NYC Renters Paid Extra $616M Thanks to Airbnb, Study Says
bloomberg.com
bloomberg.com
So the argument is more subtle, that the "change" in AirBnB share is correlated with changes in rents. So level effects such as being a nice neighborhood are accounted for.
Having said that, a large change in AirBnB share is probably still related to unobservables related to factors that would increase rent. E.g changes in hipness of a neighborhood unaccounted for by changes in demographics. Therefore the $616M figure is biased upwards, though I bet in reality still a large number.
A brief description of how they attempted to control for other factors:
> We also control for demographic and economic changes in neighborhood level by including average household income (in log form), population (in log form), and the shares of college-educated and employed residents in the neighborhood. We also included year and neighborhood-level fixed effects (dummy) variables to control for otherwise uncontrolled-for trends and neighborhood characteristics.
Did Airbnb publish what these wrong facts and substantive issues are?
They are in a position where what they need hosts to believe is directly at odds with what they want policymakers (including people voting directly on policy or for politicians) to believe.
The end goal is not always maximum profit extraction. NYC is served best by balancing the needs of both long term and short term renters, while ensuring investors reasonable compensation/rates of return on capital invested for services provided.
TL;DR: Extracting rents from things you own by providing economic value to a customer is not "rent-seeking."
In a democracy it makes sense that a city would prioritize the needs of the citizens who live and vote there over short-termers and people looking to make a quick buck.
It means you get to enjoy lower rent, but at the expense of the unit's full economic potential being utilized.
In economic terms, if a unit can fetch a higher rent being rented short term, then it provides more economic value as a short term rental, and laws preventing that reduce economic utility.
You can argue the pros and cons or rent-seeking or of Airbnb, but "rent-seeking" clearly covers Airbnb.
"In economics and in public-choice theory, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth."
An example of rent-seeking would be lobbying against the construction of new housing to inflate the value of one's own home. A non-example of rent-seeking would be renting your house out to someone else. More from Wikipedia/economics 101:
"Rent-seeking is distinguished in theory from profit-seeking, in which entities seek to extract value by engaging in mutually beneficial transactions . . ." such as a transaction between a property owner and someone seeking to rent that property for temporary use.
"In economics and in public-choice theory, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth." - Wikipedia
I would say that applies to making a profit off of property one owns by charging people to use it.
Just a quote from an article that sort of illustrates the attitude I have towards it:
> One disturbing implication of Thomas Piketty’s new book, Capital, is that the American economy is slipping into a form of “rentier” capitalism, in which passive income from wealth, increasingly in the form of inherited fortunes, is supplanting dynamism, hard work and innovation. - https://qz.com/196575/to-get-rich-forget-entrepreneurship-an...
Apparently I'm not the only person with this attitude, although this poster was down-voted: https://news.ycombinator.com/item?id=13151809
There's also some links there. I do use passive investing, but I do consider it a kind of rent and I think society might be better off with less of it.
The reality of the situation is that hotels make terrible neighbors, particularly terrible hallway neighbors. Most people do not want to live next to temporary accommodations, and if they were going to they would rather have a separate building designated for the purpose. It is completely valid for a city to be in favor of its citizens, and not for a few short-term visitors and someone looking to make a quick buck on their apartment.
If you put a fancy restaurant that sells gourmet popcorn, you raise the price of popcorn in general, and you can also increase the amount of people that eat popcorn.
It will increase mobility of occupants, but it probably won't increase occupants (which is equivalent to decreasing homelessness) much, though the decrease in short-term rental pricing could reduce transitional homelessness (but the increase in long-term residential prices could also increase the more durable kind of homelessness)
I will not increase permanent local occupants, it will increase number of occupants in general. Thats because airbnb's are out of towners using under-utilized housing stock.
Airbnb's increase homelessness, but its not about market efficiency, its about use of land. Any office building will also increase homelessness.
You could sell any realistic amount of gourmet popcorn without affecting the supply of corn nor the price of other popcorn products, while selling housing affects the supply of land and the desirability of that housing stock.
I ponder I ponder
I bet it depends on the city
Certainly, for short-term rentals.
Not for residential, long-term habitation. AirBnB drives long-term and short-term rental prices closer together, which is good for travellers and bad for non-travellers.
AirBnB arguably increases supply of people in beds through more efficient utilization.
That's not supply (which is a measure of what is on offer to be sold), it's market clearing quantity. And, yes, AirBnB increases the supply and market clearing quantity (and decreases average price) of short-term occupancy by transferring units already purchased or rented in the long-term market to be rented the short-term market (which drives up demand and market clearing price in the long-term market.)
Airbnb should have posted estimates of how much this over-counting could distort the data, because it sounds like a lot. $616M is one of those numbers that sounds high but in context probably isn't, so it wouldn't surprise me if those two distortions wiped out the number, or at least cut it to below headline worthy.
Whether it's $100MM or $616M - it's a sign that there are external costs that that city and society must shoulder because of the higher prices people can charge with shorter-term rentals, primarily to non-locals who may or may not be staying or moving to the city.
They do not address the possibility that the atypical minority (which presumably is apartments used exclusively for AirBNB and not otherwise occupied by a tenant) might cause the $626M rent increase illustrated by the study. This paragraph seems to be a diversionary tactic, "No, look only at these facts".
IIRC, NYC passed a law against this and Airbnb has bee cracking down on those types of listings. I think SF has a similar law as well.
I also wonder if NYC now charges any occupancy taxes in Airbnb like SF does. If so, the revenue collected should also be weighed against any increases in rent. I also wish the article had actual calculated how much of a per month rent increase the $600m figure resulted in. In a city as big as NYC, I don't know if 600m is a big deal or not.
To be more accurate, the report should say: NYC Renters paid extra thanks to ANYTHING that takes up space that is not a rental unit, especially hotels.
At this point, prices are starting to stabilize with hotels in some of the bigger cities like NYC and SF, but still. I prefer the idea of freeing up under-utilized space for dynamic purposes as opposed to a fixed number of hotel location.
11+ super-talls (300m+) and 40+ talls (150m+) are under construction at the moment, and more than that has been completed in just the last few years. Massive amounts of rental units and co-ops are coming online in UWS (Riverside Center), Hudson Yards in Mid-Town etc [1]. And prices have come noticeably down as a result, you can also get more concessions than ever. I just recently received 3.5 months free on a 14 month contract in a brand new building.
[1] https://ny.curbed.com/maps/nyc-new-development-hudson-yards-...
https://ny.curbed.com/2018/1/24/16925172/nyc-rent-2017-decre...
But even at a record breaking construction pace, we're building <20K units annually (that's 50 400-unit buildings) while population is increasing by >100K annually. And that doesn't even include the people who would move here if it were less unaffordable.
If you look at the rezoned mixed use districts like the garment & flower district and the lower east side, they've been flooded with hotel development (in some cases clusters of hotels on the same block) because it's more profitable.
In addition to actual height restrictions, neighborhood associations also fight tooth and nail to prevent new development and to limit the height of new development when they can't.
[1] https://www1.nyc.gov/site/planning/zoning/districts-tools/re...
There are a few historic districts (read: well-off NIMBYs) such as Park Slope where height is strictly capped.
In Manhattan the caps are generally designed to ensure that at least some light and air still reaches the street (before they were imposed, buildings were build to their full height to the edges of lots, and contributed to the city being very dark.
Much of Manhattan is actually somewhat low-rise (3-5 stories). In those areas, developers can buy "air rights" from neighboring low-rise buildings if they want to build taller on a nearby lot.
I am not suggesting a ban on roommates of course, but it does seem like there are a large number of variables that affect rent prices. We could argue that AirBnB constricts long term housing supply while roommates constrict long term housing supply for single or family renters as well.
If a one bedroom goes for $4000 and there are two roommates, that means the price the market would support for a single person is $2000. So without roommates, the market would have to adjust to the price people were able to pay: $2000. But then again, that could also restrict supply since there are more people competing for a finite supply.
My point is that while it’s convenient to blame AirBnB — the truth is far more complex. We also have to consider the effects of the extra income earned by owners — that income goes to buying things or investing, which, it could be argued, benefits the economy. There is also the question of how many visitors to New York actually can now afford to visit New York because of wider housing availability — if we drive up lodging rates, that’s less money coming into the city. If I have to spend $250 for a hotel vs. $150 for an AirBnB, that means I can buy more pizza, thus putting more money into pizza shops and supporting those workers. Additionally, if a hotel is $250, maybe I don’t visit at all, which would result in 0 economic benefit to the city.
The economics of this aren’t as sound-byte friendly as many might think.
If we want to be fair, we should also address how much additional rent New Yorkers pay due to rent-control and the housing illiquidity that promotes.
If the hotel industry is so concerned, then perhaps they ought to reevaluate their efficiency and pricing and reconsider their years and years of charging $10 for a bottle of water. Perhaps the city could also reconsider the occupancy taxes, sales taxes and all the other fees cities love to stick tourists with.
Tourists already pay sales taxes when they buy a meal. They buy products and experiences which generate significant economic activity, jobs and all the tax revenue that creates. But for some reason, cities see tourists as a piggy bank rather than the engine of economic activity they are.
The problem with AirBnB is that it benefits landlords and tourists at the expense of renters by driving the rent per unit up, the short term rent per person down and the long-term rent per unit up.
I mean, I'm sure there are a few, but if I'm a landlord, why would I give up having a stable tenant paying market rate rent for 12 months at a time for essentially managing a hotel room?
Sure, the 'rent per day' is going to be a lot better with the hotel room model, but it seems like an entirely different business to manage say 30-100 property rentals per year rather than 1.
People have always subletted their apartments when they are out of town -- I'm guessing a lot of the Airbnb rentals are just those traditional sublets showing up in an easy to quantify form.
I'm open minded to the possibility I'm wrong -- I don't have the data on the history of the properties showing up on Airbnb -- but it seems like the profile for the landlord/apartment that ends up on Airbnb is a bit different from the ones that show up on StreetEasy with 12 month leases.
However, in my neighborhood long term 12 month lease rentals most definitely seem to be being turned into Airbnb rentals. I live in Tahoe, so this isn't necessarily going to generalize to non-tourist areas. In the last five years there has been a steady conversion -- I personally know of four in my immediate neighborhood. (As in, they were long term rentals converted to Airbnb. I know the people that were kicked out of the long term rentals) When we'd recruit new people to Tahoe there used to be numerous options for local housing, things have gotten so bad that the company I work for opted to buy a condo to provide temporary housing for new recruits while they look for more permanent accommodations.
An additional (also anecdotal) data point: our realtor told us that investors looking to convert homes into Airbnb are very active right now.
On the plus side (potentially, not everybody agrees) Airbnb also seems to have converted a number of second homes that were previously unoccupied most of the year.
https://www.sfgate.com/travel/article/Study-Tahoe-s-Airbnb-l...
Here there seems to be a fair amount of teeth gnashing about airbnb -- there are clearly more people in the neighborhoods and rentals for locals are now hard to find. But the homeowners think it's raising property values and are kind of happy that if they ever leave Tahoe there is now a pretty straitforward way to hold on to their property. The end result is not much happening.
The SLT ordinance is addressing the what I think is the major fear for many -- that a nearby house will become an unbearable party house. I think pretty much all of the Tahoe jurisdictions have moved quickly to ensure that doesn't happen. In our neighborhood, I've been told the sheriff responds in minutes to a noise complaint, and that the visit results in fairly draconian fines to the property owner.
1) More money. Yes, stability is nice and all, and managing the reservations is annoying and/or expensive, but if the difference is big, people will choose it.
2) Renter-friendly laws. Here, if that stable leaser stops paying, it's a pain in the ass to get them out - you have to sue them in small claims court, and then have to go to another court to get an eviction order, which finally lets you kick them out. An Airbnb guest is only there for a few days, and after that they become a trespasser.
Rent stabilization rules may also prevent you from raising them as much as you could (though this is more a problem for longer than 12 month leases).
3) Fun. Some people I know really enjoy interacting with the guests and showing them around town :)
As of today, there is a lot less paperwork involved, and also the tenant has fewer rights. If you rent for 12 months, and they stop paying you, it could take you many months to get rid of that person, and you'd never get the money back. You also have to find renters and negotiate leases yourself.
With AirBnB, they take care of the finding and negotiating part, and if you manage to get a popular spot, you'll make far more money with the short term rentals, even accounting for AirBnBs cut and any service providers you might need to maintain the place.
I still see more risk/work in the AirBnb model, but I can see where some landlords (esp. local ones w small numbers of apartments) could find it worth it.
This not true for NYC. There's always demand for rooms in NYC with quick turnover. There's always real estate speculators with empty rooms.
In the end, you really answered your own question:
the 'rent per day' is going to be a lot better with the hotel room model
You're right, it is a different business to manage, and maybe you're after less risk/more passive income as a landlord, but you can't make that assumption for everyone. Plus, AirBNB takes care of most of the paperwork.
Or from rent control stifling the development of new supply?
Feel free to tell us about how the rent stabilized units, which do compromise 1/3 of the inventory but in 3/4 of cases are within spitting distance (10%, and see 4% rent increases every 2 years) of market rate are keeping down supply though. Tell us about about how luxury condos in places like East New York, Edenwald, Brownsville, Morrisania & Crotona, and Hunts Point are going to increase affordable housing in NYC. I am very interested in learning about this.
Occupancy maximums of 90% and one or multiple buildings deliberately at 0% occupancy (usually the primary residence of the landlords' extended family members for undeclared income) is the norm.
When in the 1980s? Was Ed Koch the mayor?
Market rate on a modest(500 sq foot plus) apartment is worth close to $3K a month or 36K a year. Please provide a citation this tax break which is worth more than 36K a year in 2018 for leaving a unit unoccupied?
Also, this data does not agree with you. Lowest vacancy rate of any borough was 2.3% in Queens in 2000 and between 3.1 and 4.2 in every other borough.
The economy is doing even better in NYC right now and the vacancy rate is over 11% right now. https://www.6sqft.com/nearly-250000-nyc-rental-apartments-si... Hrmmm....
Manhattan 2.57 and Queens 2.11 [1]
That's from page 2. It also shows a -25% and -35% change for vacancy rates from 3 years prior for those two boroughs.
And you can't seem to produce any citation for your assertion about a piece of the tax code that allows landlords to make more money from empty apartments than renting them at market rate.
[1] https://www1.nyc.gov/assets/rentguidelinesboard/pdf/hsr00.pd...
The Rent Guidelines Board has been an advocate for landlords for as long as I've lived here. Even now: https://ny.curbed.com/2018/4/13/17234694/nyc-rent-stabilizat...
Rent controlled apartments were 1% of the total housing stock in NYC as of 4 years ago. That number has only decreased since then. So not at all.
> Any kind of analysis such as this one relies heavily on _ceteris_ _paribus_ --assume everything else is the same
That's not the assumption made by this report.
Of course, predicting alternate futures when humans are in play is always a non-trivial task, but they did put some effort toward controlling for the obvious stuff:
"A summary of the regression results is presented in Table 1. We find that as the share of units listed on Airbnb goes up by one percentage point, rental rates in the neighborhood go up by 1.58 percent, after controlling for neighborhood level demographic and economic changes. The result is statistically significant at the 1-percent level. Coefficients of other control variables including household income, population and share of college graduates are positive and statistically significant at 1-percent level. Employment rate is not statistically different from zero."
Just fine renter and airbnb 100x what they are liable to earn in the former case and shockingly such a case will trivially go away.
Those caught with their pants down because they invested a bunch of money in illegal hotels can sell and roll that money into another illegal enterprise of their choosing that is less trivial to regulate out of existence.
In any case, assuming people travel the same amount, it is zero-sum (Airbnb saved NYC visitors 616 million dollars and also transferred some percentage of tourism income from hotels to a broader collection of residents). However, I think Airbnb enables people to travel more (I certainly travel more with the incentives of cheap, reliable Airbnb lodging), so we need more data to determine whether the lower prices actually incentivize a sufficiently high increase in tourism to be a net positive for tourist-mecca economies.
Even if it comes out to a net negative to tourism-based economies and it increases costs for local residents, I'm curious what the Airbnb witch-hunt crowd is proposing. Limit tourism / make it harder and more expensive to travel? Reinstate the hotel cartels?
As it stands property owners and tourists are coming out on top. Property owners can now easily make more money renting short term than long term, this raises property prices (because, hey, i can buy that house and make a bunch of money renting it on AirBnB) while also reducing the rental housing stock (because houses that would have been rented to long term renters are now on AirBnB). So now, as a renter, I pay more for rent because I'm competing for fewer houses AND it's going to cost me more money to get into my first house. So I save less money per month because more goes to rent and I have to save up more money to put a down payment down on a house.
Now, sure, how big this effect is is up for debate but I think it's naive to assume it doesn't exist. I expect cities with housing crises that also don't rely too heavily on tourist revenue to start regulating short term rentals aggressively to combat this effect (this has already happened in many places).
Sure, if you're a tourist town and most properties are second/vacation homes then this is less of an issue but in growing cities where renters are already barely getting by this is going to continue coming to a head. Alas, homeowners are more likely to get out and vote and have more directly measurable skin in the game vs a renter who might be more transient and less aware of the effects that are conspiring to squeeze them out.
In fact, I'd go so far as to say that Airbnb increases equality by democratizing travel for the lower middle class in a way that was inaccessible before, at the biggest expense to hotel owners. I'd also like to see numbers on real estate usage in NY (defined as the percentage of each unit occupied per unit time) before and after Airbnb -- I would wager that living quarters are being used more efficiently as a result. And of course how much people travel now vs. before (which I think could be considered a quality-of-life metric).
I live in SF so while I wholeheartedly agree that more building should help solve the problem the reality (here at least) is that existing homeowners have strong incentives to oppose rezoning and new development as it might hurt their home's values. Many people have overextended to be able to buy here that anything that could cause dips in prices is vehemently opposed. I'll admit SF has a broader set of issues at play here but AirBnB just further strains an already strained situation.
If we only look at one part of the picture we may miss that an overall trend is different. Is it really beneficial to talk about how many died because they were wearing a seat belt without also considering how many who lived for the same reason?
Sure, allowing residential property to be used for short-term rental drives regular residential rents up and short-term rents down (forcing, over time, more residential proerties to be used for short-term rental to the extent possible), narrowing the gap between short-term and long-term rentals. It makes things less expensive for travellers and more expensive for non-travellers.
Even so, not every renter is a separate rental unit; dividing the figure by the number of rental units would be more useful since it would indicate the impact on the price of rent.
https://www.citylab.com/equity/2015/06/new-york-is-a-city-of...
https://www1.nyc.gov/site/planning/data-maps/nyc-population/...
> Approximately two-thirds of dwelling units in New York are renter-occupied, over twice the national average.
Ok, not insignificant, but the order of magnitude is roughly correct. I'll update the computed figure.
The denominator has to be the number of rental dwellings; then we have a better idea what the impact is on rental prices, on average. Still, it must be dependent on area, and the size of the place and rent amount. Not everyone pays some sort of "flat AirBNB tax" across the board.
The last 2 years, the prices have gone absolutely bonkers and landlords have ridiculous demands based on inflated airbnb prices they can charge to out of towners.
I really like Airbnb, but these effects are real and they suck.
If you divide by number of people in Manhattan (8.538 million) you get roughly $72.14 per person, but this isn't really accurate since not everyone in Manhattan rents- maybe you're a kid, or you own a co-op, or you're homeless.
You'd really need to divide the value by the number of rented units in NYC to figure out the average raise in rents per apartment, and even then that won't draw a perfect picture because many people live with roommates who contribute to rent.
I started picking out values from here: https://www1.nyc.gov/assets/rentguidelinesboard/pdf/17HSR.pd...
I don't know the nature of rent control that well in NYC so I'm just going to take a few approaches:
If we assume only unregulated apartments picked up the burden, the cost per unit is 725.80.
If we toss in the "other regulated" apartments, 546.42.
If we toss in all rent-stabilized (pre and post 46), it's 368.96.
All rented units together? $363.
So a million dollar condo would be 50K a year, or about $4200/mo, which is exactly in line with current nyc rents.
On the other hand, all the properties I manage do 0.5% per year and have all been profitable, not even including the appreciation on the property.
I'd go so far as to say that if single family residential is your strategy it's better to take the multi-million dollar investment in a single home in the Bay and make one in 5-7 (or more) homes elsewhere. The appreciation is drastically lower but the cap rates are amazing (much higher cash flow) and the risk is spread out. Of course, with that kind of investment it's better to go multi-family or commercial anyway.
Alright.
Then my point is even stronger: this doesn't matter!
I see $68/mo as a decent chunk of change (that's enough to pay for a new computer every two years or so) so that's probably where the confusion stems from.
It's a tangible amount, but if you're paid enough to live in that area, it's likely not a huge burden. And again, this is an change that is likely disproportionately raising rents in desirable and trendy neighborhoods that are more expensive than that already and likely seeing natural rent growth of more than $68.
Those for whom $68 really is 5% of net monthly income don't live in Airbnb-infested neighborhoods, and thus are even less affected by the impact Airbnb has on rental prices.
I don't mean to sound insensitive to the plight of those for whom NYC is too expensive. I think such people need to be helped, but spending even an iota of thought on Airbnb is a waste of time: its impact is concentrated in neighborhoods that are already too far out of the reach of rent-challenged New Yorkers. And this isn't the case because of Airbnb.
This is bad math based on already uncertain math.
In a pathological case where we have a rich neighborhood consisting of 3 owners and 7 renters transformed into 3 owners 3 renters and 4 airbnbs not only would the price increase presumably by much more than 68 for the remaining renters the other renters would seek rent elsewhere increasing demand and therefore price. Given more buyers than sellers they would push someone out presumably to a still less desirable neighborhood where they would displace someone else.
Your neighborhood isn't a market unto itself and you can't pretend changes their don't have pervasive effects on the rest of the market and decreasing supply MUST increase price throughout the market.
I would also imagine that most of the people for whom $68/month is a lot of money also don't generally live in neighborhoods that are ones with lots of Airbnb rentals, and are probably some of the least effected by this.
Too many articles come out with a "shocking number" that doesn't mean anything except to those who don't know the scale.
This is mostly a click-bait article and study.
[1] - https://www.nakedapartments.com/guides/nyc/renting-in-new-yo...
The average rent for an NYC apartment per month is $3375 (https://www.rentjungle.com/average-rent-in-new-york-rent-tre...) totaling: $40,500 per year.
So that $287 increase is less than 0.7% per year.
Correlation does not imply causation[1]. Looks to me this is one of the studies that I would label as "shallow" or "problematic".
https://en.wikipedia.org/wiki/Correlation_does_not_imply_cau...
Repeating this cliche is not a counterargument to a regression analysis. If you have specific covariants that you think better explain their results, present them. Otherwise, "correlation does not imply cause" is little more than a lowbrow dismissal dressed in a labcoat.
I hypothesize an antidote to capitalism could be collaboratively learning how to sustainably contribute to all life's needs together through science, art, and love.
I'm very interested in picking apart this hypothesis. If you (the person reading this) disagree, would you be willing to specify the words you disagree with and/or specific examples explaining why you disagree? Same for if you agree <3