Airbnb’s and the Rental Market

A recent trip to the West coast brought me to Los Angeles and the hipster neighborhoods of Los Feliz and Silver Lake, where a couple of my good friends are lucky enough to dwell. At the time, another friend of ours was hoping to make the move back into the area from another city a couple of hours away, and having terrible luck finding a place for her and her boyfriend. Not only are rentals in these neighborhoods incredibly pricey (with people paying thousands of dollars for small one-and tw0-bedroom apartments), but supply is limited and competition is stiff. Granted, these neighborhoods are highly sought-after locales, where we might expect high prices to reflect demand. But there may be something else going on here as well: more and more homeowners are using Airbnb to make a profit, rather than renting their properties out the usual way, with long-term leases.

Here’s why this is a problem. There are only so many properties available, and only a certain number of those are available to rent (in other words, they are not already occupied by the property’s owner). If owners choose to remove their properties from the rental market and instead opt to rent them out for short-term periods with Airbnb, the number of available rental units decreases.  This drop in rental supply causes the price to go up, because people are willing to pay more when their options are limited, especially in a trendy neighborhood.

This is bad for renters but great for owners, who can make more profit off their property by renting it for a weekend through Airbnb than they would have made for that weekend with a regular lease. It’s an enticing arrangement. In fact, I’ve heard that in the booming city of Nashville, TN, many homeowners are putting “tiny houses” in their backyards, living there, and renting out the main house to Airbnb.

There is also the added benefit of being able to put your property up for rent, for any time period you choose, whenever you choose. Airbnb allows more flexibility for owners who just want to rent their place out when they are on vacation, or if their roommate is out of town for a short time and they can just rent out the one room. Arguably, these shorter-term arrangements probably do not affect the rental market because the property remains owner-occupied and is merely “loaned” for short periods of time, more like a hotel. What does affect the rental market, though, is when owners use Airbnb all of the time, rather than renting out a property they do not occupy.

Here are a few examples of other articles citing Airbnb’s effects on the rental market in cities like San Francisco and New York, where rents are already high and supply is low.

Ever stayed in an Airbnb? Or do you own one? 
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