For many, the so-called “sharing economy” represents a type of innovation that acts as a shining example of the free market in action: it lowers the price of goods, increases competition and enriches the creators of these innovations. At face value, this is exactly what the popular housing rental company Airbnb accomplishes.
Upon digging a little deeper, one will find out that this term is actually a profound misnomer. The “sharing economy” is simply a tech-savvy way to extend income inequality by helping out those who are already affluent while sharing the economic burden of this new technology among the people mostly left out by its advantages.
A recent cost-benefit analysis by the Economic Policy Institute has highlighted just how harmful Airbnb can be to local economies. Economists determined that the economic costs from Airbnb are enough to mandate regulations on the company.
Airbnb renters are able to circumvent the costs normally associated with hotel lodging because of how these housing units are being taxed. In a city like Raleigh where tourism is popular, Airbnb rentals are in direct competition with hotels. These hotels often cannot compete with the low prices of Airbnb rentals; thus, the amount of overall tax revenue is diminished as hotels are forced into paying less and Airbnb circumvents zoning laws.
Airbnb affects the supply of the housing market by converting what would have been long-term rental properties into short-term Airbnb units. A 2016 investigation on the presence of Airbnb in Boston found that for every 12 Airbnb listings per census tract, there was an increase in rent prices by about 0.4 percent. The report concluded that if Airbnb continued to grow at the 2016 rate of 24 percent for another 3 years, asking rates for rent in that city would increase by about $178 per month.
The effects of Airbnb are only worsened when compounded with the already problematic affordable housing crisis Raleigh is currently facing. The use of Airbnb in the city only works to exacerbate this crisis. In the face of price change, the demand for housing will remain the same, because people continue to seek housing in economically prosperous areas. As a result of this inelasticity in the housing market, small decreases in housing supply can significantly raise the price of housing.
The company continues to extend inequality because of how effects associated with Airbnb are distributed. The people who benefit from Airbnb are often already wealthy: property owners at the top 20 percent of the economic ladder who rent out their properties or travelers who use mostly inessential funds to pay for Airbnbs. Renters are universally impacted in areas with significant numbers of Airbnb units as the price of housing rises.
Raleigh has proposed legislation to regulate Airbnb, but debate on the issue has come to a stall. Currently, it is technically illegal to host one’s home as a short-term rental unit; however, the Raleigh legislature has decided to not enforce this policy yet as they hammer out more of the details for regulation. The proposed legislation is a step in the right direction, as it would make it mandatory for people who rent out their homes to pay a $208 fee to make up for lost tax revenue.
The new legislation also requires there to be a resident living in the unit while it is being rented out to avoid wasting potential long-term renting space. While it is controversial, the legislation would also ban the use of whole house and/or apartment rentals in order to prevent these spaces from driving up the price of housing for Raleigh natives.
Raleigh must impose these laws onto the lucrative short-term rental business if the city wishes to shield residents from the economic costs caused by it. It is certainly indisputable that short-term rentals can have positive impacts on travelers and households seeking extra income, but the considerable economic drawbacks brought by them should be enough to move the city towards regulating the industry.
