If the rent in your neighborhood is too high and you’re getting priced out of buying a home, you may have Airbnb to blame for part of your real estate troubles. Did you know there are over 5 million rentals listed on Airbnb in almost 200 countries?
Short term rental sites like Airbnb and HomeAway may give thousands of tourists a more “authentic” getaway experience, but if their presence dominates your neighborhood, you may have a hard time renting and buying the house of your dreams.
Why Airbnb and Short Term Rentals Hurt Home Affordability
Affordable housing has become much harder to find across the globe.
But in the US specifically, the current housing crisis means:
- The national average for rent is at an all-time high of $1,405 in 2018, a 2.9% increase from 2017[*].
- Americans earning just the minimum wage cannot afford a two bedroom apartment anywhere in the US[*].
- The median home value is $220,100, while the median price of homes currently listed is $275,000[*].
While many big factors contribute to these changes, the rise of short term rental sites like Airbnb and HomeAway also play a role in home affordability.
With these, homeowners can rent out a room or their entire house to tourists to make extra cash and help pay off their mortgage.
Or at least that’s what these companies want you to think.
Commercial enterprises operating under the guise of local homeowners run an overwhelming amount of listings on Airbnb and other short term rental sites.
Researchers discovered 30% of Airbnb’s listings in New York City, for example, were listed by commercial hosts — and they made more than $300 million from renting units out short-term instead of to long-term residents[*].
In other words, the short term rental market is big business.
But what does this mean for you?
Fewer Homes are for Sale or Rent
Data shows Airbnb removed between 7,000 and 13,500 apartments from New York City’s long-term rental market when it’s already impossible to find housing there[*].
With more units being transformed for short-term rentals, fewer long-term rentals and sales hit the market, creating high demand and low inventory.
If a local wants a long-term rental, at least one of 13 units will be for a short-term Airbnb listing instead. And in hot Airbnb markets, that’s closer to one for one, where every other listing is for an Airbnb not long-term rental[*].
In one study cited by the Wall Street Journal, cities with more Airbnb listings experienced a decrease in homes available for sale or rent — and an increase in seasonal or vacation homes[*].
That doesn’t seem like a coincidence.
Since short term rentals are now so valuable, homeowners who may have previously wanted to sell are choosing to generate income from their property instead.
With all these homes taken off the market, it will be much more difficult for you to find a home within your budget as you’ll be competing with lots of other potential buyers.
And when there’s low supply and high demand, prices go up.
In one review, experts learned full-time Airbnb listings earned 2x–3x the median long-term rent in Manhattan’s Lower East Side, on average[*].
And in Los Angeles, researchers noticed a connection between the number of short-term rentals and higher rent prices. In areas with a concentration of Airbnb listings, rent increased to a third more than the city average[*].
But this isn’t just happening in expensive metro areas like New York and LA; the top 20 fastest rent price increases occurred in small cities across the US[*].
Being rent burdened, or spending more than 30% of your pretax income on housing costs, prevents many from saving up for their dream home.
As a report from The Pew Charitable Trusts shows[*]:
- 38% of US households were rent burdened in 2015.
- 17% of Americans are severely rent burdened and spend 50% or more of their monthly income on rent, an increase of 42% since 2001.
- Fewer rent burdened people make the transition from renting to owning.
- Households that were rent burdened for at least one year were less likely to buy a home than those that never experienced a rent burden.
So even if you have plans to rent temporarily while you look for your forever home, you’re still not in the clear because high rent also means higher home prices.
Home Prices Become Inflated
It becomes a seller’s paradise when there are fewer homes on the market and higher rents in the area.
Looking at rent and home prices in the 100 largest US metro areas between 2012 and 2016, researchers saw just a 10% increase in Airbnb listings lead to a 0.64% increase in house prices[*].
While that may seem small, home prices in that study rose annually by 4.8%, which means that small Airbnb increase counted for a decent chunk.
As the short term rental market booms, Americans are finding themselves priced out of once-affordable neighborhoods as they rapidly gentrify and become more expensive for first-time homebuyers and working families.
So What Can You Do?
If your ideal neighborhood happens to be near a thriving downtown, large university, national sports complex, state park, airport, or any other tourist destination, potential homebuyers will need to stay ahead of the competition.
With these areas primed for short-term rentals and Airbnb listings, you’ll want to:
- Work closely with a realtor to learn about potential listings.
- Set notifications for new houses that hit the market so you’re the first to check them out.
- Know exactly how much you qualify for and compare home loans early in your house-hunting so you’re ready to put in an offer when the right home becomes available.
Finding the best mortgage company will help you lock in the lowest rates even in the hottest markets.
But what if home prices are still crazy out of your budget and you can’t afford to relocate?
Ever hear the old saying, “If you can’t beat them, join them”?
As more homebuilders and flippers renovate with aging parents and short-term rental income in mind, you may find a home with a separate living space you can rent out to help pay down your mortgage.
Check out the market to see what tourists typically pay for a night’s stay in your area on Airbnb or HomeAway to help you gauge how much you may be able to earn as a host.
A house you can both live in and earn a potential income with during seasonal shifts or major sporting events, for instance, may help you secure a higher home loan and make it easier for you to find the house you’re looking for.
While there are more downsides to Airbnbs and short-term rentals taking over the neighborhood, you may be able to cash in before local governments start cracking down with stricter regulations until then.