Will Stricter Airbnb Laws Bring Down Rents in 2023?

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For some, the lure of owning an Airbnb property is too great to resist. 

Economics is all about demand and supply. When demand is high but supply is low, prices soar. Given the limited number of rental units in the U.S., it’s no surprise that some households have been priced out. Between 2021 and 2022, the average rent rose 15% nationwide, reports Redfin. In cities like Seattle, Cincinnati, and Austin, rents spiked by more than 30%. The situation is even worse in places like New York, Los Angeles, and the formerly affordable Nashville.

There’s no doubt that several factors converged to create this problem, including the global pandemic, lack of building supplies, and a labor shortage. Add to that list the short-term rental industry, specifically Airbnb, the largest player in the game.

Airbnb maintains more than 6 million rental listings in more than 100,000 cities worldwide. That means that globally, Airbnb has single-handedly changed residential neighborhoods into quasi-hotel districts. In doing so, the company has also gobbled up rental homes to lease to short-term guests.

The appeal for investors

Imagine that you own a small rental home near a lake in Kentucky. There’s not much industry in the area outside of hospitality, and you are only able to rent the home for $1,200 per month. By sprucing the place up a bit and adding homey touches, you can rent it to tourists for $1,200 per week. From a business perspective, the choice is easy when it equals money in the bank.

Over the past few years, the number of buyers looking for a high-yield investment has led to skyrocketing rental property sales. For example, in 2020, vacation home sales grew by 44% over the previous year. What’s not to appreciate about buying a vacation home that others pay for?

Real estate investment firms across the country plan to spend billions to build a portfolio of short-term rentals. The Airbnb watchdog group Inside Airbnb found that about one-quarter of hosts on the platform own approximately two-thirds of all listings.

At issue: For every investor who buys a rental home to use as an Airbnb, one fewer property is available for locals to rent. Major U.S. cities are now looking for a way to control the cycle.

New restrictions

With listings in more than 100,000 cities worldwide, Airbnb is everywhere, from tiny hamlets to huge cities. Here’s a partial list of cities that have imposed tight restrictions to minimize the number of people who open an Airbnb:

New York CityBarcelonaBerlinParisAmsterdamLondonMiamiSan FranciscoSanta MonicaCharleston, South CarolinaJersey City, New JerseyBangkok, ThailandReykjavik, Iceland

The potential impact

Strict restrictions appear to be working in Santa Monica, California, but it remains to be seen if cities can throw enough obstacles in the way of Airbnb hosts to slow the growth of the industry.

In New York City, where there may now be more Airbnb listings than available rentals, a new measure goes into effect this month. The measure will require Airbnb hosts to register their property with the city and provide proof that they themselves live there. Failure to do so could lead to fines of $1,000 to $5,000. The city hopes to reduce the number of Airbnbs in New York City by at least 10,000.

While the measure sounds as if it has teeth, Airbnb hosts in other cities have reportedly lied about living in the property they rent. Before any real progress is made, cities must find a way to verify the truth of hosts’ statements and assess penalties when needed.

For now, renters in more than 100,000 cities across the globe continue to struggle to find affordable housing. It will be up to local governments to fight on their behalf.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.

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