California’s Housing Affordability Crisis Has a New Culprit

Carson Bruno
Assistant Dean for Admission and Program Relations at the Pepperdine School of Public Policy

California’s housing affordability crisis has a new culprit: short-term rental platforms, like Airbnb. Whether it is the 2015 anti-Airbnb San Francisco ballot measure battle or city council votes banning such platforms like the one that occurred last month in Danville, California, there is a belief that if only Airbnb and other similar platforms didn’t exist, the worst of California’s rental affordability would be over.

It is easy to understand this knee-jerk reaction. The heart of California’s affordability crisis is a lack of supply. And the belief goes that if a house or apartment or room is on Airbnb it cannot be rented long-term. However, if you were to take a step back and assess the facts, it becomes apparent that Airbnb and other short-term rental platforms have, at best, a very minimal impact on a community’s housing market. For one, not all Airbnb listings are 100% removed from the long-term rental market. Many – if not most – of the listings are in fact either owner-occupied or long-term renter-occupied housing units where the owner or long-term renter is listing it on Airbnb for a short duration, i.e. the homeowner is out of town on vacation or the renter is on spring break from college.

To lay California’s crisis at the feet of Airbnb and other short-term rental platforms is problematic: 1) California’s crisis started well before Airbnb even existed and 2) even if generously estimated, the number of units removed from the potential rental market is too small to make an impact.

There are no signs of Airbnb impacting California’s rental market: While Airbnb was founded in August 2008 – as airbedandbreakfast.com – it didn’t start becoming popular with travelers until the end of 2010. If Airbnb is affecting the state’s rental market, we should be able to see some difference in California’s rental prices pre-2010 and post-2010. But there isn’t any. In 2006 – four years prior to Airbnb hitting the market – California’s median rent was approximately 1.4 times the median rent of the United States. In 2010 – the year that Airbnb became popular – the California-to-U.S. median rent ratio was 1.4 times and in 2014 – four years after Airbnb began dominating the short-term rental market – California’s median rent remained 1.4 times the United States’. All in all, there is no evidence that Airbnb has affected California’s rental market.

This should not be a surprise, as Airbnb represents a small portion of potential rental units: Even though Airbnb and other short-term rental platforms have become very popular with business and leisure travelers, their share of the potential rental market is ridiculously small. Exploring a cross-section of California cities illuminates this. I searched Airbnb listings in 10 cities, filtering for just “entire home/apartment” and “private room” listings for the specific city (note: Airbnb will sometimes search adjacent jurisdictions). I averaged the number of listings for a 3 night weekday stay (March 21 to March 24) and a 2 night weekend stay (March 25 to March 27). Then I determined the share of the average listings of the total housing units (as of January 2015) – the estimated potential rental market – for those respective cities.

And the result is quite stunning. The highest percentage was San Francisco clocking in at just 0.42%, followed by Palo Alto (0.37%), Mountain View (0.35%), Santa Monica (0.32%), San Diego (0.25%), and San Jose (0.21%). Sacramento (0.12%), Huntington Beach (0.12%), and Long Beach (0.10%) all barely surpassed one-tenth of a percent. And Fresno – California’s 5th largest city – saw the lowest share at just 0.04%. Needless to say, it is clear that if Airbnb has any impact on California’s rental market, it is miniscule at best.

Finally, a word on banning short-term rentals; where there is a perceived negative externality, public policy practitioners have three policy tools at their disposal: taxation, regulation, and quantity controls (i.e. bans). In general, taxation and regulation are most efficient if the result of being incorrect with the level of taxation or strictness of regulation isn’t cataclysmic to the community. Bans are reserved for such negative externalities – like nuclear radiation – that pose a clear and imminent danger to the well-being of the entire community. Otherwise, bans are an inefficient tool that usually leads to unintended consequences that require subsequent policy fixes. Short-term rentals may impose negative externalities on communities – such as noise, traffic congestion, and parking issues – but none of these concerns pose a clear and present danger to the entire community. As such, bans are absolutely not the appropriate policy tool for localities on such issues.

California does have a serious housing affordability crisis that must be addressed appropriately, but that requires attacking the root cause of the problem, not creating strawmen that distracts from it.

Cross-posted at Real Clear Markets.

Comment on this article


Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.