Unintended consequences of the sharing economy: externalities of Airbnb’s success

Author: Julian Glenesk, Research assistant, RAND Europe

In London Airbnb listings have risen from 1,000 in 2013 to over 20,000 per week. By leveraging spare capacity in user’s homes, a surge in supply of short-term accommodation has emerged leading to numerous benefits for Airbnb guests, their hosts and the cities in which Airbnb operates. Guests previously confined to traditional hospitality services like hotels, guesthouses, hostels and traditional B&Bs now have increased opportunities to stay in non-tourist areas, increase personal contact with locals, and find cheaper accommodation which may otherwise have been a deterrent to travel. Hosts are able to take advantage of underutilized spare rooms in their homes and generate income with greater flexibility than that afforded by a traditional long-term tenant. This additional ability to generate income from personal properties increases the value of home ownership.

Hosts may also realize a social gain from personal interaction with guests from around the world, which is the driving force between similar (and older) services such as Couchsurfing – a non-commercialized network pairing travellers with hosts for no charge. Cities may be receiving greater tourism revenue more evenly distributed throughout the city as Airbnb research claims that users spend roughly twice as long and twice as much as traditional travellers, with 42% of that spending occurring in the local neighbourhood of the accommodation.

Despite the benefits of Airbnb’s success, there are a number of externalities – negative consequences borne by wider society and not the users of the system themselves – that receive widely varying degrees of attention depending on the locale. Three externalities in particular have received significant attention in recent years: impact on local housing supply, disproportionate economic benefits and discrimination.

Some city authorities suspect that increased use of Airbnb increases long-term housing rent prices

Several cities have imposed regulations of varying degrees on Airbnb listings in an attempt to curb rising rental costs in cities around the world. Berlin, Hamburg and Munich have taken the hardest stance with an outright ban on Airbnb listings. In contrast Dublin City Council ruled that only a single apartment in the popular Temple Bar neighbourhood would be required to apply for planning permission for commercial use when knowledge that the property earned €79,000 in a single year led to public protests. Moderate regulations are more widespread in cities such as Paris, Barcelona, Amsterdam and San Francisco including restrictions on number of days one can rent their property in a year, fines for not officially registering with the city, and stricter rules on whole-property and commercial listings being among the policy regulations put into place.

The quantifiable impact on local housing remains unclear. One recent study found a 10% increase in Airbnb listings resulted in a 0.42% increase in rents and a 0.76% increase in house prices, with owner-occupied listings having the lowest impact. McGill University research estimates that 14,000 housing units in Toronto, Montreal, and Vancouver have been made unavailable to locals due to their use as Airbnb properties rather than traditional rental units. They also find that owner-occupied occasional listings have the lowest impact on rental unit availability. The rise and dominance of full-time commercial listings raises the biggest problem for local housing supply and the researchers suggest that regulators should focus on thwarting the ‘unholy trinity’ of Airbnb hosts (full-time, entire-home, multi-listings). Three suggestions are made to achieve this: one listing per host, no full-time or entire-home rentals, and platforms should be held responsible for regulatory enforcement.

The economic benefits of Airbnb are unbalanced across segments of the population

What began as a benefit primarily to home-owners and travellers is now shifting towards a benefit for full-fledged Airbnb businesses. This poses a social equity issue if economic gain from Airbnb comes at the expense of the lower-income renting class which appears likely as outlined above.

While homeowners of all income levels continue to benefit from Airbnb income, the disproportionate rise in total revenue claimed by commercial ventures compared to owner-occupied listings raises concerns that Airbnb is enabling a shift away from the traditional (and regulated) hospitality industry. Research on the impacts of Airbnb on the hotel industry shows that Airbnb has caused an 8-10% decrease in hotel revenues, largely as a result of less aggressive hotel pricing and reduction in peak prices. These results show that all travellers are benefitting from the emergence of Airbnb as a result of better accommodation resource allocation and surge capacity in times of high demand. However, benefits to the lowest-income groups are much more unclear. While those with lower income travel less than those with higher income and will therefore find greater benefit in lower accommodation prices, it may also be the case that lower accommodation costs are enabling lower income travellers.

Research on the correlation between Airbnb listings and socio-economic conditions in London shows that although listings were correlated with young, ethnically diverse and well-off neighbourhoods that are close to the city centre, temporal analysis of recent years shows that Airbnb is increasingly tied to well-off neighbourhoods and is no longer correlated with ethnic diversity as of 2015.

The personal nature of the sharing economy fosters discrimination not seen in the traditional hotel industry

The ability for hosts and guests alike to choose each other based largely on their profile picture and appearance of trustworthiness is prone to bias and discrimination. While proponents might argue that the rating system is a fair way of assessing the quality of a property and trust of the guest/host, the rating of one’s property was not found to be correlated with a difference in price or probability of booking. However, the more ‘trustworthy’ the host is perceived to be based on their profile picture corresponded with a higher listing price and chance of booking regardless of their rating. Harvard University research has found that in New York City non-black hosts charged 12% higher for the equivalent rental than black hosts while non-black guests were 16% more likely to be accepted than black guests. In conjunction with reports of discrimination against gender and sexual minorities (GSM) and incidents of neighbours reporting guests as suspected burglars, Airbnb released a comprehensive review [PDF] to combat bias and discrimination on the platform.

While Airbnb has brought many positive benefits to consumers, a number of externalities need to be recognized including the negative impacts on local housing availability, social equity concerns and discrimination. Security risks and bad neighbours are other potential areas of concern.