The High Cost of Affordable Vacationing: How Short-Term Rentals Are Driving Up Rent Prices

Photo by Andrea Davis on Unsplash

Maddie Blesi, Associate Member, University of Cincinnati Law Review

I. Introduction

U.S. home prices have increased 18.8% over the past year and are growing six times faster than wages.[1] One of the biggest reasons is the lack of inventory and the high number of potential buyers.[2] The rental economy is facing the brunt of the blame as more Americans become renters instead of homeowners.[3] The increase in short-term rental options through companies like Airbnb and Vrbo exacerbated the current housing shortage. Instead of buying properties to rent out long-term, investors are buying properties to turn into an Airbnb. Real estate corporations and those in the middle-income bracket are increasingly turning to the short-term rental market for income. A quick search on TikTok and you’ll find several videos detailing how couples turned houses in Nashville into bachelorette Airbnbs.[4] The increase in Airbnb and corporation-led rental investment is making rentals more difficult to find and negatively impacting first-time home buyers.[5]

I will begin by discussing the background on home-sharing apps like Airbnb as well as local cities’ attempts to regulate the Airbnb market. I will then discuss the effects of regulation on short-term home sharing as well as a new development in the real estate market. I will then discuss other similar pressures on the housing market by investors buying up subdivisions only to rent out the homes. Finally, I will discuss potential points for legislation.

II. Background

Airbnb provided a way for travelers to find affordable accommodations and experience traveling “like a local” while also providing local economies with increased revenue from tourism.[6] Airbnb also boasts benefits for residents to earn extra income, allowing some renters to offset their mortgage costs.[7] However, communities are feeling the negative effects of the short-term rental market. In many areas, an increase in short term housing led to an increase in rents, among other issues.[8] Research has shown that Airbnb can trigger gentrification processes in neighborhoods while also contributing to overcrowding in cities.[9] Investors buying cheaper homes to renovate and turn into a short-term rental accelerates gentrification processes.[10]

A. Local Ordinances

Regulatory approaches to addressing the issue of short-term rentals fall into three categories: (1) prohibition; (2) Laissez-Faire; and (3) a hybrid approach, allowing the short-term rentals to continue with some restrictions.[11] Consequently, four types of restrictions are most common. Qualitative restrictions, which define the type of accommodation based on whether the short term rental is “a complete apartment versus a room or commercial-style Airbnb.”[12] Quantitative restrictions include limiting the number of short-term rentals that can be owned by a single entity, the number of days the property can be rented, and the number of times the Airbnb can be rented out.[13] Research showed that cities are focused on the neighborhood changes and decrease in affordable housing caused by Airbnb when imposing regulations while trying to also protect the positive increases in tourism from Airbnb.[14]

In March 2021, the city of Atlanta adopted the “Short-term Rental Ordinance” in an effort to regulate short-term rentals in the city.[15] Under the regulation, short-term rental owners would need to obtain a short-term rental license to continue to operate a short-term rental.[16] Owners can only apply for permits for their primary residence and one additional dwelling “without any additional requirements, fees, permits, licenses, zoning, or related restrictions.”[17] City leaders passed the ordinance in an effort to combat an “over-abundance of short-term rental units” in communities.”[18] Atlanta’s lawmakers are not the first to regulate short-term rentals. The D.C. Council and Barcelona, Spain, passed legislation to regulate Airbnb.[19] The restrictions are aimed at addressing long-term rental shortages in cities caused by the abundance of short-term rentals in addition to reforming taxes levied on short-term rental owners.[20]

Santa Monica imposed a similar restriction in 2019 to be monitored by Airbnb. The city defined legal home sharing as “stays of less than 31 days where the host remains on site.”[21] Under the restriction, all Airbnb listings must have a city license number, and each host can only list one home or dwelling with no more than two listings per residence.[22] Airbnb also promised to collect and pay the city $2 for each night booked at a Santa Monica residence.[23] The Airbnb laws mark an end to Santa Monica’s ban on short-term rentals in residential districts.[24] City leaders state the new law balances the benefits of providing extra income to residents while also maintaining affordable housing and preventing “de facto hotels.”[25] Cities are beginning to regulate Airbnb in the wake of increasing negative effects on cost of living in cities globally.[26]

Opposition to regulations on Airbnb has faced both support and opposition. Airbnb “and its users argued that short-term rentals helped homeowners pay their mortgages” and gave visitors neighborhood lodging alternatives to hotels.[27] Airbnb argued support of the Airbnb regulations was “fueled by the hotel lobby.”[28]

III. Unforeseen Effects

A new trend may be emerging as more cities continue to regulate short-term rentals. In the wake of increased short-term rental restrictions, corporate investors are buying homes to rent.[29] While the investors may alleviate rental scarcity, investing in entire subdivisions raises rental prices and makes buying a home nearly impossible.[30] The issues echo the negative effects of Airbnb listings in cities. One in five homes is sold to an investor in the United States.[31] In Hamilton County, Ohio, five companies bought more than 4,000 homes, decreasing the number of homes available in an already scarce market.[32] Investors argue many Americans want to rent, so by buying subdivisions, investors are increasing the available inventory in an area.[33] Conversely, rent in some areas, such as Cincinnati, often surpasses the monthly payments that would be expected with a mortgage on the same properties.[34] In tourist-heavy cities, corporate investors are buying up rentals at an unprecedented rate to flip into Airbnbs.

Internet real estate companies, such as Zillow, are making it easier for corporate investors to buy homes online to then rent out as short-term rentals. Online buying platforms, following the 2008 housing crash “created new opportunities for global investment firms to buy homes at scale, becoming corporate landlords controlling tens of thousands of homes.”[35] Corporate investors also turned their attention to the long-term rental market, buying entire subdivisions to turn into long-term rentals.[36]

In the wake of the 2008 housing crisis, and now the pandemic, legislators must turn their attention to the current housing market. As investment properties overtake the housing market, increased regulation is needed to ensure affordable rents and protect housing availability. Legislators must address the increase in short-term rentals and decrease in affordable housing in many cities in the United States.

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[1] Lance Lambert, The Housing Market Frenzy will Pass. Just Not This Spring, Fortune (Mar. 11, 2022), https://fortune.com/2022/03/11/housing-market-prices-frenzy-will-pass-not-this-spring/.

[2] Id.

[3] Larry Getlen, How Corporations are Buying Up Houses – Robbing Families of the American Dream, N.Y. Post (July 18, 2020), https://nypost.com/2020/07/18/corporations-are-buying-houses-robbing-families-of-american-dream/. Between 2006 and 2016, the “number of renters grew by about a quarter.”

[4] The hashtag “#nashvilleairbnb” has over 700,000 views.

[5] Getlen, supra note 3.

[6] Shirley Nieuwland & Rianne van Melik, Regulating Airbnb: How Cities Deal with Perceived Negative Externalities of Short-term Rentals, 23 Current Issues in Tourism 811 (2020).

[7] Martin Austermuhle, D.C. to Start Restricting and Regulating Airbnb and other Short-term Rentals, NPR (Jan. 7, 2022), https://www.npr.org/local/305/2022/01/07/1071253125/d-c-to-start-restricting-and-regulating-airbnb-and-other-short-term-rentals.

[8] Nieuwland & van Melik, supra note 6. Barcelona and other cities globally feel the negative effects of Airbnb and other short-term leasing sites on the community.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.; Paris, Barcelona, and Santa Monica, California are among the cities with the strictest Airbnb laws. Maura Dolan, Federal Appeals Court Upholds Santa Monica’s Ban on Short-term Vacation Rentals, Los Angeles Times (Oct. 3, 2019), https://www.latimes.com/california/story/2019-10-03/9th-circuit-santa-monica-airbnb#:~:text=A%20three%2Djudge%20panel%20of,residential%20character%20of%20the%20neighborhoods.%E2%80%9D.

[15] City of Atlanta, Short-term Rental, Atlantaga.gov, https://www.atlantaga.gov/government/departments/city-planning/ordinances-regulations/short-term-rental (last visited, April 19, 2022).

[16] Id.

[17] Id.

[18] Id.

[19] Austermuhle, supra note 7; Paige McClanahan, Barcelona Takes on Airbnb, N.Y. Times (updated Sept. 26, 2021), https://www.nytimes.com/2021/09/22/travel/barcelona-airbnb.html (Barcelona law prohibits short-term private room rentals, and only permits entire apartments to be rented with a license).

[20] Id.

[21] Settlement with Airbnb Guarantees Compliance with Home-Sharing Ordinance, City of Santa Monica (Dec. 10, 2019), https://www.santamonica.gov/press/2019/12/10/settlement-with-airbnb-guarantees-compliance-with-home-sharing-ordinance.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Austermuhle, supra note 7. 79% of DC’s active short-term rentals are listed as entire homes.

[27] Id.

[28] Id.

[29] Hannah Ziady, Wall Street is Buying up Family Homes. The Rent Checks are Too Juicy to Ignore, CNN Business (Aug. 2, 2021), https://www.cnn.com/2021/08/02/business/family-homes-wall-street/index.html.

[30] Id.

[31] Ryan Knutson, Investors are Buying Up Homes. Cincinnati is Pushing Back, WSJ Podcasts (Jan. 27, 2022), https://www.wsj.com/podcasts/the-journal/investors-are-buying-up-homes-cincinnati-is-pushing-back/d98b7bec-2c9b-40cb-a693-cfa86c84092a.

[32] Id.

[33] Id.

[34] Id.

[35] Desiree Fields, Tech and Finance Firms Buying Up Homes Doesn’t Bode Well For Everyone Else, Washington Post (Jan. 4, 2022), https://www.washingtonpost.com/outlook/2022/01/04/corporate-landlords-silicon-valley/.

[36] Ziady, supra note 29.