In a new paper, EPI Research Director Josh Bivens examines the economic costs and benefits of Airbnb’s expansion into U.S. cities. He finds that the costs Airbnb imposes likely outweigh the benefits for city residents, and certainly provide no reason for local policymakers to change local regulations and tax structures to benefit Airbnb.
Bivens explains that the single biggest cost Airbnb imposes on communities is limiting the number of long-term rental housing units. Because housing demand is relatively “inelastic” (people’s demand for somewhere to live doesn’t decline when prices increase), even small changes in housing supply—like those caused by converting long-term rental properties to Airbnb units—can cause significant price increases for local residents. Housing costs have risen significantly faster than overall prices since 2000, and housing accounts for more than 15 percent of overall household consumption expenditures. In short, housing costs are a serious issue for typical American families, and anything that exacerbates their upward trend is cause for concern.
“The evidence is clear that any benefit that the introduction or expansion of Airbnb provides to a city’s residents can be quickly offset by the costs it imposes,” said Bivens. “Because Airbnb doesn’t provide a compelling net benefit to city residents, there is little reason to think that traditional tax and regulatory structures governing travel accommodations should be changed to aid Airbnb’s expansion.”
One of the potential benefits of Airbnb is that it increases supply of short-term travel accommodations, and thus lowers its cost. However, the price of travel accommodations in the United States has not risen particularly quickly in recent years, and accounts for just 1 percent of overall household consumption expenditures.
Additionally, Bivens shows that while Airbnb allows property owners to diversify potential revenue streams from owning homes, the total value of housing wealth—and especially housing wealth besides primary residences—is quite concentrated among white and high-wealth households, so these benefits disproportionately accrue to the wealthy.
Another large potential cost of Airbnb expansion is the loss of tax revenue as travelers switch to Airbnb from traditional hotels. Many cities impose relatively steep taxes on short-term lodging, hoping to obtain revenue from out-of-town travelers. The most common and straightforward of these revenue raisers is a tax on traditional hotel rooms. If Airbnb expansion comes at the expense of traditional hotels, and if the apparatus for collecting taxes from Airbnb or its hosts is less well-developed than the apparatus for collecting taxes from traditional hotels, this could harm city revenues.
This article was released by the Economic Policy Institute.