As the housing affordability crisis deepens, Airbnb and Vrbo face backlash
CNN
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It's been more than six years since Irvine, California, banned short-term rentals — and the city's mayor hasn't looked back.
"It's been great," said Farrah Khan, mayor of Irvine, which is a city of about 300,000 in California's Orange County. "In speaking to our residents, I think they appreciated that ban."
Irvine is not alone. Over the past few years, Airbnb and Vrbo, two of the most well-known short-term home rental platforms, have faced increasing restrictions and even outright bans from some local governments who say the platforms have worsened housing affordability.
Yet economists are divided over how much impact Airbnb and other short-term rentals (generally defined as a rental unit offered for 30 days or less) truly have on America's once-in-a-generation housing affordability crisis. It's a complex problem, and one characterized by high prices for both rentals and sales, elevated mortgage rates and a historic undersupply of homes.
Some critics say short-term rentals, which have exploded in popularity over the past decade as an alternative to hotels, should bear part of the blame for rent increases.
"There are too many homes taken off the market and used as vacation rentals," one reader commented on a recent CNN story about housing affordability. "We need homes for families, not vacations!"
But the reality is far more layered. Some cities, like Irvine, have placed restrictions on short-term rentals and reported positive outcomes; but in other cities, like Telluride, a town in Colorado's Rocky Mountains, restrictions have backfired.
Whether Airbnb and other short-term rentals hurt or help an area's economy depends on a confluence of factors, including a local area's housing market dynamics, geographic location and relative appeal to tourists, said Michael Seiler, a professor of finance and real estate at the College of William & Mary in Virginia.
"Real estate is local, and therefore, we should be having more localized conversations. Airbnb affects certain markets more than others," he said. "Everything that someone says is bad about Airbnb, I can tell you there's a corresponding group who feels it's good."
Measuring Airbnb's impact
The US short-term rental market reached $64 billion in 2023, up from $39 billion in 2019, according to AirDNA, a data and analytics company focused on the short-term rental industry.
The firm estimated there are over 2.4 million vacation rental listings and more than 785,000 hosts. Experts estimate that the US needs to build at least 2 million more homes to help revive the housing market, but many short-term rental units are people's primary residences or vacation homes.
"Every housing unit that's on Airbnb isn't necessarily going back on the long-term rental market," Theo Yedinsky, Airbnb's vice president of Public Policy, told CNN.
Research on the effect short-term rentals have on long-term rents in the US on a national scale is difficult to come by. But a 2019 paper in the Harvard Business Review found that a 1% increase in Airbnb listings is associated with only a minimal increase in rental rates at just 0.018%.
Stijn Van Nieuwerburgh, a finance professor at Columbia University, said simply banning Airbnb and other short-term rentals may not significantly lower rents.
"I certainly don't think it's a major driver of the housing affordability crisis," Nieuwerburgh said. "At some level, I'm not surprised the effects are hard to see."
That bears out in New York City, where new regulations went into effect in September 2023, barring owners and tenants from renting their entire apartment or home to visitors for fewer than 30 days. Airbnb hit back at the rules, calling them a "de facto ban" and releasing a report last month that said the regulations "failed to deliver on their promise to combat the housing crisis" as rents remain near record-high levels.
"The reality is that there just simply aren't enough short-term rentals out there to really make a difference," Yedinsky said. "Using short-term rentals as a scapegoat or a way to solve the housing affordability problem isn't going to actually solve the problem." Vrbo declined to comment for this story.
Yet a recent study co-authored by Sieler found that Irvine's short-term rental ban reduced contract rental prices in the long-term rental market by 3% between 2018 and 2021, the most recent information in their dataset. It also found that the number of long-term rental units, defined as those leased for longer than 30 days, increased in that same period.
In Irvine, although Mayor Khan said the ban had been well received, Irvine's housing affordability issues aren't yet solved. While the city's median rent has fallen year over year, it is still 134% higher than the national median, according to Zillow.
"The ban is not the end of it. We definitely need to do more," Khan said. "We're trying to work with our developers to produce more inventory."
‘We're a tourism economy'
In at least one city, short-term rental restrictions backfired, and officials were forced to reverse course.
Dan Enright, a Telluride city council member, told CNN the cap was initially instated to improve housing affordability, but instead it resulted in a drop in tourism.
"We're a tourism economy," Enright said. "We are reliant on tourism dollars to keep the town functioning. Almost everyone in this town, their work, is connected to that industry in one way or another."
Telluride allowed its cap on short-term rentals to expire in November of last year. Ultimately, the city reached a compromise, Enright said. Each Airbnb or other short-term rental host must pay a fee to the city to operate as a short-term rental business. Enright said that the money those fees generate is being used to invest in affordable housing.
"It seems to be working okay," he said. "Only time will tell, but I feel the early signs are positive."
