The Sharing Economy: Understanding the Distortionary Effects of Airbnb on Residential Rents

The recent emergence of the peer-to-peer business model has led to a phenomenon coined as the sharing economy. Companies like Uber and Airbnb are two of the top four most valuable private companies in the world and epitomize... [ view full abstract ]

The recent emergence of the peer-to-peer business model has led to a phenomenon coined as the sharing economy. Companies like Uber and Airbnb are two of the top four most valuable private companies in the world and epitomize the rapid expansion of the sharing economy. Such business models are anticipated to have severe implications on traditionally established industries. The effects of Airbnb on housing markets have been a popular topic of political debate but remain understudied in the academic realm. This study posits that the increasing presence of Airbnb places upward pressure on residential rent prices through a supply shock in the aggregate supply of housing. In particular, these effects are more intensely felt in major metropolitan centers with strong tourist demand. Using Airbnb and median rental price data spanning from 2010-2017 for New York City and Los Angeles on a zip code level, this study employs a difference-in-difference estimator quantifying the effect of an increasing supply of Airbnb on local rent prices. The results show that the intensification of the magnitude of Airbnb listings in a given zip code is associated with an increase in median residential rent prices for specific property types.