.S. rents. While guests enjoy the benefits of a discounted stay compared to hotels, local residents have to take on the extra rent burden.

Data shows Airbnb is responsible for 20% of the annual increase in U.S. rents, Wu writes.

These externalities further bring about other social issues such as gentrification within the city. Scholars say Airbnb has introduced an income flow that is unevenly distributed among neighborhoods, creating a rent gap which drives low-income households into even poorer districts. This spatial segregation between the poor and the wealthy accounts for the mal-distribution of housing, infrastructure and education among social classes.

A racial segregation also seems to appear, as the biggest winners of Airbnb are typically white households with units in mainstream districts. One study shows that even with equivalent listings, Caucasian hosts tend to earn 12% more in revenue than their African American counterparts.

It is reasonable to believe that, over time, Airbnb-induced regionalization may unequally distribute wealth and spur social injustice. These Airbnb-related economic and social disruptions damage local communities, and this calls for regulatory responses.

The problem is government interventions aren’t always efficient. As of now, many cities have resorted to taxation. For instance, Santa Monica chose to collect a 14% occupancy tax on Airbnb hosts. But taxation above the market price is inefficient, reducing production and creating a deadweight loss. Through imposing a tax, the total surplus shared by consumers, producers and the government is cut down. 

While Airbnb has helped cities collect taxes, data shows that a 14% sales tax is still insufficient to cover the costs of replacing the housing units removed by Airbnb listings.

Apart from raising variable costs, other restrictions also target fixed costs, or economic rents associated with entry into the market. For example, Madison now requires all hosts to obtain a short-term rental license prior to renting out their homes. Nevertheless, these policies were not as effective as desired. The entry barrier is still relatively low, attracting more hosts to join the lucrative market. Moreover, the real challenge still lies out there: How should we react to stay on top of Airbnb’s growth?

The current lack of a unified approach to Airbnb regulation creates a disordered market with loopholes. Legislators should consider the interests of multiple parties involved, namely the business, local residents and cities. On the other hand, we might want to consider the possibility that Airbnb is a correlation, rather than causation, of many existing problems. For example, the real driving force of deprived housing supply might be the costly and complicated procedures associated with zoning or construction.

Rather than blindly restricting Airbnb activities, policymakers must identify the underlying causes and reevaluate current legislation.

If Airbnb is not the chief culprit of the affordable housing crisis then focusing on its restriction is a waste of time that could be spent searching for the root cause. It is urgent for city officials to identify the loopholes in existing policy structures and address them directly.

Suzy Wu is a sophomore studying chemical engineering and economics at the University of Wisconsin-Madison. She comes from Hangzhou, China.