Bad policy: Banning Airbnb rentals can’t resolve an urban housing shortage

People who advocate Airbnb bans rarely argue that they want fewer tourists.  (AP)
People who advocate Airbnb bans rarely argue that they want fewer tourists. (AP)

Summary

  • Market distortions can backfire. A ban on Airbnb may sound good to locals who see more housing for themselves. But lack of stay options for tourists can raise hotel prices, get more hotels built that grab land where houses could’ve come up, even as reduced market flexibility raises costs.

When it comes to housing, almost all governments say they want to make it more affordable—and then embrace policies that do the opposite. The latest illustration of this is a ban on short-term rentals, imposed in Barcelona just last month, while similar policies are being tried in New York and elsewhere. 

The theory is that services such as Airbnb take units off the market, driving up rental costs. By effectively banning Airbnb, cities are betting that they can make affordable housing better available.

That’s not what happened in New York. Instead, hotel prices rose and tourists were pushed into New Jersey, benefiting homeowners and businesses there.

A ban on Airbnb may sound good to local residents who see it as opening up more housing for them. Yet, by that logic, why not ban home offices or even commercial real estate? Both take up space that could in theory be used for more homes. The truth is, all these restrictions ultimately make residents worse off.

Also read: Why does India have a housing glut and shortage at the same time?

The first reason is economic. A strong economy needs space for commerce, of which tourism is a part. There has always been tension between visitors and residents. Visitors are there to have fun, so they may be loud, messy and disrespectful.

They also spend on restaurants, at shops and for entertainment. That benefits locals. The crash of the tourism economy during the pandemic hurt many communities and bankrupted many businesses.

People who advocate Airbnb bans rarely argue that they want fewer tourists. And if places want tourism, they need to provide tourists somewhere to sleep. Those higher hotel prices that come after significant limits on short-term accommodations will ultimately lead to the development of more hotels—using space and capital that could be used for residential housing.

Limiting short-term accommodation can make less space for residences by reducing market flexibility. The beauty of letting families make their own decisions about whether to rent out their home is that when demand changes—for example, when the Olympics come to Paris—then supply can elastically respond. High demand drives prices higher, which will convince some people to stay with friends or family, go on vacation to a less crowded place, or even take in a tourist.

This increases density during peak times and lets locals benefit from demand. Without such flexibility, a city would need more hotels, and then those rooms might stay empty most of the year.

Yes, a ban on Airbnb may cause some city residents to put their place on the traditional rental market or take in a housemate. But others may simply leave. There is no doubt that current homeowners are hurt when a city adopts new restrictions on how they can use their home, but future homeowners are also hurt. Some people can afford living in a city only if they can rent out their place on Airbnb.

Also read: Is booking an Airbnb rather than hotels cheaper for you always?

The development of platforms such as Airbnb has helped democratize the hotel business by allowing any homeowner to tap the tourist market. But there is a more profound change: The rise of short-term rentals is helping to democratize homeownership, which remains the primary wealth of most households. Short-term accommodations offer Americans a way to put this wealth to work for them, giving those with less steady or lower incomes another path to home ownership.

As an economist, I see this change, which allows for the more efficient use of housing capital, as miraculous. Living standards improve when people get more bang for their buck.

Tourists can be more noisy or messy than residents would like. But there are ways to address these problems without a ban. Limitations on the number of guests or number of days a property can be rented out, combined with stronger enforcement of local noise ordinances, can help reduce the negative impact on neighbours.

Governments are using the rise of short-term accommodations as a scapegoat for their own failure. Consider some of their other policies: rent control, which indirectly reduces supply by lowering the returns to building housing; limits on density, which directly reduce supply; restrictions or processes that slow down construction and reduce the return to housing development; and tax systems that encourage people to hold onto property even as fewer people live on it.

Also read: From long retreats to short escapes: The changing face of villa holidays

The best way to reduce the cost of housing, as several of my Bloomberg Opinion colleagues have pointed out, is to build more housing. And, I would add, we should also continue to raise people’s incomes. That means ensuring that they can use their housing as fully as possible—to live in, to work in, and to rent out when they are not using it. ©bloomberg

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