Causation is Clear for Short-Term Rentals, Less Clear for Broadband

“Who benefits and who loses?” is a reasonable question for analyses of public policy and economic studies. As with all questions related to public policy and economics, though, correlation is easier to demonstrate than causation, simply because the number of variables is so great. 

In the connectivity business, the issue is most common in analyses of broadband impact on economic growth, household income or job growth. We assume broadband “causes” economic growth, but correlation is not causation.  

We assume quality broadband is associated with job growth, but cannot prove causation. We assume better mobile broadband also “causes” economic growth, so we might also believe 5G will similarly cause growth. We might be wrong. 

It also is plausible that areas with strong economic growth, above-average household income and wages, higher educational levels and wealth create demand for better broadband. In other words, demand for broadband is a result of strong economic growth, rather than its cause. 

Other cases arguably have stronger causation relationships. Consider the argument that use of short-term rental apps causes a reduced supply of housing and higher housing costs. It seems plausible for the simple reason that housing vacancies in any market tend to be fixed, and rental property managers can make choices about how to market their rentals: short term or long term. 

The issue is how much difference a robust short-term rental has. It also seems plausible that the biggest impact should be in “touristy” areas where there is high demand for short-term housing. Areas with modest tourist demand should also have modest demand for short-term housing. 

It also seems plausible that the greatest effect is in “touristy” areas that also are affluent. 

Airbnb leads to a reduced supply of housing as properties shift from serving local residents to serving Airbnb travelers, which hurts local residents by raising housing costs, according to Josh Bivens, Economic Policy Institute director of research. 

That assessment seems mirrored by some other studies. Short-term rentals using apps such as Airbnb contribute to housing shortages and rent increases, according to Felix Mindl and Dr. Oliver Arentz, researchers at University of Cologne in Germany. 

They attributed 14.2 percent of overall rent increases to short-term rentals or 320 euros ($385) per year for new tenants.

“While a large proportion of hosts can be considered home sharers, we find an increasing proportion of providers who have developed a professional business model from short-term rentals,” Mindl said in a statement. “Professional short-term rentals are available to tourists throughout the year, and thus compete directly with long-term tenants, for whom the rooms are then no longer available.”

Researchers also have found that in local neighborhoods with a lower share of owner-occupancy, Airbnb had a higher impact on rising housing prices and rents. In areas with a higher share of owner-occupancy, Airbnb had somewhat less of an impact on property prices and rents.

The study also found that the total supply of housing was not affected by the entry of an Airbnb property in a given neighborhood, and that Airbnb listings tend to increase the supply of short-term rental units, while contributing to a decrease of the supply of long-term rental units.

Aside from the presumed effect on housing, short-term rental apps also shift revenue between lodging suppliers. As with sports stadiums, which arguably mostly shift spending from one form of entertainment to another, short-term rental apps shift revenue from hotels to individual property owners.

“The most obvious benefit stemming from the creation and expansion of Airbnb accrues to property owners who have units to rent,” EPI noted.

There are other issues, though. The housing market is affected by forces other than Airbnb, such as gentrification and economic trends. A one-percent increase in Airbnb listings is causally associated with a 0.018 percent increase in rental rates and a 0.026% increase in house prices, other researchers argue. 

“In aggregate, the growth in home-sharing through Airbnb contributes to about one fifth of the average annual increase in U.S. rents and about one-seventh of the average annual increase in U.S. housing prices,” say researchers Kyle Barron, Edward Kung and Davide Proserpio. 

In contrast, annual zip code demographic changes and general city trends contribute about three fourths of the total rent growth and about three fourths of the total housing price growth.

“These results translate to an annual increase of $9 in monthly rent and $1,800 in house prices for the median zipcode in our data,” they say.

The biggest impact comes if a long-term rental unit is converted to a short-term rental unit on a full-time basis, as that subtracts one living unit from the long-term rental stock. On the other hand, an owner-occupied home that rents a room in that house does not do so.