Airbnb and the Housing Market

Vacationers, who use Short-Term Rentals (STRs) such as Airbnb, represent additional demand for residential property. In the short-run, the housing stock is fixed and the STR market represents an outward shift in demand against a vertical supply. Prices should rise.

To test this, researchers have looked at jurisdictions that have restricted STR entry and reduced the number of STRs. Baron, et al. recently showed that fewer STR restrictions both increases housing values and entry shifts some of the the supply from Long-Term Rentals (LTRs) to STRs. That is, while vacationers and homeowners are better off, traditional renters are worse off because they have to compete with a new source of demand. 

Increased housing value should increase the return to investing in residential property. In the longer-run,the supply curve may be upward sloping, but need not be vertical. New research by Bekkerman et al forthcoming in Marketing Science shows that when STRs are less restricted, there is more investment in residential properties. STRs lead to more and better properties.