The Battle for Homes: How Does Home Sharing Disrupt Local Residential Markets?

Abstract

As cities debate how to regulate Airbnb and other home-sharing services, we study the impacts of home sharing on local residential real estate markets. By accommodating transient travelers with short-term rental properties, home-sharing platforms have evolved as a major alternative channel that attracts the growing supply of residential properties. However, on the demand side of local residential markets, home-sharing platforms are not a viable option for residents. To demonstrate this dynamic between home sharing and local residential markets, we leverage a unique quasi-experiment on Airbnb—a platform policy that caps the number of properties a host can manage in a city—and find that the policy reduced rents (in the long-term rental markets) and home values (in the for-sale housing markets) by about 3% and did not affect the price-to-rent ratio. Consistent with the conjecture, we find that the policy impacts can be attributed to increased supply in local residential markets due to the policy. Quantitatively, our estimates suggest that, if the density of affected Airbnb properties is 1% higher in a market, the policy may further decrease rents and home values by about 0.03% - 0.06%, which is similar across each policy-affected city. Our empirical findings add to the debate about the impacts of home sharing on local residential markets with a novel data set and a unique identification strategy. Practically speaking, our research is a timely response to the debate on regulating home sharing and has implications for various stakeholders of the residential real estate markets.

Keywords: Home sharing, Residential markets, Housing affordability, Airbnb, Platform economics, Difference-in-differences, Synthetic control