The Airbnb Effect: Incentivizing the Commodification of Housing
Vacation rentals aren't a new concept. The first recorded vacation home was the Palace of Versailles used by King Louis XIII during the 1600s. In the 1800s, large families in Europe began investing in vacation homes to share between themselves throughout the year. By the 1950s, renting a home on vacation was popular in the United States, mainly in beach and mountain towns. Then in 1995, as a result of the internet, VRBO was founded, followed by Couch Surfing in 2003 and Homeaway in 2005.
In 2008, the vacation rental industry was becoming quite diverse, and Homeaway–which by now had bought out VRBO—listings were in the hundreds of thousands. At this time, Brian Chesky and Joe Gebbia were two broke college graduates looking for extra money to pay their rent in San Francisco. They decided to rent out air mattresses in their spare bedroom for attendees of a conference who couldn’t find any available hotels. The service was called “Air Bed and Breakfast,” and within a couple of years, Airbnb was sufficiently disrupting the hospitality industry.
“Airbnb is around to absorb that extra [hotel] demand.”
Despite the popularity of VRBO and Homeaway, Airbnb offered a unique experience for both homeowners and vacation seekers. It was the first time the vacation rental market really took off in urban areas rather than just mountain towns and beach communities. It was also home sharing, renting space while the resident was still there, that was a novel idea at the time. Millennials in particular took advantage of this opportunity to travel cheaply during the Great Recession. And homeowners took advantage of the ability to earn rental income without being required to have the capital to purchase an entire second home.
Airbnb grew rapidly, doubling in growth year after year and spreading worldwide. It was particularly competitive with hotels in cities and areas during big events or in high tourist season. The rules of hotel supply and demand say that when many people are coming to town, room prices go up. (Just try to book a hotel in Paris this summer and you’ll see what I mean.) But now, Airbnb is around to absorb that extra demand.
In the last 17 years since Airbnb was first founded, it has grown to 7.7 million listings as of 2023 (16.6% higher than 2022, remember this for later) run by four million hosts in over 100,000 cities globally. The company was among the hardest hit in 2020, with bookings down 85% due to the pandemic. Many Airbnb hosts in major cities opted to switch to long-term rentals when the short-term market collapsed with Covid-19. As a way to combat the diminishing listings, the platform launched monthly stays, similar to that of a normal rental service, but without signing a lease. By the middle of 2021, bookings were back to pre-pandemic levels.
“This is…landlord math. Why would you rent out a home for $3,000 per month to a long term renter when you can list it on Airbnb or VRBO for $200 per night?”
In 2023, Airbnb generated $9.9 billion in revenue, and 448 million bookings were made, which is almost 10x the number of bookings made in 2016 (52 million). Today, a little over 80% of Airbnb’s revenue comes from whole-unit rentals rather than home sharing. Oh, and those hosts? Their average income is around $14,000 annually per listing, or $1,167 per month.
When real estate investors saw the ease with which Airbnb hosts are able to list and book their properties, there was a rush to buy homes in tourist hotspots. This is what I call landlord math. Why would you rent out a home for $3,000 per month to a long term renter when you can list it on Airbnb or VRBO for $200 per night? The resulting “Airbnb Effect,” is not dissimilar to urban gentrification; the value of a community slowly increases beyond what the local residents can reasonably afford, resulting in widespread displacement. Popular cities such as Barcelona, Venice, and Florence are among those faring the worst.
In fact, a US study done in 2017 found that just a 1% increase in Airbnb listings leads to a 0.026% increase in home prices and a 0.018% increase in rents. It may not seem like much, but remember that statistic about listings increasing more than 16% from 2022-2023? This is on top of other factors (inflation, market conditions, government regulations, the economy, etc.) that already raise rent and home prices year after year.
“In Venice, Italy, the short-term rental market has driven out tens of thousands of residents, making the city more of a museum than a vibrant community.”
An example city in America that is top of mind is Jackson Hole, Wyoming. From 2010-2021, jobs in Teton County, Wyoming grew at more than twice the rate of housing. With more concentrated wealth, double the available jobs, and increasing visitors descending on the area, skyrocketing housing prices caused an exodus of the working class. Many were forced to move to Idaho and commute into Jackson Hole during the busy season. The recent Teton Pass Collapse has been all but catastrophic for the thousands of nurses, cooks, housekeepers, police, and more who used it to get to and from work each day, since they can no longer afford to live closer.
In Venice, Italy, the short-term rental market has driven out tens of thousands of residents, making the city more of a museum than a vibrant community. Venice’s population has decreased from 175,000 in 1951 to just 52,000 today, as city officials sell off properties to tourism, and more than 11% of the available public housing lies empty. Florence is in similar shoes, with Airbnb listings increasing from 6,000 to 14,378 over the last 8 years, while the average monthly rent has increased 42% in the same time. As a way to combat the Airbnb Effect, Florence has recently banned new short-term rentals in its historic center in an attempt to free up homes for locals. They’re also offering multi-year tax breaks for landlords who switch from short-term rentals to long-term leases. Venice and Milan are said to be considering similar policies.
Paris has also limited the number of days for rental properties. Hosts can rent their primary residence out for a maximum of 120 days per year, and must register it with the local town hall. For a second home or to rent out a primary residence longer than 120 days, owners must convert their listing to an official furnished tourist accommodation.
“If locals are moving out…and once-residential homes are being replaced with short-term tourist rentals, does that not defeat the purpose of going out of your way to stay in a bona fide neighborhood?”
Most people I know are Airbnb diehards, some who would almost rather not travel at all than stay in a hotel at their chosen destination. To them, staying in a residential neighborhood is a valued authentic experience that enhances their vacation. They’re able to have experiences, eat at restaurants, and connect with locals in a way that wouldn’t normally be possible staying at a hotel filled with other tourists.
As I was researching, reading, writing, reading, and rewriting this essay over the last week, I found myself asking the same questions over and over.
Is this not what travel is all about?
Immersing yourself in a local culture and getting a true sense of how people live in other parts of the world?
But what about the locals, many of whom are being driven out of their homes at the hand of Airbnb and similar companies who are incentivizing investors to treat housing, a basic human need, as a commodity? If locals are moving out in droves, and once-residential homes are being replaced with short-term tourist rentals, does that not defeat the purpose of going out of your way to stay in a bona fide neighborhood? What can you do to still get the authentic experience you’re craving, without feeling guilty?
“Achieving a balance between enjoying authentic travel experiences and preserving the integrity of local communities is essential for sustainable tourism.”
While I cannot answer these questions for you, in part because I am still trying to answer them for myself, I can offer some suggestions and potential solutions for peace of mind. Here are a couple of options you can consider to help reduce the Airbnb Effect. In larger cities (Paris, London, Barcelona, Rome, etc.), look for Airbnb listings with only one or two hosts. Listings that show more than two hosts can be part of a larger investment firm operating multiple properties. In smaller cities where housing is limited and the average local income is low (Venice, Florence, etc.), opting for a local hotel rather than an apartment is a good alternative that will still give you a personalized and authentic experience while also contributing to a local business.
This Airbnb Effect phenomenon has indisputably reshaped the landscape of global travel and local housing markets. While Airbnb and similar platforms have revolutionized the way we experience new destinations by offering unique, home-like accommodations, they have also contributed to significant socio-economic challenges. The commodification of housing, driven by short-term rental profitability, has escalated property values and rents, leading to the displacement of local residents and transforming vibrant communities into tourist enclaves. As travelers, it's crucial to be mindful of our impact on these destinations to help mitigate some of the adverse effects. Ultimately, achieving a balance between enjoying authentic travel experiences and preserving the integrity of local communities is essential for sustainable tourism.